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As filed with the Securities and Exchange Commission on July 16, 1999
Registration No. 333-
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, DC 20549
FORM S-1
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
WORLD MONITOR TRUST II-SERIES F
(Exact Name of Registrant as Specified in its Charter)
Delaware 6799 13-4058320
(State of (Primary Standard Industrial (I.R.S. Employer
Organization) 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 L. 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 __ 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.
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WORLD MONITOR TRUST II-SERIES F
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 Inside Front and Outside
Back Cover Pages of Prospectus Back Cover Pages; Additional
Information
3. Summary Information, Risk Factors
and Ratio of Earnings to Fixed Summary of the Prospectus; Risk
Charges Factors
4. Use of Proceeds The Series Segregated Accounts
5. Determination of Offering Price The Offering
6. Dilution N/A
7. Selling Security Holders N/A
8. Plan of Distribution How to Subscribe; The Offering
9. Description of Securities to
Be Registered Summary of Agreements--Trust Agreement
10. Interests of Named Experts and
Counsel Experts
11. Information with Respect to the Structure of the Trust;
Registrant Financial Statements
12. Disclosure of Commission Position
on Indemnification for Securities Summary of Agreements--Trust
Act Liabilities Agreement--Indemnification
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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 Beacon Management Corporation (USA) $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 the 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 5.71% per annum (Series D), 5.81% per annum (Series
E) and 6.13% 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
INCORPORATED FUTURES MANAGEMENT INC.
Selling Agent and Managing Owner and Sponsor
Clearing Broker
The date of this prospectus is September , 1999
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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 81 TO 85 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
Beacon Management And Its Principals 48
Beacon Management's Trading Strategy 48
Beacon Management's Past Performance For
All of Its Clients 50
TRADING LIMITATIONS AND POLICIES 54
DESCRIPTION OF THE TRUST, TRUSTEE, MANAGING OWNER
AND AFFILIATES 56
DUTIES AND COMMITMENTS OF THE MANAGING OWNER 66
FIDUCIARY RESPONSIBILITIES 68
THE OFFERING 69
WHO MAY SUBSCRIBE 74
HOW TO SUBSCRIBE FOR, EXCHANGE AND REDEEM INTERESTS 78
FEES AND EXPENSES 81
Charges To Be Paid By The Trust 81
Charges To Be Paid By Prudential Securities Or Its
Affiliates 85
Charges To Be Paid By Limited Owners 85
Projected Twelve-Month Break-Even Analysis 85
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SUMMARY OF AGREEMENTS 86
Advisory Agreements 86
Brokerage Agreement 87
Trust Agreement 88
THE FUTURES MARKETS 97
HOW MANAGED FUTURES FIT INTO A PORTFOLIO 101
U.S. FEDERAL INCOME TAX CONSEQUENCES 104
LEGAL MATTERS 107
ADDITIONAL INFORMATION 107
EXPERTS 107
GLOSSARY OF TERMS 108
INDEX TO CERTAIN FINANCIAL INFORMATION 113
FINANCIAL STATEMENTS 114
World Monitor Trust II -- Series D,
Series E and Series F 114
Managing Owner 120
Diversified Futures Trust I 125
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 108 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
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 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
1973. As of March 31, 1999, Bridgewater Associates had
approximately $17 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 March 31, 1999, Graham Capital had approximately $535
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 Beacon Management
Corporation (USA) (referred to as Beacon Management).
Beacon Management has been operating its trading systems
since July 1980. As of April 31, 1999, Beacon Management had
approximately $111 million in investor funds under
management. Beacon Management will direct trading for
100% of Series' F's assets pursuant to its Meka System which
aggressively invests in a broadly diversified portfolio.
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 full months following the
effective date of your purchase, you will be subject to
redemption fees (4% in the first 6-month period, 3% in the
second 6-month period).
- -- Each series will have large fixed
expenses. Assuming a net asset value of $5 million and
interest income equal to 4.50% annually, we estimate that the
series' gains from trading must be 5.71% per annum
(Series D), 5.81% per annum (Series E) and 6.13% 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 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 the guidelines for the
registration of commodity pool programs which are imposed
by the various state regulators and which are referred to as
NASAA 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 it 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.
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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 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. 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 from 4% of redemption price
the effective date of
purchase
after the sixth month and 3% of redemption price
through the 12th full month
from the effective date
of purchase
Redemption fees may be waived if:
- -- Your aggregate interests in all series, when added to you
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: $29
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
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 -- 20% of each
series' new high net trading profits.
Each trading advisor will receive an 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, but will
accrue weekly to calculate each series' weekly net asset
value.
Routine Operating Expenses -- the lesser of the actual
amount of expenses incurred or 1.50% annually of each series'
net asset value.
Routine operating expenses include legal, auditing, cash
management, accounting, postage, printing, photocopying
and similar expenses incurred on behalf of the Trust. If the
actual routine operating expenses exceed 1.50% of a Series
net asset value, the amount in excess of 1.50% will be paid by
Prudential Securities.
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 56.50 1.13
Advisory
Management
Fees 62.50 1.25 100.00 2.00 100.00 2.00
Advisory -- -- -- -- -- --
Incentive
Fees (2)
Routine
Operating
Expenses (3) 75.00 1.50 75.00 1.50 75.00 1.50
Total 510.50 10.21 515.50 10.31 531.50 10.63
Less Estimated
Interest Income (4) (225.00) (4.50) (225.00) (4.50) (225.00) (4.50)
Estimated 12-
Month Break-
Even Level Without
Redemption Charges
(4)(6)(7)(8) 285.50 5.71 290.50 5.81 306.50 6.13
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) $435.50 8.71% $440.50 8.81% $456.50 9.13%
</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 56.50 1.13
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 9.27 479.50 9.59
Less Estimated
Interest Income (4) (225.00) (4.50) (225.00) (4.50) (225.00) (4.50)
Estimated 12-
Month Break-
Even Level Without
Redemption Charges
(4)(6)(7)(8) 233.50 4.67 238.50 4.77 254.50 5.09
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) $383.50 7.67% $388.50 7.77% $404.50 8.09%
</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% 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.
Likewise, you and other investors will invest in different series
managed by different trading advisors. Each series' assets
are:
17
<PAGE>
- --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 or
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 Beacon Management 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, downward or level -- 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.
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.
18
<PAGE>
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
The series will trade on non-U.S. exchanges as a component
of their trading programs. Foreign exchanges, whether or not
linked to a U.S. exchange, are not regulated by the CFTC or by
any other 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.
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
19
<PAGE>
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.
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.
20
<PAGE>
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 5.71%
per annum (Series D), 5.81% per annum (Series E) and 6.13%
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).
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.
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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.
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.
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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.
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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 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 an 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
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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 cor-
porations. 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
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 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 in its 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.
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<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 MBA 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 CPA in 1984, and he received his MBA 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 BA in
Economics from Smith College in 1976, her MBA 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
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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 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."
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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 March 31, 1999. As
of March 31, 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 45
Stock Indices 10
Metals 2
Currencies 43
Total 100.
(GRAPH)
29
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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 an account 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
March 31, 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 $$ In
All Programs: $ 5,500,000,000 (All Programs excluding Notional)
$ 6,400,000,000 (All Programs including Notional)
$$ In This Program: $17,300,000 (Aggressive Pure Alpha Futures
Only System excluding Notional)
$17,300,000 (Aggressive Pure Alpha Futures
Only System Only 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: (1.91)% March 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
May
Jun
July
Aug (0.56)%
Sept 2.78%
Oct 10.18%
Nov 2.19%
Dec 5.83%
YTD 2.52% 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.
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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 an account included in Capsule D(1).
Capsule D(2) reflects the performance of the account traded
under a fee structure identical to the fee structure of Series D,
which includes brokerage fees of 6.0%, advisory management
fees of 1.25%, incentive fees of 20%, and an interest income
credit of approximately 4.50%. 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.
Rates of Return
(Computed on a Daily Basis)
Month 1999 1998 1997 1996 1995 1994
January 0.57% 4.65% 0.81% 7.84% -2.98% -2.64%
February 3.74% 5.63% 4.65% -4.13% -6.42% -7.01%
March -1.89% 4.19% -5.22% -3.74% -6.40% -1.78%
April -0.89% 5.35% 6.95% -3.44% -2.62%
May -4.50% -0.24% -1.85% -1.46% -2.70%
June -3.46% 4.53% 4.09% -2.52% -2.86%
July -1.97% 2.10% 3.95% 5.49% -1.97%
August -0.94% -0.21% -1.23% 0.50% -0.53%
September 3.09% 1.84% 9.98% -5.70% -0.55%
October 12.07% -3.75% 0.68% 5.62% 0.60%
November 2.08% 7.14% 14.74% 3.79% 10.84%
December 5.73% 1.20% -3.74% 2.69% 1.94%
Year 2.37% 27.44% 18.95% 36.53% -11.29% -9.78%
Compound Annual Average Positive
Return: 10.58% Monthly Return: 4.66%
Average Monthly Average Negative
Return: 0.95% Monthly Return: -2.88%
Monthly Standard
Deviation # of Months with
Annualized*: 16.34% a Positive Return: 32
Largest Peak-
to-Valley # of Months with
Draw-down: -28.90% a Negative Return: 31
Recovery Time: 19 months
*Standard Deviation measures volatility of returns. It is a
statistical measure of risk that represents the variability of
returns around the mean (average) return. The lower the
standard deviation, the closer the returns are to the mean
(average) value. Conversely, the higher the standard
deviation, the more widely dispersed the returns are around
the mean (average).
Past performance is not necessarily indicative of future results.
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 5,500,000 6,400,000 176,000 260,000
Pure Alpha
Bond and
Bridgewater Currency
Associates Only3 6/85 7/97 1 5,500,000 6,400,000 (1,000) 168,000
Bridgewater Constrained
Associates Pure Alpha3 6/85 1/89 2 5,500,000 6,400,000 67,000 $95,000
Global Bond
Bridgewater and
Associates Currency3 6/85 2/90 13 $5,500,000 6,400,000 2,700,000 3,300,000
Bridgewater Global Bond
Associates Overlay3 6/85 5/95 0 5,500,000 6,400,000 0 0
Short-Term
Bridgewater Emerging
Associates Markets3 6/85 4/97 0 5,500,000 6,400,000 0 0
Inflation
Indexed
Linked Bond
Bridgewater Accounts-
Associates Leveraged3 6/85 4/94 0 5,500,000 6,400,000 0 0
<CAPTION>
ANNUAL RATES OF RETURN*
Largest
Largest Peak-to-
Monthly Valley 1999
Draw- Draw- Closed Accounts (through
Down1 Down2 Profitable Unprofitable 3/31/99) 1998 1997 1996 1995 1994
% % % % % % % %
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
(16.31)
(4.49) 1/94-
Pure Alpha3,4 2/94 -6/95 1 0 4.32 25.88 15.07 24.37 (4.55) (3.43)
Pure Alpha
Bond and (1.87)
Currency (0.68) 4/98-
Only3 7/98 7/98 0 0 0.26 9.04 1.94 - - -
(43.89)
Constrained (17.51) 2/94-
Pure Alpha3 2/94 10/94 11 3 1.78 8.80 5.41 4.21 5.05 (5.88)
Global Bond (41.99)
and (13.26) 1/94-
Currency3 2/94 9/94 9 2 (0.20) 17.35 8.94 12.02 19.23 (17.83)
(2.44)
Global Bond (1.68) 12/96-
Overlay3 3/97 3/97 1 0 - 0.50 0.40 4.87 1.07 -
Short-Term (17.58)
Emerging (4.30) 7/97-
Markets3 8/97 1/98 0 1 - 4.61 (11.55) - - -
Inflation
Indexed
Linked Bond (13.21)
Accounts- (7.15) 4/94-
Leveraged3 2/96 9/94 3 0 - 4.00 11.84 15.21 23.09 (8.73)
32
<PAGE>
<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 5,500,000 6,400,000 573,000 573,000
Global Bond
Bridgewater and
S.A., Inc. Currency3 6/85 7/97 1 5,500,000 6,400,000 10,200 10,200
Bridgewater U.S. Bond
Associates Group 6/85 8/90 0 5,500,000 6,400,000 0 0
Bridgewater Diversified
Associates Global Bond3 6/85 3/96 2 5,500,000 6,400,000 539,000 539,000
Inflation
Bridgewater Linked
Associates Bonds3 6/85 1/97 0 5,500,000 6,400,000 0 0
Inflation
Linked Bonds
And Nominal
Bridgewater Bonds
Associates Unleveraged3 6/85 8/97 7 5,500,000 6,400,000 343,000 343,000
Global Asset
Bridgewater Allocation
S.A., Inc. Speculative5 6/85 1/89 1 5,500,000 6,400,000 2,000 2,000
Bridgewater Aggressive
S.A., Inc. Pure Alpha3 6/85 7/97 1 5,500,000 6,400,000 7,000 7,000
Pure Alpha
Bridgewater Futures
Associates Only3,6 6/85 1/98 8 5,500,000 6,400,000 115,300 115,300
<CAPTION>
ANNUAL RATES OF RETURN*
Largest
Largest Peak-to-
Monthly Valley 1999
Draw- Draw- Closed Accounts (through
Down1 Down2 Profitable Unprofitable 3/31/99) 1998 1997 1996 1995 1994
% % % % % % % %
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Institutional
Account with
Global Bond (7.09)
and Equity (6.36) 5/98-
Benchmark3 3/97 8/98 0 0 0.26 54.74 32.43 35.98 12.36 5.82
Global Bond
and (0.76) (0.76)
Currency3 2/99 2/99 0 0 0.53 18.84 7.11 - - -
U.S. Bond (8.06) (8.06)
Group 2/95 2/95 3 1 - - - - (7.88) 4.37
Diversified (4.03) (4.03)
Global Bond3 3/97 3/97 0 0 (1.20) 10.68 14.77 18.52
Inflation (4.56)
Linked (2.54) 2/97-
Bonds3 8/97 4/97 2 0 - 8.80 8.25 - - -
Inflation
Linked Bonds
and Nominal (4.11)
Bonds (2.00) 1/99-
Unleveraged3 1/99 3/99 0 0 (1.27) 14.36 9.23 - - -
Global Asset (50.82)
Allocation (21.64) 1/95-
Speculative5 3/95 4/95 13 33 2.20 19.04 10.99 17.64 7.00 (7.73)
(21.52)
Aggressive (15.02) 5/98-
Pure Alpha3 8/98 8/98 0 0 5.30 66.67 14.58 - - -
Pure Alpha (5.13)
Futures (2.01) 4/98-
Only3,6 7/98 7/98 0 0 1.53 19.71(6) - - - -
33
<PAGE>
<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 5,500,000 6,400,000 280,000 280,000
Long-Term
Bridgewater Emerging
Associates Markets3 6/85 5/96 1 5,500,000 6,400,000 50,000 50,000
Bridgewater Index
Associates Overlay7 6/85 7/98 1 5,500,000 6,400,000 7,800 92,000
Bridgewater Hedge
S.A. Account I9 6/85 6/91 0 5,500,000 6,400,000 0 0
<CAPTION>
ANNUAL RATES OF RETURN*
Largest
Largest Peak-to-
Monthly Valley 1999
Draw- Draw- Closed Accounts (through
Down1 Down2 Profitable Unprofitable 3/31/99) 1998 1997 1996 1995 1994
% % % % % % % %
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Long
Duration (24.47)
Global (16.11) 2/96-
Bond3 2/96 5/96 0 0 (8.89) 50.31 34.74(5) 11.85(5) 34.03(5) -
Long-Term (24.48)
Emerging (25.55) 5/98-
Markets3 8/98 8/98 1 0 0.81 (0.13)(5) 17.41(5) 21.77(5) - -
(20.97)
Index (15.03) 7/98-
Overlay7 8/98 9/98 0 0 (8.93) (5.96)(8) - - - -
6-mths
Hedge
Account I9 N/A N/A 1 0 NO RATES OF RETURN ARE AVAILABLE
</TABLE>
PAST PERFORMANCE 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 RATES OF RETURN BASED ON VARIOUS FUNDING LEVELS (3)
OF RETURN (1)
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 BBA in Finance, and he received his MBA 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 BBA 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 MBA in Finance from New York
University in 1987 and his BA 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 CPA and is a member of the New Jersey
Society of CPAs, and he graduated from Rutgers University
with a BA 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 MBA 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 MBA and
an MA in international relations from Boston University in 1989
and a BA 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 BA 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
38
<PAGE>
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.
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.
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.
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.
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 March 31, 1999. As of March 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 36
Interest Rates 28
Stock Index Futures 14
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 an 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 April
30, 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 (Graham Capital Diversified Program)
No. Accounts: 7
Aggregate $$ In
All Programs: $ 576,152,000 (All Programs including Notional)
$$ in this Program: $ 169,608,000 (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 4/30/99) 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 (0.82) (1.35) (0.31) 4.49
Jun (5.95) (0.84) 1.26 1.62
Jul (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
ANNUAL N/A 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 April 30, 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 (Graham Capital Diversified Program
at 150% Leverage)
No. Accounts: 12
Aggregate $$ In
All Programs: $ 576,152,000 (All Programs including Notional)
$$ in this Program: $ 152,841,000 (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 = 6
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 4/30/99) 1998 1997
Jan (0.62) 2.14
Feb 1.35 1.71
Mar (7.79) 6.52
Apr 4.02 (4.42)
May (1.08) (1.62)
Jun (9.21) (1.12)
Jul (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
ANNUAL N/A 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 an 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 20%, and an interest income credit of
approximately 4.50%. 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 Daily Basis)
Month 1999 1998 1997 1996 1995
January -0.31% 2.37% 6.19% 12.34%
February 1.09% 1.89% -2.21% -10.37% 10.60%
March -8.15% 6.07% 0.97% 2.01% 17.47%
April -4.96% -7.69% 6.26% 4.81%
May -1.50% -2.79% -1.01% 6.43%
June -9.83% -1.74% 2.03% 2.10%
July -5.97% 5.74% -1.39% -1.93%
August 17.36% -4.65% -3.00% -8.34%
September 10.38% 2.45% 1.37% -6.12%
October 5.43% 6.47% 8.90% -2.70%
November -3.82% 0.60% 4.68% 4.59%
December 0.10% 2.98% -1.59% 8.69%
Year -7.44% 15.47% 5.32% 19.92% 38.10%
Compound Annual Average Positive
Return: 16.12% Monthly Return: 5.60%
Average Monthly Average Negative
Return: 1.45% Monthly Return: -4.29%
Monthly Standard
Deviation # of Months with
Annualized*: 21.98% a Positive Return: 29
Largest Peak-
to-Valley # of Months with
Draw-down: -20.63% a Negative Return: 21
Recovery Time: 6 months
*Standard Deviation measures volatility of returns. It is a
statistical measure of risk that represents the variability of
returns around the mean (average) return. The lower the
standard deviation, the closer the returns are to the mean
(average) value. Conversely, the higher the standard
deviation, the more widely dispersed the returns are around
the mean (average).
Past performance is not necessarily indicative of future results.
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 (Excluding (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 $576,152,000 $95,716,000
Selective
Trading
Program at
Graham 150%
Capital Leverage 2/2/95 6/1/99 3 $576,152,000 $15,501,000
Discretionary
Graham Trading
Capital Program 2/2/95 1/4/99 1 $576,152,000 $11,641,000
Discretionary
Trading
Program at
Graham 150%
Capital Leverage 2/2/95 6/1/99 3 $576,152,000 $15,105,000
Non-Trend
Graham Based
Capital Program 2/2/95 1/4/99 1 $576,152,000 $16,189,000
Non-Trend
Based
Program at
Graham 150%
Capital Leverage 2/2/95 6/1/99 11 $576,152,000 $8,005,000
Graham
Capital K4 Program 2/2/95 1/4/99 2 $576,152,000 $32,314,000
K4 Program
Graham at 150%
Capital Leverage 2/2/95 6/1/99 2 $576,152,000 $5,751,000
Graham Global FX
Capital Program 2/2/95 5/21/97 1 $576,152,000 $4,867,000
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*
Largest
Largest Peak-to-
Monthly Valley 1999
Draw- Draw- Closed Accounts (through
Down1 Down2 Profitable Unprofitable 3/31/99) 1998 1997 1996 1995 1994
% % % % % % % %
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Selective
Trading 3.00 4.42
Program 6/98 3/98--7/98 0 0 (1.65) 25.86 - - - -
Selective
Trading
Program at
150%
Leverage - - 0 0 2.37 - - - - -
Discretionary
Trading .80 .80
Program 6/99 6/99 0 0 1.35 - - - - -
Discretionary
Trading
Program at
150% 2.72 2.72
Leverage 6/99 6/99 0 0 (2.70) - - - - -
Non-Trend
Based 2.92 3.32
Program 1/99 5/99-6/99 0 0 3.56 - - - - -
Non-Trend
Based
Program at
150% 5.26 5.36
Leverage 6/99 6/99 0 0 (5.26) - - - - -
3.66 3.66
K4 Program 3/99 3/99 0 0 2.62 - - - - -
K4 Program
at 150%
Leverage - - 0 0 2.70 - - - - -
Global FX 3.28 7.23
Program 2/98 4/98-3/99 - - (1.00) (3.52) 5.19 - - -
International
Financial 8.41 18.07
Program 6/98 4/98-6/98 - - - 8.15 5.14 13.98 - -
Natural
Resource 6.68 19.22
Program 10/97 2/97-11/97 - - - 4.71 (15.22) 2.80 - -
</TABLE>
PAST PERFORMANCE 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
Beacon Management will be allocated 100% of the Series F
assets. In its trading for series F, Beacon Management will
utilize Meka, its systematic trading strategy.
Beacon Management And Its Principals
Beacon Management is a Delaware corporation that was
incorporated on March 27, 1989. Beacon Management took
over, and now continues, the futures trading advisory
business formerly conducted by Beacon Management
Corporation N.V., a Netherlands Antilles corporation formed in
1982 by a corporation called Commodities Corporation and a
partnership called Comtrade Associates. Beacon Management
registered as a commodity pool operator and commodity
trading advisor under the Commodity Exchange Act on July 1,
1984 and December 17, 1982, respectively, and it is a member
of the National Futures Association. Beacon Management
maintains its only business office at 47 Hulfish Street,
Princeton, New Jersey 08542; telephone (609) 924-5395.
Grant W. Schaumburg Jr. is the Chairman of Beacon
Management, and since 1978 he has been employed by
various firms affiliated with Beacon Management. Mr.
Schaumburg is also one of the founders of Mount Lucas
Management Corporation and Mount Lucas Index Management
Corporation. He was the president of those corporations from
1986 and 1991, respectively, until July 1999. From 1984 until
1993, Mr. Schaumburg was associated with Commodities
Corporation, having previously served as a trading systems
manager for such firm from 1982 until 1987. Prior to that, from
1970 until 1982, Mr. Schaumburg participated in management
consulting work for various large corporations, as well as
contract research for government agencies. Mr. Schaumburg
received his AB magna cum laude from Harvard College with
highest honors in applied mathematics, and he received his
Ph.D. in Economics from Harvard University. Mr. Schaumburg
is registered as a commodity trading advisor and as a
commodity pool operator, and he is a member of the National
Futures Association.
Mark S. Stratton is the president of Beacon Management and
has worked for Beacon Management and its affiliates since
1984. He became a principal of Beacon Management in 1991.
Prior to being involved with Beacon Management and its
affiliates, Mr. Stratton was a senior research associate for
Commodities Corporation from 1972 until 1984. Mr. Stratton is
also one of the founders and was the senior vice president of
each of Mount Lucas Management Corporation and Mount
Lucas Index Management Corporation. Mr. Stratton attended
the University of Chicago.
Beacon Management's Trading Strategy
Series F will be traded according to Beacon Management's
systematic trading strategy, Meka. Meka invests in futures
markets and holds both long and short positions in the
market. Meka aggressively invests in a broadly diversified set
of assets using proprietary trend-following systems and
portfolio allocation software. The objective of Meka is to earn
long-term returns from a variety of markets through the
systematic use of diversification and leverage. Meka
investments are traded in the futures markets, which Beacon
Management believes provide excellent liquidity and facilitate
asset allocation shifts, while at the same time offering flexible
leverage. Meka maintains investments in the following
markets:
- --Global equity indices, including the large and small cap U.S.
markets, as well as the Japanese, Australian and European
markets;
- --Global bonds indices, including long and intermediate U.S.
Treasuries, Japanese government bonds and European
bonds;
- --Currency cross rates, including the U.S. dollar versus the
Japanese Yen, the Euro and the British Pound;
- --Energy markets, including crude oil, gasoline and natural gas;
48
<PAGE>
- --Metals, including gold, silver and copper; and
- --Various world commodity markets, including grains, meats,
coffee and sugar.
The implementation of Meka is quantitative and computer-
based. Meka allocates exposure to each market based on the
relationships among the different markets and among the
trend-following systems. Exposure can be short or long,
depending on the recent price trends. Several different trend-
following approaches are employed, including approaches
based on moving averages, breakouts, option replication and
volatility. They vary from short-term methods that trade
almost every day to long-term methods that may hold
positions for over a year.
Allocation Among Markets Traded By Beacon
Set forth below is a bar graph showing the market sectors that
are traded by Beacon pursuant to its systematic trading
system, Meka, as of May 1, 1999. As of May 1, 1999, investor
funds are exposed to these sectors in approximately the
percentage allocations stated; however, these percentage
allocations are subject to change at Beacon Management'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 17
Interest Rate Instruments 23
Stock Indices 10
Grains and Meats 17
Foodstuffs and Softs 16
Metals and Energy 17
Total 100
(GRAPH)
PLEASE TURN TO THE FOLLOWING PAGE
49
<PAGE>
Beacon Management's Past Performance For All Of Its Clients
Capsule summaries F(1) and F(3) contain actual performance
information for the periods indicated. Capsule summary F(2) is
a pro forma presentation of an account in Capsule Summary
F(1).
Meka
The following is a capsule summary of the past performance
for Beacon Management's Meka as of April 30, 1999, the
trading strategy which will be used to trade Series F.
Meka Partners, L.P., Class B Partners
Name of commodity trading advisor: Beacon Management
Program: Meka
Start Date: July 1, 1980 (All trading by Beacon Management)
November 10, 1994 (Meka)
No. Accounts: 5
Aggregate $$ In All
Programs: $ 110,904,415 (All Programs including Notional)
$$ in this Account: $ 89,060,362
Largest monthly draw-down: (20.20%) 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: (20.20%) February 1996
"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.
RATES OF RETURN INFORMATION IS ON FOLLOWING PAGE
50
<PAGE>
CAPSULE F(1) -- COMPOSITE OF ALL MEKA ACCOUNTS
MONTHLY/ANNUAL RATES OF RETURN*
1999
(through
MONTH 4/30/99) 1998 1997 1996 1995 1994
Jan (1.8)% 2.1% 13.3% 2.9% (5.8)%
Feb 10.4 13.0 7.7 (15.2) 9.7
Mar (4.1) 13.3 (4.3) 4.2 25.1
Apr 19.6 4.2 6.6 16.9 4.3
May 0.8 1.4 (6.7) (7.0)
Jun (2.2) (2.0) 8.9 (4.0)
Jul 11.3 16.5 (13.5) 5.9
Aug 3.3 (12.4) (2.1) 9.9
Sep 4.2 6.1 8.2 (5.9)
Oct 3.8 (5.9) 18.1 (5.2)
Nov 8.0 5.8 18.2 6.8 4.5%
Dec (5.9) 14.9 (1.6) 14.1 (0.6)
ANNUAL N/A 73.8% 52.9% 35.8% 52.5% 3.9%
PAST PERFORMANCE NOT NECESSARY INDICATIVE OF FUTURE RESULTS
*The rate of return percentage for each month is obtained by
dividing the net performance for the month by the net asset value
as of the beginning of the month (including contributions
made at the start of the month). An adjustment to the
monthly rate of return calculation using the time-weighted
method approved by the CFTC is made if a material addition
or withdrawal is made other than at the beginning or
end of the month. The annual rate of return is calculated
by compounding monthly rates of return each year.
Beacon Management advises exempt pools the performance
of which is not included in the composite performance.
51
<PAGE>
CAPSULE F(2)
Pro Forma
Set forth in Capsule F(2) is pro forma information
prepared by the managing owner using Beacon Management's
actual trading results of an 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 20%, and an interest income
credit of approximately 4.50%. 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 Meka's actual performance in Capsule
F(1) in this Prospectus.
Rates of Return
(Computed on a Daily Basis)
Month 1999 1998 1997 1996 1995 1994
January -1.95% 1.71% 13.76% 2.71% -8.09%
February 9.79% 13.58% 7.82% -20.17% 11.67%
March -3.61% 13.73% -4.93% 5.09% 26.36%
April 4.03% 6.61% 20.42% 4.35%
May 0.72% 1.17% -7.76% -8.73%
June -2.21% -2.30% 9.54% -5.74%
July 11.03% 17.15% -18.41% 7.31%
August 2.99% -13.46% -3.50% 11.37%
September 4.34% 5.92% 10.34% -6.64%
October 3.66% -8.45% 21.53% -7.42%
November 7.92% 7.07% 8.59% 8.59% 4.76%
December -5.86% 15.83% -2.05% 15.02% -0.84%
Year 3.76% 69.18% 49.84% 29.05% 50.20% 3.88%
Compound Annual Average Positive
Return: 45.85% Monthly Return: 9.62%
Average Monthly Average Negative
Return: 3.68% Monthly Return: -6.95%
Monthly Standard # of Months with
Deviation Annualized*: 34.59% a Positive Return: 34
Largest Peak-
to-Valley # of Months with
Draw-down: -21.27% a Negative Return: 19
Recovery Time: 4 months
*Standard Deviation measures volatility of returns. It is a
statistical measure of risk that represents the variability of
returns around the mean (average) return. The lower the
standard deviation, the closer the returns are to the mean
(average) value. Conversely, the higher the standard
deviation, the more widely dispersed the returns are around
the mean (average).
Past performance is not necessarily indicative of future results.
52
<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>
Beacon
Beacon Trading
Management System 7/80 7/80 1 110,904,415 110,904,415 3,024,080 3,024,000
STS
Beacon Trading
Management Program 7/80 8/90 0 110,904,415 110,904,415 0 0
Currency
Beacon Overlay
Management Program 7/80 2/94 0 110,904,415 110,904,415 0 0
Energy Yield
Capture
Beacon Trading
Management Program 7/80 9/91 0 110,904,415 110,904,415 0 0
Eurodollar
Beacon Trading
Management Program 7/80 3/96 1 110,904,415 110,904,415 18,820,000 18,820,000
Mount
Lucas Index
Management Leveraged
Corp. MLM Index 10/93 5/96 4 200,928,474 111,844,059 8,985,850 8,985,850
Mount
Lucas Index
Management
Corp. MLM Index 10/93 10/93 5 111,844,059 111,844,059 102,858,209 102,858,209
Mount MoneyLogic
Lucas Protected
Management Capital
Corp. Fund 12/87 10/89 0 19,273,478 19,273,478 0 0
Mount Mount
Lucas Lucas
Management Diversified
Corp. Program 12/87 12/87 1 19,273,478 19,273,478 19,273,478 19,273,478
<CAPTION>
ANNUAL RATES OF RETURN*
Largest
Largest Peak-to-
Monthly Valley 1999
Draw- Draw- Closed Accounts (through
Down1 Down2 Profitable / Unprofitable 4/30/99) 1998 1997 1996 1995 1994
% % % % % % % %
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Beacon
Trading 9.1 22.3
System 8/96 4/95-11/95 9.5 10.6 29.4 (1.3) (7.2) 9.2
STS
Trading 11.3 34.0
Program 8/95 12/94-11/95 - - - - (31.5) 48.2
Currency
Overlay 54.2 72.8
Program 3/94 2/94-3/94 - - 0.5 14.4 126.3 (42.5)
Energy Yield
Capture
Trading 15.0 20.76
Program 1/96 12/96-7/97 - (11.1) 1.8 27.3 (8.2)
Eurodollar
Trading 1.0 3.9
Program 8/97 5/96-7/98 (6.1) 2.0 (1.5) (0.5) - -
Leveraged 14.8 19.5
MLM Index 6/97 6/97-11/97 29.5 3.8 12.5 - -
3.2 3.6
MLM Index 9/98 9/98-10/98 13.7 5.1 2.7 3.8 11.2
MoneyLogic
Protected
Capital 7.8 3.1
Fund 1/92 7/94-8/94 - - - - 15.7 7.4
Mount
Lucas
Diversified 10.9 11.78
Program 5/95 4/95-7/95 14.2 31.2 10.4 22.9 5.0
</TABLE>
PAST PERFORMANCE 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 an
individual 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.
53
<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.
54
<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.
55
<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.
56
<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. Limited owners will be notified by the managing
owner 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. Mr. Brody is currently a member of the Advisory
Board of Directors of the Financial Instruments Exchange in
Dublin. 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.
58
<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.
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
58
<PAGE>
from Long Island University with a BA in
English Literature, and she graduated from Baruch College in
1986 with an MBA 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.
59
<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 March 1999 trading record for the various funds is
provided in the performance table and the explanatory notes
on the following pages.
Type of Fund Name of Fund
- ------------ ------------
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 pages 62 to 63.
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.
60
<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 MONTHLY
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 (3
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 16,156 1/92 1/92 - 5/92 -10.05% 33.95% 24.81% 9.03% 1.96% -4.23%
PRUDENTIAL-
BACHE
CAPITAL
RETURN
FUTURES
FUND L.P. -10.30% -24.43%
(PBCRFF) 1a,3,5,7,8,10 5/89 137,705 13,908 11/98 9/93 - 1/95 -21.43% 23.97% 8.58% 7.93% -1.09% -2.23%
PRUDENTIAL-
BACHE
CAPITAL
RETURN
FUTURES
FUND 2 L.P. -11.36% -24.24%
(PBCRFF2) 1a,3,5,7,8,9 10/89 100,000 22,628 1/92 1/92 - 5/92 -8.08% 27.26% 19.10% 11.40% -7.44% -1.09%
PRUDENTIAL-
BACHE
CAPITAL
RETURN
FUTURES
FUND 3 L.P. 1a,3,5, -11.77% -23.66%
(PBCRFF3) 7,8,10 5/90 64,863 12,000 4/98 12/96 - 4/98 10.41% 16.64% 16.79% -7.97% -10.29% 1.13%
PRUDENTIAL-
BACHE
OPTIMAX
FUND L.P.-
OPTIMAX -6.39% -11.32%
(PBOFF) 3,5,7,8,10,11 4/96 69,603 16,155 8/97 5/96-8/96 - - 11.68% 17.49% 17.54% 0.89%
PRUDENTIAL-
BACHE
OPTIMAX
FUND L.P.
- - A 1,3,5, -6.00% -10.72%
(PBOFF) 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 3,5,7, -9.49% -20.94%
(PBOFF2) 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. -17.68% -25.96%
[j] (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 5,109 9/93 8/93-1/95 -13.51% 29.51% 7.89% -2.31% 13.11% -4.24%
DIVERSIFIED
FUTURES
TRUST I -9.38% -12.88%
(DFT) 3,5a,6,8,9 1/95 65,908 53,720 11/98 1/98-7/98 - 42.65% 23.49% 8.82% 4.80% -4.13%
SIGNET
PARTNERS
II, LP -6.37% -8.41%
[f] (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 44,242 4/98 8/97-7/98 - - 3.47% -0.49% 20.25% 3.58%
PRUDENTIAL-
BACHE
INTER-
NATIONAL
FUTURES
FUND A
PLC [k] -15.39% -31.52%
(PBIFA) 2,4,6,9,13 6/96 33,143 14,136 4/98 8/97-7/98 - - 12.30% -0.36% 34.14% 2.07%
PRUDENTIAL-
BACHE
INTER-
NATIONAL
FUTURES
FUND C
PLC [k] -9.30% -20.08%
(PBIFC) 2,4,6,9,13 6/96 26,679 9,344 2/99 12/96-4/97 - - 22.70% -3.59% 35.42% -11.28%
PRUDENTIAL-
BACHE
INTER-
NATIONAL
FUTURES
FUND B
PLC [k] -8.84% -19.97%
(PBIFB) 2,4,6,9,13 7/96 90,788 65,485 5/97 1/98-7/98 - - 28.50% 13.77% 3.49% -7.13%
PRUDENTIAL-
BACHE
INTER-
NATIONAL
FUTURES
FUND D
PLC [k] -7.80% -10.31%
(PBIFD) 2,4,7,9,13 10/96 21,590 15,240 4/98 2/98-4/98 - - -1.10% 14.36% 23.87% 3.57%
PRUDENTIAL-
BACHE
INTER-
NATIONAL
FUTURES
FUND E
PLC [k] -9.41% -9.41%
(PBIFE) 2,4,6,9,13 1/97 17,605 9,735 8/97 8/97 - - - 2.20% 12.23% -13.89%
PRUDENTIAL-
BACHE
INTER-
NATIONAL
FUTURES
FUND F
PLC [k] -9.50% -11.09%
(PBIFF) 2,4,6,9,13 9/97 20,143 19,173 10/97 10/97-11/97 - - - -4.60% 47.90% -2.25%
DIVERSIFIED
FUTURES
TRUST II -9.66% -11.77%
(DFTII) 2,5,6,8,9 3/97 46,941 35,291 11/98 1/98-7/98 - - - 6.26% 6.82% -3.81%
DEVONSHIRE
MULTI-
STRATEGY
FUND [k,l] -3.88% -8.55%
(DEVON) 2,4,8,9,14 2/98 13,552 270 4/98 4/98-8/98 - - - - -7.70% -1.19%
WORLD
MONITOR
TRUST -
SERIES A -3.19% -5.63%
(WMTA) 3,4,6,8,9 6/98 14,399 14,646 7/98 10/98-1/99 - - - - -1.69% 2.89%
WORLD
MONITOR
TRUST -
SERIES B -3.63% -5.77%
(WMTB) 3,4,6,8,9 6/98 14,449 15,643 7/98 6/98-7/98 - - - - 11.98% 3.15%
WORLD
MONITOR
TRUST -
SERIES C -6.70% -7.45%
(WMTC) 3,4,6,8,9 6/98 14,409 14,805 11/98 10/98-11/98 - - - - 4.22% 0.71%
</TABLE>
PLEASE SEE FOLLOWING PAGE FOR ACCOMPANYING KEY AND NOTES
PAST PERFORMANCE IS NOT NECESSARILY INDICATIVE OF FUTURE RESULTS
61
<PAGE>
<TABLE>
<CAPTION>
Key to type of pool Notes:
<S> <C>
1 - Principal-protected pool currently [a] All performance is presented as of March 1999.
1a - Principal-protected pool initially,
but not currently [b] "Worst monthly percent draw-down" means greatest
percentage decline in net asset value due to losses
2 - Privately offered pool 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 decline in month-end net asset
4 - Open ended pool value due to losses sustained by a pool, account or
other trading program during a period in which the
5 - Closed ended pool initial month-end net asset value is not equaled or
exceeded by a subsequent month-end net asset value.
5a- Initially open ended, currently closed ended "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
principal-protected [i] Name change from Willowbridge Strategic Trust to
Prudential Securities Strategic Trust during August 1998
feature of the A Units on
March 31, 1996, the A & B [j] Liquidated March 1999.
Units merged into 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
12 - Following the expiration of the
principal-protected organized as investment companies incorporated in non-U.S.
jurisdictions. Eligibility notices under
feature of the A Units on
March 31, 1997, the A & B CFTC Rule 4.7 has been filed in connection with these funds.
Units merged into OptiMax 2
Units on April 1, 1997. [l] Liquidated May 1999.
13 - Offshore pool offered to Non-U.S. [m] Rate of return is calculated each week by dividing
persons, authorized and supervised net performance by beginning equity. The weekly
by the Central Bank of Ireland. returns are then compounded to arrive at the rate of
14 - Offshore fund-of-funds offered return for the month, which is in turn compounded to
to Non-U.S. persons arrive at the annual rate of return.
NOTES TO PERFORMANCE TABLE CONTINUED ON FOLLOWING PAGE
PAST PERFORMANCE IS NOT NECESSARILY INDICATIVE OF FUTURE RESULTS
</TABLE>
62
<PAGE>
Notes To Performance Table Continued:
(1) Management Fees, Incentive Fees And Brokerage Commissions
Name of Fund Management Fee Incentive Fee Brokerage Commission
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%
(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.
63
<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.
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.
64
<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.
65
<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.
66
<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 121 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.
67
<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.
68
<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.
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)
therefor (taking into account both the time and amount of a
subscriber's deposit).
69
<PAGE>
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.
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
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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.
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 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
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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).
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.
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.
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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.
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.
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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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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.
Subscriber Category Requirements
Individual, joint tenant or Have a net worth (exclusive of home,
entities (such as corporations home furnishings and automobiles) of
or trusts) must: 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 Have a net worth (exclusive of home,
plans covering no common law home furnishings and automobiles) of at
employees must: 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 pension,
profit sharing plans, stock Have net assets of at least $150,000
bonus plans, welfare benefit AND
plans, such as group insurance Have an aggregate investment in any
plans, or other fringe benefit series or in all series combined that
plans and government plans) must: does not exceed 10% of its assets
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.
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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.
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.
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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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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
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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.
Subscription Categories
- -- Individual or joint Individual accounts are owned by one person.
tenant Joint accounts can have two or more owners.
- -- Gifts or transfers to a An individual can gift up to $10,000 per
minor 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 Corporations, partnerships, limited liability
organization 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 Your subscription will not be final or
to a series 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 Your subscription will not be final or binding
owners in a series until at least two business days after the
purchasing date you submit your subscription agreement
additional (Exhibit D). You may revoke a subscription
interests in that only within two business days after you
same series 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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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 Your exchange will be effective
owners exchanging on the dealing date that occurs at
interests in one series least two business days after the date you
for interests in submit your exchange request.
another series
currently owned
- -- Existing limited Your exchange is effective on the dealing
owners exchanging date that occurs at least five days after
interests in one series the date you submit your exchange request.
for interests in
another series not
currently owned.
To Redeem Interests You Must:
- -- Complete a Redemption Request (Exhibit B).
- -- Submit the Redemption Request (Exhibit B) to a Prudential Securities
financial advisor in a timely manner.
When An Redemption Becomes Final
- -- Existing limited Your redemption will be effective on
owners redeeming the dealing date that occurs at least
their currently two business days after the date you
owned interests submit your redemption request.
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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: 1.13% 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: $29
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.
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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 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) as follows:
- -- Series D -- 20%
- -- Series E -- 20%
- -- Series F -- 20%
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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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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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>
<C> <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 112,500 (Assumes Annual Interest of 4.50%)
(4) NAV Subtotal 11,312,500
----------
(5) Fees for Brokerage
Services, Transaction
Fees and Routine
Operating Expenses <235,017> NAV Subtotal less 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 <55,387> (Less the Management Fee: 2% Annually (e.g.,
for Series E)
(7) Ending NAV $11,022,096 (Item (4) less Items (5) and (6), before
----------- computation of advisory incentive fee)
-----------
(8) Interest Income
Adjustment <112,500>
(9) NAV on which Incentive
Fee is computed $10,909,596
(10) Net Trading Profit
(Loss) $909,596 (Item (9) minus Item (1))
C. Incentive Fee Calculation
$909,596 [Item (10)] x 20% = $181,919
</TABLE>
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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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 routine expenses exceed 1.50% of a series' 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 full six months after their effective date will
be charged a redemption fee of 4% of the net asset value at
which they are redeemed and (ii) interests redeemed after six
months, but on or before the end of 12 full months after their
effective date will be charged a redemption fee of 3% of the net
asset value at which they are redeemed. These redemption
fees will be paid to the managing owner. If you acquire your
interests at more than one closing date, each interest will be
treated on a "first-in, first-out" basis for redemption purposes
(including determining the amount of any applicable
redemption charge). 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. 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 independent counsel satisfactory to
the trading advisor and the Trust that by reason of the trading
advisor's activities with respect to the Trust, the trading
advisor is required to register as an investment adviser under
the 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.
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 only 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
with the written consent of the managing owner, which
consent may be withheld in the managing owner's sole and
absolute discretion as described above. 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.
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
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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.
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.
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Limited Owner Liability Your capital contribution is subject to
the risks of the 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.
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.
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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 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.
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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 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.
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.
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Risk Control Techniques
Trading managers often adopt risk management principles.
Such principles typically restrict the size or positions taken as
well as 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.
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.
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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.
<TABLE>
<CAPTION>
Series D -- Bridgewater Associates
Aggressive Pure Alpha Futures Only --Pro Forma
January 1994 through March 1999
Summary Performance Statistics
January 1994 through March 1999
U.S. U.S. Int'l. Series D
Stocks1 Bonds2 Stocks3 Pro Forma4
<S> <C> <C> <C> <C>
Value of $1000 $3,085 $1,406 $1,598 $1,696
Compound Annual Return 23.93% 6.70% 9.34% 10.58%
Monthly Standard Deviation
Annualized +-13.75% +-4.59% +-13.79% +-16.34%
Maximum Draw-down -15.36% -5.76% -15.03% -28.90%
Months to Recovery 5 15 5 19
Correlation to U.S. Stocks 1.00 0.36 0.68 0.31
</TABLE>
<TABLE>
<CAPTION>
Performance Summary
January 1994 through March 1999
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 -- Mar) 5% -1% 1% 2%
</TABLE>
<TABLE>
<CAPTION>
Series E -- Graham Capital
Global Diversified Program --Pro Forma (1.5 leverage)
February 1995 through March 1999
Summary Performance Statistics
February 1995 through March 1999 U.S. U.S. Int'l. Series E
Stocks1 Bonds2 Stocks3 Pro Forma5
<S> <C> <C> <C> <C>
Value of $1000 $2,968 $1,429 $1,537 $1,864
Compound Annual Return 29.83% 8.95% 10.87% 16.12%
Monthly Standard Deviation
Annualized +-14.26% +-4.36% +-14.04% +-21.98%
Maximum Draw-down -15.36% -3.78% -15.03% -20.63%
Months to Recovery 5 9 5 6
Correlation to U.S. Stocks 1.00 0.25 0.70 0.36
</TABLE>
<TABLE>
<CAPTION>
Performance Summary
February 1995 through March 1999
U.S. Stocks1 U.S. Bonds2 Int'l. Series E
Stocks3 Pro Forma5
<S> <C> <C> <C> <C>
1995 (Feb -- Dec) 34% 17% 16% 38%
1996 23% 3% 6% 20%
1997 33% 10% 2% 5%
1998 29% 10% 20% 15%
1999 (Jan -- Mar) 5% -1% 1% -7%
</TABLE>
102
<PAGE>
<TABLE>
<CAPTION>
Series F -- Beacon Management
Meka --Pro Forma
November 1994 through March 1999
Summary Performance Statistics
November 1994 through March 1999 U.S. U.S. Int'l. Series F
Stocks1 Bonds2 Stocks3 Pro Forma6
<S> <C> <C> <C> <C>
Value of $1000 $2,977 $1,464 $1,417 $5,335
Compound Annual Return 28.02% 9.01% 8.21% 45.85%
Monthly Standard Deviation
Annualized +-14.13% +-4.29% +-14.07% +-34.59%
Maximum Draw-down -15.36% -3.78% -15.03% -21.27%
Months to Recovery 5 9 5 4
Correlation to U.S. Stocks 1.00 0.26 .070 0.28
</TABLE>
<TABLE>
<CAPTION>
Performance Summary
November 1994 through March 1999
U.S. Stocks1 U.S. Bonds2 Int'l. Series F
Stocks3 Pro Forma6
<S> <C> <C> <C> <C>
1994 (Nov -- Dec) -2% 0% -4% 4%
1995 38% 19% 12% 50%
1996 23% 3% 6% 29%
1997 33% 10% 2% 50%
1998 29% 10% 20% 69%
1999 (Jan - Mar) 5% -1% 1% 4%
</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 -- A single representative account showing the
actual results obtained by utilizing Bridgewater
Associates' 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 single 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 Meka, Beacon
Management's systematic trading strategy, 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.
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.
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<PAGE>
"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.
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.
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<PAGE>
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.
106
<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 April
30. 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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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.
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
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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).
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
110
<PAGE>
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.
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.
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<PAGE>
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.
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INDEX TO CERTAIN FINANCIAL INFORMATION
Page
WORLD MONITOR TRUST II-- Series D, Series E and Series F
Report of Independent Accountants 114
Statement of Financial Condition as of
April 30, 1999 115
Notes to Statement of Financial Condition 116
PRUDENTIAL SECURITIES FUTURES MANAGEMENT INC.
Report of Independent Accountants 120
Statement of Financial Condition as of December
31, 1998 121
Notes to Statement of Financial Condition 122
DIVERSIFIED FUTURES TRUST I
Report of Independent Accountants 125
Statement of Financial Condition as of December
31, 1998 126
Notes to Statement of Financial Condition 127
113
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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
May 19, 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 April 30, 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
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<PAGE>
WORLD MONITOR TRUST II
(a Delaware Business Trust)
STATEMENT OF FINANCIAL CONDITION
April 30, 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.
115
<PAGE>
WORLD MONITOR TRUST II
(a Delaware Business Trust)
NOTES TO STATEMENT OF FINANCIAL CONDITION
April 30, 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 Beacon Management Corporation (USA)
(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.
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Exchanges, Redemptions and Termination
Once trading commences, Interests owned in one Series may be exchanged,
without any charge, for Interests of one or more other Series on a weekly basis
for as long as Interests in those Series are being offered to the public.
Exchanges are made at the applicable Series' then current net asset value per
Interest as of the 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 20% of such
Trading Advisor's 'New High Net Trading Profits' (as defined in each Advisory
Agreement). The incentive fee will also accrue weekly.
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<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.
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<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.
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<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
120
<PAGE>
Prudential Securities Futures Management Inc.
(A wholly-owned subsidiary of
Prudential Securities Incorporated)
Statement of Financial Condition
December 31, 1998
Assets
Cash $ 5,096
Investments in partnerships 2,246,483
Receivables from partnerships 71,997
Other receivables 10,100
Total assets $ 2,333,676
Liabilities and Stockholder's Equity
Liabilities
Due to Parent and affiliates $ 2,279,360
Accrued expenses 14,375
Total liabilities 2,293,735
Commitments and contingencies
Stockholder's equity
Common stock (no par value, 2,000 shares
authorized, 100 shares issued
and outstanding) 100
Additional paid-in capital 9,100,000
Retained earnings 39,841
9,139,941
Less: Noninterest-bearing demand
notes due from Prudential
Securities Group Inc. (9,100,000)
Total stockholder's equity 39,941
Total liabilities and stockholder's
equity $ 2,333,676
The accompanying notes are an integral part of this financial statement.
Purchasers of Limited Interests have no interest in this Trust.
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<PAGE>
Prudential Securities Futures Management Inc.
(A wholly-owned subsidiary of
Prudential Securities Incorporated)
Notes to statement of financial condition
December 31, 1998
A. General
Prudential Securities Futures Management Inc. (the "Company") is a
wholly-owned subsidiary of Prudential Securities Incorporated ("PSI" or
the "Parent"), which is a wholly-owned subsidiary of Prudential Securities
Group Inc. ("PSGI"). The Company is a general partner or managing
owner of limited partnerships and Delaware business trusts (collectively,
"the Partnerships"), as well as an investment manager of open-ended
investment companies, all of which were formed to engage in the speculative
trading of commodity futures, forward and 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.
B. Summary of Significant Accounting Policies
Basis of accounting
The books and records of the Company are maintained on the accrual basis
of accounting in accordance with generally accepted accounting principles
which require management to make estimates and assumptions that affect
the reported amounts of assets and liabilities and disclosure of contingent
assets and liabilities at the date of the financial statement. Actual results
could differ from those estimates.
Income taxes
The Company is a member of a group of affiliated companies which join in
filing a consolidated federal income tax return and certain combined and
unitary state and local returns. Pursuant to the tax allocation
arrangements, total federal and state and local tax expense is determined on
a separate company basis. Members with losses record tax benefits to the
extent such losses are recognized in the consolidated federal and state and
local tax provisions.
At December 31, 1998, the Company's federal and state income tax
payables were $24,769 and $8,355, respectively, and were included in Due to
Parent and affiliates.
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<PAGE>
Prudential Securities Futures Management Inc.
(A wholly-owned subsidiary of
Prudential Securities Incorporated)
Notes to statement of financial condition
December 31, 1998
C. Investments in Partnerships
The Company's investments in partnerships are carried at its share of the
underlying equity in the Partnerships' net assets. The Company's
investments in partnerships and its percentage ownership in those
partnerships are as follows:
Diversified Futures Trust I $ 589,470 1.0%
Diversified Futures Trust II 458,394 1.2
Prudential Securities
Strategic Trust 450,172 1.0
Prudential-Bache Capital Return
Futures Fund 2, L.P. 240,340 1.0
World Monitor Trust - Series B 151,173 1.3
World Monitor Trust - Series C 141,739 1.3
World Monitor Trust - Series A 137,620 1.3
Prudential Securities Aggressive
Growth Fund L.P. 56,097 1.0
Prudential Securities Foreign
Financials Fund, L.P 21,478 1.2
$2,246,483
The following represents combined condensed financial information for the
Partnerships in which the Company has an investment:
Assets $216,537,082
Liabilities $ 8,427,987
Partners' Capital 208,109,095
Total $216,537,082
D. Related Parties
The Company has an interest-bearing loan payable to PSGI in the amount
of $2,196,411 at December 31, 1998 which bears interest at PSGI's effective
borrowing rate (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
$104,403 and is included in Due to Parent and affiliates). The amount due
from the Partnerships related to these services ($20,467) is included in
Receivable from partnerships.
The Company's officers and directors are also officers of PSI.
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<PAGE>
Prudential Securities Futures Management Inc.
(A wholly-owned subsidiary of
Prudential Securities Incorporated)
Notes to statement of financial condition
December 31, 1998
E. Stockholder's Equity
The Company maintains a net worth in accordance with the limited
partnership and trust agreements of the Partnerships.
The Company has noninterest-bearing demand notes receivable from PSGI
in the amount of $9,100,000 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 $7,000,000 at
December 31, 1998.
F. Commitments and Contingencies
As a general partner or managing owner, the Company may be
contingently liable for costs and liabilities incurred by the Partnerships.
124
<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
125
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DIVERSIFIED FUTURES TRUST I
(a Delaware Business Trust)
STATEMENT OF FINANCIAL CONDITION
December 31, 1998
<TABLE>
- --------------------------------------------------------------------------------------------------
<CAPTION>
ASSETS
<S> <C>
Equity in commodity trading accounts:
Cash $ 55,481,234
Net unrealized gain on open commodity positions 6,197,212
-------------
Net equity 61,678,446
Other receivable 8,874
-------------
Total assets $ 61,687,320
-------------
-------------
LIABILITIES AND TRUST CAPITAL
Liabilities
Redemptions payable $ 2,543,697
Management fee payable 205,624
-------------
Total liabilities 2,749,321
-------------
Commitments
Trust capital
Limited interests (290,423.624 interests outstanding) 58,348,534
General interests (2,934 interests outstanding) 589,465
-------------
Total trust capital 58,937,999
-------------
Total liabilities and trust capital $ 61,687,320
-------------
-------------
Net asset value per limited and general interests $ 200.91
-------------
-------------
- --------------------------------------------------------------------------------------------------
The accompanying notes are an integral part of this statement.
</TABLE>
Purchasers of Limited Interests have no interest in this Trust.
126
<PAGE>
DIVERSIFIED FUTURES TRUST I
(a Delaware Business Trust)
NOTES TO STATEMENT OF FINANCIAL CONDITION
A. General
Diversified Futures Trust I (the 'Trust') was organized under the Delaware
Business Trust Act on May 18, 1994 and will continue until December 31, 2014
unless terminated sooner under the provisions of the Amended and Restated
Declaration of Trust and Trust Agreement (the 'Trust Agreement'). On January 5,
1995, the Trust completed its initial offering having raised $25,262,800 from
the sale of 249,628 limited interests ('Limited Interests') and 3,000 general
interests ('General Interests') (collectively, the 'Interests') and commenced
operations. The Trust was formed to engage in the speculative trading of
commodity futures and forward contracts. The Trust's trustee is Wilmington Trust
Company. The managing owner of the Trust is Prudential Securities Futures
Management Inc. (the 'Managing Owner'), a wholly owned subsidiary of Prudential
Securities Incorporated ('PSI'), which, in turn, is a wholly owned subsidiary of
Prudential Securities Group Inc. ('PSGI'). PSI was the principal underwriter of
the Interests and is the commodity broker of the Trust. The Managing Owner is
required to maintain at least a 1% interest in the Trust so long as it is acting
as the Managing Owner.
The Trust was permitted to sell a maximum of $50,000,000 of Limited
Interests, plus $50,000,000 of additional Limited Interests when PSI and the
Managing Owner exercised the over-subscription option granted to them by the
Trust Agreement. Following the close of the initial offering period, additional
Interests were offered and sold monthly at their month-end net asset value
('NAV') per Interest during a continuous offering period which expired on August
31, 1996. Additional contributions raised during the continuous offering period
resulted in additional proceeds to the Trust of $41,129,100 from the sale of
299,640 Limited Interests and 1,628 General Interests.
All trading decisions are made for the Trust by John W. Henry & 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
statement of financial condition on trade date. The difference between the
original contract amount and market value is reflected as net unrealized gain or
loss. The market value of each contract is based upon the closing quotation on
the exchange, clearing firm or bank on, or through, which the contract is
traded.
Income taxes
The Trust is treated as a partnership for Federal income tax purposes. As
such, the Trust is not required to provide for, or pay, any Federal or state
income taxes. Income tax attributes that arise from its operations are passed
directly to the individual Interest holders. The Trust may be subject to other
state and local taxes in jurisdictions in which it operates.
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.
127
<PAGE>
Distributions (other than on redemptions of Interests) are made at the sole
discretion of the Managing Owner on a pro rata basis in accordance with the
respective capital accounts of the Interest holders. No distributions have been
made since inception.
Additional Interests were offered monthly at their month-end 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 1998, the Financial Accounting Standards Board ('FASB') issued
Statement No. 133, Accounting for Derivative Instruments and Hedging Activities
('SFAS 133'), which the Trust is required to adopt effective January 1, 2000.
SFAS 133 establishes accounting and reporting standards for derivative
instruments and for hedging activities and requires that an entity recognize all
derivatives as assets or liabilities measured at fair value. The Trust does not
believe the effect of adoption 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 costs of organizing the Trust and offering its Interests
as well as the routine operational, administrative, legal and auditing fees.
The Trust maintains its trading and cash accounts at PSI, the Trust's
commodity broker. Except for the portion of assets that is deposited as margin
to maintain forward currency contract positions as further discussed below, the
Trust's assets are maintained either on deposit with PSI or, for margin
purposes, with the various exchanges on which the Trust is permitted to trade.
PSI credits the Trust monthly with 100% of the interest it earns on the net
assets in these 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 December 31, 1998, a non-U.S. affiliate of the Managing Owner owns
2,463.953 Limited Interests of the Trust.
128
<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 statement of financial
condition. The Trust's exposure to market risk is influenced by a number of
factors including the relationships among the contracts held by the Trust as
well as the liquidity of the markets in which the contracts are traded.
Futures 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 statement of financial condition
because it has a master netting agreement with PSI.
The Managing Owner attempts to minimize both credit and market risks by
requiring the Trust's Trading Manager to abide by various trading limitations
and policies. The Managing Owner monitors compliance with these trading
limitations and policies which include, but are not limited to, executing and
clearing all trades with creditworthy counterparties (currently, PSI is the sole
counterparty or broker); limiting the amount of margin or premium required for
any one commodity or all commodities combined; and generally limiting
transactions to contracts which are traded in sufficient volume to permit the
taking and liquidating of positions. The Managing Owner may impose additional
restrictions (through modifications of such trading limitations and policies)
upon the trading activities of the Trading Manager as it, in good faith, deems
to be in the best interests of the Trust.
PSI, when acting as the Trust's futures commission merchant in accepting
orders for the purchase or sale of domestic futures 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 December 31, 1998, such segregated assets totalled $47,295,189. Part
30.7 of the CFTC regulations also requires PSI to secure assets of the Trust
related to foreign futures trading which totalled $14,585,018 at December 31,
1998. There are no segregation requirements for assets related to forward
trading.
As of December 31, 1998, the Trust's open futures and forward contracts
mature within one year.
<PAGE>
129
<PAGE>
At December 31, 1998, gross contract amounts of open futures and forward
contracts are:
Financial Futures Contracts:
Commitments to purchase $241,713,301
Commitments to sell $450,175,973
Currency Futures Contracts:
Commitments to purchase $29,926,525
Commitments to sell $22,716,988
Other Futures Contracts:
Commitments to purchase $ 2,666,083
Commitments to sell $15,300,056
Currency Forward Contracts:
Commitments to purchase $ 464,787
Commitments to sell $ 7,297,275
The gross contract amounts represent the Trust's potential involvement in a
particular class of financial instrument (if it were to take or make delivery on
an underlying futures or forward contract). The gross contract amounts
significantly exceed the future cash requirements as the Trust intends to close
out open positions prior to settlement and thus is generally subject only to the
risk of loss arising from the change in the value of the contracts. As such, the
Trust considers the 'fair value' of its futures and forward contracts to be the
net unrealized gain or loss on the contracts. Thus, the amount at risk
associated with counterparty nonperformance of all contracts is the net
unrealized gain included in the statement of financial condition. The market
risk associated with the Trust's commitments to purchase commodities is limited
to the gross contract amounts involved, while the market risk associated with
its commitments to sell is unlimited since the Trust's potential involvement is
to make delivery of an underlying commodity at the contract price; therefore, it
must repurchase the contract at prevailing market prices.
The following table presents the average fair value of futures and forward
contracts during the year ended December 31, 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>
130
<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.
Round-Turn Equivalents
The actual round-turn equivalent of brokerage commissions paid per contract
for the year ended December 31, 1998 was $112.
<PAGE>
131
<PAGE>
WORLD MONITOR TRUST II
The date of this prospectus is September __, 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. 9
SECTION 1.8 Legal Title. . . . . . . . . . . . . . . 9
SECTION 1.9 Series Trust. . . . . . . . . . . . . . 9
ARTICLE II
THE TRUSTEE. . . . . . . . . . . . . . . . . . . . . . . 10
SECTION 2.1 Term; Resignation. . . . . . . . . . . . 10
SECTION 2.2 Powers . . . . . . . . . . . . . . . . . 10
SECTION 2.3 Compensation and Expenses of the Trustee 10
SECTION 2.4 Indemnification . . . . . . . . . . . . 11
SECTION 2.5 Successor Trustee. . . . . . . . . . . . 11
SECTION 2.6 Liability of Trustee . . . . . . . . . . 11
SECTION 2.7 Reliance; Advice of Counsel. . . . . . . 12
ARTICLE III
INTERESTS; CAPITAL CONTRIBUTIONS . . . . . . . . . . . 13
SECTION 3.1 General. . . . . . . . . . . . . . . . 13
SECTION 3.2 Establishment of Series of Interests.. 14
SECTION 3.3 Establishment of Classes. . . . . . . 15
SECTION 3.4 Limited Interests. . . . . . . . . . . 15
SECTION 3.5 Assets of Series. . . . . . . . . . . 23
SECTION 3.6 Liabilities of Series. . . . . . . . . 23
SECTION 3.7 Dividends and Distributions. . . . . . . 25
SECTION 3.8 Voting Rights. . . . . . . . . . . . . . 25
SECTION 3.9 Equality . . . . . . . . . . . . . . . . 26
SECTION 3.10 Exchange of Interests . . . . . . . . . 26
(i)
<PAGE>
ARTICLE IV
THE MANAGING OWNER . . . . . . . . . . . . . . . . . . 26
SECTION 4.1 Management of the Trust. . . . . . . . 26
SECTION 4.2 Authority of Managing Owner. . . . . . 26
SECTION 4.3 Obligations of the Managing Owner. . . 29
SECTION 4.4 General Prohibitions . . . . . . . . . 32
SECTION 4.5 Liability of Covered Persons . . . . . 33
SECTION 4.6 Indemnification of the Managing Owner. 33
SECTION 4.7 Expenses and Limitations Thereon . . . 35
SECTION 4.8 Compensation to the Managing Owner . . 36
SECTION 4.9 Other Business of Interestholders. . . 36
SECTION 4.10 Voluntary Withdrawal of the Managing
Owner. . . . . . . . . . . . . . . . . . . 36
SECTION 4.11 Authorization of Registration
Statements . . . . . . . . . . . . . . . . 36
SECTION 4.12 Litigation. . . . . . . . . . . . . . 37
ARTICLE V
TRANSFERS OF INTERESTS . . . . . . . . . . . . . . . . 37
SECTION 5.1 General Prohibition. . . . . . . . . . 37
SECTION 5.2 Transfer of Managing Owner's General
Interests. . . . . . . . . . . . . . . . . 37
SECTION 5.3 Transfer of Limited Interests. . . . . 38
ARTICLE VI
DISTRIBUTION AND ALLOCATIONS . . . . . . . . . . . . . 41
SECTION 6.1 Capital Accounts . . . . . . . . . . . 41
SECTION 6.2 Weekly Allocations . . . . . . . . .. 41
SECTION 6.3 Allocation of Profit and Loss for United
States Federal Income
Tax Purposes. . . . . . . . . . . . . . . 42
SECTION 6.4 Allocation of Distributions. . . . . . 43
SECTION 6.5 Admissions of Interestholders; Transfers43
SECTION 6.6 Liability for State and Local and Other
Taxes. . . . . . . . . . . . . . . . . . . 44
ARTICLE VII
REDEMPTIONS. . . . . . . . . . . . . . . . . . . . . . 44
SECTION 7.1 Redemption of Interests. . . . . . . . 44
SECTION 7.2 Redemption by the Managing Owner . .. 46
SECTION 7.3 Redemption Fee . . . . . . . . . . . 46
SECTION 7.4 Exchange of Interests. . . . . . . . 46
(ii)
<PAGE>
ARTICLE VIII
THE LIMITED OWNERS . . . . . . . . . . . . . . . . . . 47
SECTION 8.1 No Management or Control; Limited
Liability. . . . . . . . . . . . . . . . . 47
SECTION 8.2 Rights and Duties. . . . . . . . . . . 47
SECTION 8.3 Limitation on Liability. . . . . . . . 48
ARTICLE IX
BOOKS OF ACCOUNT AND REPORTS . . . . . . . . . . . . . 49
SECTION 9.1 Books of Account . . . . . . . . . . . 49
SECTION 9.2 Annual Reports and Monthly Statements. 49
SECTION 9.3 Tax Information. . . . . . . . . . . . 50
SECTION 9.4 Calculation of Net Asset Value of a
Series . . . . . . . . . . . . . . . . . 50
SECTION 9.5 Other Reports. . . . . . . . . . . . . 50
SECTION 9.6 Maintenance of Records . . . . . . . . 50
SECTION 9.7 Certificate of Trust . . . . . . . . . 50
SECTION 9.8 Registration of Interests. . . . . . . 51
ARTICLE X
FISCAL YEAR. . . . . . . . . . . . . . . . . . . . . . 51
SECTION 10.1 Fiscal Year . . . . . . . . . . . . . 51
ARTICLE XI
AMENDMENT OF TRUST AGREEMENT; MEETINGS . . . . . . . . 51
SECTION 11.1 Amendments to the Trust Agreement . . 51
SECTION 11.2 Meetings of the Trust . . . . . . . . 53
SECTION 11.3 Action Without a Meeting. . . . . . . 53
ARTICLE XII
TERM . . . . . . . . . . . . . . . . . . . . . . . . . 54
SECTION 12.1 Term. . . . . . . . . . . . . . . . . 54
ARTICLE XIII
TERMINATION. . . . . . . . . . . . . . . . . . . . . . 54
SECTION 13.1 Events Requiring Dissolution of the
Trust or any Series. . . . . . . . . . . . 54
SECTION 13.2 Distributions on Dissolution. . . . . 55
SECTION 13.3 Termination; Certificate of
Cancellation . . . . . . . . . . . . . . 56
(iii)
<PAGE>
ARTICLE XIV
POWER OF ATTORNEY. . . . . . . . . . . . . . . . . . . 56
SECTION 14.1 Power of Attorney Executed Concurrently56
SECTION 14.2 Effect of Power of Attorney . . . . . 57
SECTION 14.3 Limitation on Power of Attorney . . . 58
ARTICLE XV
MISCELLANEOUS. . . . . . . . . . . . . . . . . . . . . . 58
SECTION 15.1 Governing Law . . . . . . . . . . . . . 58
SECTION 15.2 Provisions In Conflict With Law or
Regulations. . . . . . . . . . . . . . . . 59
SECTION 15.3 Construction. . . . . . . . . . . . . 59
SECTION 15.4 Notices . . . . . . . . . . . . . . . 59
SECTION 15.5 Counterparts. . . . . . . . . . . . . 59
SECTION 15.6 Binding Nature of Trust Agreement . . 59
SECTION 15.7 No Legal Title to Trust Estate. . . . 60
SECTION 15.8 Creditors . . . . . . . . . . . . . . 60
SECTION 15.9 Integration . . . . . . . . . . . . . 60
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 Beacon
Company (USA) 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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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
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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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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 below 6% of a
Series' Net Asset Value, Incentive Fees
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<PAGE>
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, legal and audit services or
extraordinary expenses), when combined with Management Fees,
exceed 6% annually of the Net Asset Value of each Series,
each in accordance with the limitations set forth in
Section IV of the NASAA Guidelines on 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 in the Managing Owner's sole
and absolute discretion. The parties hereto hereby agree
that such restrictions are necessary and desirable in order
to maintain each Series' tax classification as a
partnership, to avoid having any Series classified as a
publicly traded partnership or to avoid adverse legal
consequences to any Series in the Trust.
(i) A substituted Limited Owner is a
permitted assignee that has been admitted to any
Series as a Limited Owner with all the rights and
powers of a Limited Owner hereunder. If all of the
conditions provided in Section 5.3(b) below are
satisfied, the Managing Owner shall admit permitted
assignees into the Trust as Limited Owners by making
an entry on the books and records of the Series
reflecting that such permitted assignees have been
admitted as Limited Owners, and such permitted
assignees will be deemed Limited Owners at such time
as such admission is reflected on the books and
records of the Series.
(ii) A permitted assignee is a Person to
whom a Limited Owner has assigned his Limited
Interests with the consent of the Managing Owner, as
provided below in Section 5.3(d), but who has not
become a substituted Limited Owner. A permitted
assignee shall have no right to vote, to obtain any
information on or account of the Series'
transactions or to inspect the Series' books, but
shall only be entitled to receive the share of the
profits, or the return of the Capital Contribution, to
which his assignor would otherwise be entitled as set
forth in Section 5.3(d) below to the extent of the
Limited Interests assigned. Each Limited Owner agrees
that any permitted assignee may become a substituted
Limited Owner without the further act or consent of
any Limited Owner, regardless of whether his permitted
assignee becomes a substituted Limited Owner.
(iii) A Limited Owner shall bear all
extraordinary costs (including attorneys' and
accountants' fees), if any, related to any transfer,
assignment, pledge or encumbrance of his Limited
Interests.
(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.
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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<PAGE>
IN WITNESS WHEREOF, the undersigned have duly executed
this Declaration of Trust and Trust Agreement as of the day
and year first above written.
WILMINGTON TRUST COMPANY,
as Trustee
By:___________________________
Name:
Title:
PRUDENTIAL SECURITIES FUTURES
MANAGEMENT INC.,
as Managing Owner
By:________________________
Name: 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, E, OR 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).
<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 interests,
beneficial interests or equity ownership of any kind (collectively,
"Interests"), arising from, related to or in connection with the Trust
and its assets and the Contracting Series and the Contracting Series
Assets, shall be subject to the following limitations:
(a) subordination of certain claims and rights. (i) except as set
forth below, the Claims and Interests, if any, of the subscriber
(collectively, the "Subordinated Claims and Interests") shall be
expressly subordinate and junior in right of payment to any and all
other Claims against and Interests in the Trust and any Series thereof,
and any of their respective assets, which may arise as a matter of law
or pursuant to any contract; provided, however, that the subscriber's
Claims (if any) against and Interests (if any) in the Contracting Series
shall not be considered Subordinated Claims and Interests with respect
to enforcement against and distribution and repayment from the
Contracting Series, the Contracting Series Assets and the managing
owner and its assets; and provided further that (1) the subscriber's
valid Claims, if any, against the Contracting Series shall be pari passu
and equal in right of repayment and distribution with all other valid
Claims against the Contracting Series and (2) the subscriber's
Interests, if any, in the Contracting Series shall be pari passu and
equal in right of repayment and distribution with all other Interests
in the Contracting Series; and (ii) the subscriber will not take, demand
or receive from any Series or the Trust or any of their respective
assets (other than the Contracting Series, the Contracting Series Assets
and the managing owner and its assets) any payment for the Subordinated
Claims and Interests;
(b) the Claims and Interests of the subscriber with respect to the
Contracting Series shall only be asserted and enforceable against the
Contracting Series, the Contracting Series Assets and the managing owner
and its assets; and such Claims and Interests shall not be asserted or
enforceable for any reason whatsoever against any other Series, the
Trust generally or any of their respective assets;
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 Interests from a Series or the Trust (or their respective assets),
other than the Contracting Series, the Contracting Series Assets and the
managing owner and its assets, the subscriber shall be deemed to hold
such monies in trust and shall promptly remit such monies to the Series
or the Trust that paid such amounts for distribution by the Series or
the Trust in accordance with the terms hereof; and
(e) the foregoing Consent shall apply at all times notwithstanding that
the Claims are satisfied or that the Interests are sold, transferred, redeemed
or in any way disposed of and notwithstanding that the agreements in
respect of such Claims and Interests are terminated, rescinded or
canceled.
NOTICES TO SUBSCRIBERS
13. RISKS
These securities are speculative and their purchase involves a high
degree of risk. Risk Factors relating to the Interests in each Series
which are more fully described in the prospectus include the following:
(i) futures, forward and options trading is speculative, volatile and
highly leveraged; (ii) each Series is largely reliant on the trading
advisor for success; (iii) past performance of the trading advisor for
each Series is not necessarily indicative of future results; (iv) a
limited owner's tax liability is likely to exceed his 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; and (x) Prudential Securities and its affiliates have
been involved in several lawsuits, investigations, and
enforcement actions by regulatory authorities, including
various matters surrounding allegations relating to the sale
of interests in over 700 non-commodities limited partnerships.
See 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, E, and/or 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,
and not more than 25% of this offering may be sold
in California.
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 F
The date of this Part II is __________, 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.......................................... *
Legal fees and expenses........................... *
Accounting fees................................... *
Blue Sky registration fees and expenses........... *
Miscellaneous..................................... *
Total.............................................
Item 14. Indemnification of Directors and Officers.
Reference is made to Section 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.
*To be filed by amendment
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 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.
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 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
* To be filed by amendment.
II-1
<PAGE>
*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 each Advisor
10.4 Form of Representation Agreement Concerning the Registration
Statement and the Prospectus among the Registrant, Prudential
Securities Futures Management Inc., Prudential Securities
Incorporated, Wilmington Trust Company and each Advisor
10.5 Form of Net Worth Agreement between Prudential Securities
Futures Management Inc. and Prudential Securities Group Inc.
*23.1 The consent of PricewaterhouseCoopers LLP is included as part of
the Registration Statement
23.2 The consent of Rosenman & Colin LLP is included as part of the
Registration Statement
24.3 The consent of Richards, Layton & Finger is included as
part of the Registration Statement
* To be filed by amendment
(b) The following financial statements are included in the Prospectus:
1. World Monitor Trust II -- Series D, Series E and Series F
(i) Report of Independent Accountants.
(ii) Audited Statement of Financial Condition as of
April 30, 1999.
(iii) Notes to Statement of Financial Condition
II-2
<PAGE>
(iii) Notes to Audited Statement of Financial Condition.
2. Prudential Securities Futures Management Inc.
(i) Report of Independent Accountants
(ii) Audited Statement of Financial Condition as of December 31, 1998.
(iii) 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) 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.
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
II-3
<PAGE>
disclosed in the Registration Statement or any material change
to such information in the Registration Statement; (b) that,
for the purposes of determining any liability under the Act,
each such post-effective amendment be deemed to be a new
Registration Statement relating to the securities offered herein
and the offering of such securities at that time shall be deemed to be the
initial bona fide offering thereof; and (c) to remove from registration by
means of a post-effective amendment any of the securities being registered
which remain unsold at the termination of the offering.
Insofar as indemnification for liabilities arising under the Act may be
permitted to the Managing Owner of Registrant, including its directors,
officers, and controlling persons, Registrant has been advised that in the
opinion of the Securities and Exchange Commission such indemnification
is against public policy as expressed in the Act and is, therefore,
unenforceable. In the event that a claim for indemnification against such
liabilities (other than for expenses incurred in a successful defense) is
asserted against Registrant by the Managing Owner under the Declaration
of Trust and Trust Agreement or otherwise, Registrant will, unless in the
opinion of its counsel the matter has been settled by controlling precedent,
submit to a court of appropriate jurisdiction the question whether such
indemnification by it is against public policy as expressed in the Act and
will be governed by the final adjudication of such issue.
II-4
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, the Registrant
has duly caused this Registration Statement to be signed on its behalf by
the undersigned, thereunto duly authorized, in the City of New York, State
of New York, on the 14th day of July, 1999.
WORLD MONITOR TRUST II - SERIES F
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 and Director July 14, 1999
- -----------------------
Joseph A. Filicetti
/s/ Eleanor L. Thomas Executive Vice President July 14, 1999
- -----------------------
Eleanor L. Thomas
Director ___________, 1999
- -----------------------
A. Laurence Norton, Jr.
/s/ Guy S. Scarpaci Director July 14, 1999
- -----------------------
Guy S. Scarpaci
/s/ Barbara J. Brooks Chief Financial Officer July 14, 1999
- -----------------------
Barbara J. Brooks
/s/ Steven Carlino Chief Accounting Officer, July 14, 1999
- ----------------------- Treasurer and Vice President
Steven Carlino
/s/ Tamara B. Wright Senior Vice President and July 14, 1999
- ----------------------- Director
Tamara B. Wright
Director ___________, 1999
- -----------------------
Alan J. Brody
(Being the executive officers and the directors
of Prudential Securities Futures Management Inc.)
II-5
<PAGE>
INDEX TO EXHIBITS
Page in
Sequential
Numbering
System
Exhibits
1.1 Form of Underwriting Agreement among the
Registrant, Prudential Securities Futures
Management Inc. and Prudential Securities
Incorporated
3.1
and
4.1 Declaration of Trust and Trust Agreement of the
Registrant (annexed to the Prospectus as
Exhibit A)
4.2 Form of Request for Redemption (annexed to the
Prospectus as Exhibit B)
4.3 Form of Exchange Request (annexed to the
Prospectus as Exhibit C)
4.4 Form of Subscription Agreement (annexed to the
Prospectus as Exhibit D)
*5.1 Opinion of Rosenman & Colin LLP as to legality
*5.2 Opinion of Richards, Layton & Finger as to
legality and inter-Series liability under
Delaware Law
*5.3 Opinion of Rosenman & Colin LLP as to federal
bankruptcy issues
*8.1 Opinion of Rosenman & Colin LLP as to income
tax matters
*10.1 Form of Escrow Agreement among the Registrant,
Prudential Securities Futures Management Inc.,
Prudential Securities Incorporated and The
Bank of New York
* To be filed by amendment
<PAGE>
Page in
Sequential
Numbering
System
Exhibits
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 each Advisor
10.4 Form of Representation Agreement Concerning
the Registration Statement and the Prospectus among
the Registrant, Prudential Securities Futures
Management Inc., Prudential Securities Incorporated,
Wilmington Trust Company and each Advisor
10.5 Form of Net Worth Agreement between Prudential
Securities Futures Management Inc. and Prudential
Securities Group Inc.
*23.1 The consent of PricewaterhouseCoopers LLP is included
as part of the Registration Statement
23.2 The consent of Rosenman & Colin LLP is included as
part of the Registration Statement
23.3 The consent of Richards, Layton & Finger is
included as part of the Registration Statement
* To be filed by amendment.
<PAGE>
EXHIBIT 1.1
WORLD MONITOR TRUST II
$50,000,000 of Series D Interests
$50,000,000 of Series E Interests
$50,000,000 of Series F Interests
New York, New York
, 1999
UNDERWRITING AGREEMENT
Prudential Securities Futures Management Inc., a Delaware
corporation (the "Managing Owner"), is the Managing Owner of
World Monitor Trust II (the "Trust"), a business trust organized
under Chapter 38 of Title 12 of the Delaware Code (the
"Delaware Act"). Wilmington Trust Company (the "Trustee"), a
Delaware banking company, is the Trustee of the Trust and has
delegated all responsibility for the management of the Trust's
business and affairs to the Managing Owner. The Trust has
been formed primarily for the purpose of trading, buying,
selling, spreading or otherwise acquiring, holding or
disposing of a diversified portfolio of commodity futures,
forward and options contracts. Limited interests in the Trust
(the "Interests") will be issuable in multiple series (the
"Series"), each separately managed by a different professional
trading advisor (collectively, the "Trading Advisors"), each
of which is registered as a commodity trading advisor. Each
Series will be separately valued and its assets will be
segregated from the assets of the other Series. Holders of
Interests ("Limited Owners") will have the right to exchange,
through redemption and purchase, Interests of one Series for
Interests of any other Series. The Trust proposes to offer to
the public and to sell to subscribers acceptable to the
Managing Owner the Interests upon the terms and subject to
the conditions set forth in this Underwriting Agreement (the
"Agreement") and in the Registration Statements (and the
Prospectuses included therein) referred to below. A maximum
of $50 million for each of Series D, Series E and Series F
will be offered and sold during the Initial Offering Period
for each Series, and thereafter during the Continuous Offering
Period for each Series. (The "Initial Offering Period" for each
Series begins with the date of the Prospectus and runs for a
period of 120 days, unless the Managing Owner decides otherwise.
After the Initial Offering Period for each Series ends, Interests
in each Series will continue to be sold once each week, during what
is referred to as the "Continuous Offering Period," until each
Series' subscription maximum has been sold, either through sale or
exchange.) The Interests of each Series will be offered at $100
per Interest during the Initial Offering Period and thereafter at
the Net Asset Value (as such term is defined in Section 1.1 of the
First Amended and Restated Trust Agreement, dated as of _______________,
1999, by and among the Managing Owner and the Trustee) per Interest
of the applicable Series (the "Series Net Asset Value").
Prudential Securities Incorporated ("Prudential
Securities") will act as underwriter and sales agent for the
Trust on a "best efforts" basis.
1. The Managing Owner and the Trust, jointly and
severally, represent and warrant to Prudential Securities
that:
a. A separate Registration Statement on Form S-1
for each Series and as a part thereof a combined prospectus
for all Series with respect to all of the Interests being
offered (which Registration Statements together with all
amendments thereto, at the times and in the forms declared
effective by the Securities and Exchange Commission (the
"SEC") shall be referred to herein as the "Registration
Statements," and which prospectus in final form, together with
all amendments and supplements thereto, shall be referred to
herein as the "Prospectus"), prepared in full conformity with
the applicable requirements of the Securities Act of 1933, as
amended (the "1933 Act"), the Commodity Exchange Act, as
amended (the "CE Act"), and the rules, regulations and
instructions promulgated under the 1933 Act and the CE Act,
respectively, has been filed with the SEC, the Commodity
Futures Trading Commission (the "CFTC"), the National
Association of Securities Dealers, Inc. (the "NASD") and the
National Futures Association (the "NFA") pursuant to the 1933
Act, the CE Act and the rules and regulations promulgated,
respectively, thereunder, as well as the rules and regulations
of the NASD and the NFA, in the form heretofore delivered to
Prudential Securities;
b. To the best of their knowledge, no order
preventing or suspending the effectiveness of the Registration
Statements or the use of the Prospectus or any previous prospectus
with respect to the Interests has been issued by the SEC, the
CFTC, the NASD, the NFA or any other federal, state or other
governmental agency or body. Each Registration Statement
contains all statements that are required to be made therein,
conforms in all material respects to the requirements of the
1933 Act and the CE Act and the rules and regulations of the
SEC and the CFTC, respectively, thereunder, and does not
contain an untrue statement of a material fact or omit to
state a material fact required to be stated therein or
necessary to make the statements therein (with respect to the
Prospectus, in light of the circumstances in which they were
made) not misleading; and, when the Registration Statements
become effective under the 1933 Act and at all times
subsequent thereto up to and including the Initial Closing
Date for each Series, and thereafter up to and including each
Subsequent Closing Date during the Continuous Offering Period,
as such terms are hereinafter defined in Section 6.d., the
Registration Statements and the Prospectus will contain all
material statements and information required to be included
therein by the 1933 Act and the CE Act and the rules and
regulations, respectively, thereunder, as well as the rules
and regulations of the NASD and the NFA, and will conform in
all material respects to the requirements of the 1933 Act, the
CE Act and the rules and regulations, respectively,
thereunder, as well as the rules and regulations of the NASD
and the NFA, and will not include any untrue statement of a
material fact or omit to state a material fact required to be
stated therein or necessary to make the statements therein
(with respect to the Prospectus, in light of the circumstances
in which they were made) not misleading; provided, however,
that this representation and warranty shall not apply to any
statements or omissions made in reliance upon and in
conformity with information furnished in writing to the Trust
or the Managing Owner by Prudential Securities, the Trustee or
their respective agents or by or on behalf of the Trading
Advisors or any other commodity trading advisor (an "Other
Advisor") engaged by the Managing Owner on behalf of the Trust
for use therein, all without prejudice to any defense that
Prudential Securities may have based upon its "due diligence"
investigation under the 1933 Act;
c. The Trust was duly formed and is validly
existing as a business trust in good standing under the
Delaware Business Trust Act, with full power and
authority, and all necessary authorizations, approvals and
orders of and from all federal, state and other governmental
or regulatory officials and bodies, to carry out its
obligations under this Agreement, its certificate of trust
(the "Trust Certificate") and its First Amended and Restated
Declaration of Trust and Trust Agreement, dated as of __________,
1999 (the "Trust Agreement"), and to own its properties and
conduct its business as described in the Prospectus;
d. On the date hereof, the Managing Owner is and,
at all times through the Initial Closing Date for each Series
and thereafter through each Subsequent Closing Date, will be
duly incorporated and validly existing as a corporation under
the laws of the State of Delaware with requisite corporate
power and authority, and all necessary authorizations,
approvals and orders of and from all required federal, state
and other governmental or regulatory officials and bodies, to
(i) conduct its business, (ii) enter into the agreements and
(iii) consummate the transactions, each as described in the
Prospectus; and on the date hereof the Managing Owner is and,
at all times through the Initial Closing Date for each Series
and thereafter through each Subsequent Closing Date, will be
duly qualified to conduct business as a foreign corporation in
good standing in every jurisdiction in which the character of
such business requires such qualification and the failure to
be so qualified would materially adversely affect its ability
to act as Managing Owner of the Trust and to perform its
obligations hereunder;
e. The offer and sale of the Interests for each
Series have been duly authorized by the Managing Owner on
behalf of the Trust, and the Interests, when issued, will
constitute valid interests in the Trust which conform to the
description thereof contained in the Prospectus; and the
liability of each Limited Owner will be limited as set forth
in the Prospectus and the Trust Agreement, and no Limited
Owner will be subject to personal liability for the debts,
obligations or liabilities of the Trust, other than as
described in the Prospectus and the Trust Agreement, by
reason of his being a Limited Owner of the Trust;
f. This Agreement has been duly and validly
authorized, executed and delivered by the Managing Owner and
the Trust and constitutes a valid and binding agreement of the
Managing Owner and the Trust enforceable in accordance with
its terms. Neither the offer and sale of the Interests, nor
the execution and delivery of this Agreement, nor compliance
by the Trust or the Managing Owner with all of the provisions
of this Agreement will conflict with or result in a breach of
any of the terms or provisions of or result in a default
under the provisions of the Trust Certificate or the Trust
Agreement or the Certificate of Incorporation or By-Laws of
the Managing Owner or the terms of any indenture, mortgage,
deed of trust, loan agreement, other evidence of indebtedness
or other agreement or instrument to which the Trust or the
Managing Owner is a party or by which the Trust or the
Managing Owner is bound or to which any of the property or
assets of the Trust or the Managing Owner is subject, or to
the best of their knowledge, any applicable statute or any
order, rule or regulation of any court or of any federal,
state or other governmental or regulatory agency or body
having jurisdiction over the Trust or the Managing Owner or
any of their properties, nor will any such actions result in
the imposition of any lien, charge or encumbrance upon any of
the property or assets of the Trust or the Managing Owner, and
subsequent to the dates as of which information is given in
the Registration Statements and the Prospectus and except as
set forth or contemplated therein, neither the Trust nor the
Managing Owner has incurred any material liabilities or
obligations (direct or contingent) or entered into any
material transactions not in the ordinary course of its
business, and no consent, approval, authorization, order,
registration or qualification of or with any court or any
federal, state or other governmental or regulatory agency or
body is required for the issue and sale of the Interests or
the consummation of the other transactions contemplated by
this Agreement, except the registration of the Managing Owner
under the CE Act as a commodity pool operator, membership by
the Managing Owner as a commodity pool operator with the NFA,
the registration under the 1933 Act of the Interests,
submission of the Prospectus to the NASD, CFTC and NFA and
such consents, approvals, authorizations, orders,
registrations or qualifications as may be required by
securities or Blue Sky laws in connection with the offer and
sale of the Interests;
g. PricewaterhouseCoopers LLP, who has examined certain
financial statements of the Managing Owner and the Trust, is
an independent public accountant, as required by the CE Act
and the 1933 Act and the rules and regulations of the CFTC and
SEC, respectively, thereunder;
h. The Trust has been capitalized as set forth in
the Prospectus;
i. The Trust and the Managing Owner have complied,
and will continue to comply, with all laws, rules and
regulations having application to its or their business,
including rules and regulations promulgated by the CFTC and
NFA, the violation of which would materially and adversely
affect the business, financial condition or earnings of the
Trust or the Managing Owner; and there are no actions, suits
or proceedings pending or, to the best of the knowledge of the
Trust or the Managing Owner, threatened against it or them, at
law or in equity or before or by any federal, state, municipal
or other governmental or regulatory department, commission,
board, bureau, agency or instrumentality, or by any commodity
or security exchange worldwide in which an adverse decision
would materially and adversely affect the business, financial
condition, earnings or properties of the Trust or the Managing
Owner or their ability to comply with, and perform their
obligations under, this Agreement and which are not adequately
disclosed in the Prospectus;
j. On or before the Initial Closing Date for each
Series, and thereafter, on or before each Subsequent Closing
Date, the Managing Owner shall have purchased or subscribed
for the general interests required of it by the Trust
Agreement and shall have a Net Worth (as defined in the Trust
Agreement) equal to or in excess of the requirements therein;
k. The financial statements of the Managing Owner
and the Trust contained in the Registration Statements and the
Prospectus fairly present the financial condition thereof and
the results of operations as of the dates and for the periods
therein specified; and such financial statements have been
prepared in accordance with generally accepted accounting
principles in the U.S. consistently applied throughout
the periods involved; and no other financial statements
are required by Form S-1 to be included in the Registration
Statements or the Prospectus;
l. There are no contracts or other documents which
are required to be filed as exhibits to the Registration
Statements by the 1933 Act or the CE Act or by the rules and
regulations of the SEC or CFTC, respectively, thereunder, or
by the rules and regulations of the NASD or NFA, which have
not been filed as required; and
m. The Trust has the power and authority to enter
into the various contractual obligations and agreements
referred to in the Prospectus, and the execution and delivery
of such agreements by the Trust and by the Managing Owner on
behalf of the Trust, the consummation of the transactions
contemplated therein and the compliance with all of the terms
thereof by the Trust and the Managing Owner will be in
compliance with all applicable legal requirements to which
either the Trust or the Managing Owner is subject and will not
conflict with or constitute a breach of, or default under, the
terms or provisions of any order of the SEC, the NASD, the
CFTC, the NFA, the Trust Agreement, the Trust Certificate,
the Certificate of Incorporation of the Managing Owner, the
By-Laws of the Managing Owner or any other agreement or
instrument to which either the Trust or the Managing Owner
is a party or by which either is bound;
2. a. Subject to the terms and conditions and on the
basis of the representations, warranties and covenants herein
set forth, the Trust hereby appoints Prudential Securities as
its selling agent and Prudential Securities agrees to use its
best efforts to procure subscribers during the various Initial
and Continuous Offering Periods on the terms and conditions
set forth, and for the periods described, in the Prospectus.
b. The Trust acknowledges that Prudential
Securities has no present intention to retain certain selected
brokers or dealers ("Additional Sellers") but that Prudential
Securities maintains the right to retain Additional Sellers in
the future, which in such case the Additional Sellers, if
located in the U.S., will be members of the NASD and
will execute a selected dealers agreement to be agreed upon
between the parties.
c. During the various Initial and Continuous
Offering Periods, all Prudential Securities branch offices
will be required to forward subscriptions to the Prudential
Securities New York Operational branch office and to the
Managing Owner no later than noon of the first business day
following receipt of an acceptable subscription agreement from
a subscriber for Interests ("Subscriber," or, collectively,
"Subscribers"). The Managing Owner shall have sole
responsibility for determining whether Subscribers are
qualified to become Limited Owners in the Trust and for
accepting subscriptions and determining their validity.
Prudential Securities agrees to use its best efforts to cause
subscribers to prepare their subscriptions in proper form.
Prudential Securities shall deposit the subscription proceeds
from the sale of Interests in each Series (the "Proceeds")
during the Initial Offering Periods in escrow accounts designated
by Series at The Chase Manhattan Bank in New York,
New York (the "Escrow Agent"), for the separate benefit of the
Subscribers of each Series, not later than noon of the second
business day following the receipt by the Managing Owner of
completed subscription agreements accompanied by such Proceeds.
Proceeds will be transferred to the escrow accounts at the
Escrow Agent from the Subscriber's account with Prudential
Securities (or from the Subscriber's account at an Additional
Seller), which funds must be in the Subscriber's account with
Prudential Securities (or at an Additional Seller) at the time
of the subscription. The Managing Owner will determine
whether to accept or reject all subscriptions within four
business days following receipt of subscription documents from
Prudential Securities. Upon notification by the Managing
Owner to the Escrow Agent that a subscription for Interests of
a Subscriber has been rejected, for whatever reason, or in the
event that the Subscriber rescinds its subscription in
conformity with the requirements of the North American
Securities Administrators Association Inc. Guidelines for
Registration of Commodity Pool Programs, the Escrow Agent
shall, by wire transfer, return any Proceeds held in escrow,
excluding any interest thereon, to Prudential Securities, in
which case Prudential Securities shall credit the Subscriber's
account with Prudential Securities as soon thereafter as may
be practicable. The Escrow Agent shall make interest payments
to the Subscribers by delivering a check in the amount equal
to the interest allocable by Series to each Subscriber. In
the case of Individual Retirement Accounts ("IRAs"),
interest payments will be forwarded to Prudential Securities
for deposit into the subscriber's Prudential Securities
account. If subscriptions for the minimum number of
Interests in a Series set forth in the Prospectus (after
taking into account the Managing Owner's contribution) have
not been made by the conclusion of the Initial Offering Period
for a Series, then all Proceeds deposited in the escrow
account designated for that Series, and any interest earned
thereon, shall be returned (in the same way described above in
the case of a rejected or rescinded subscription) to the
Subscribers on a pro rata basis (and taking into account the
amount and time of deposit) no later than ten business
days after the termination of the Initial Offering Period for
the affected Series, or as soon thereafter as practicable if
payment cannot be made in such time period.
d. During the Continuous Offering Period, the
Managing Owner also will determine whether to accept or reject
all subscriptions received and will do so (i) within one
business day following receipt from Prudential Securities of
an "Exchange Request" (in the form attached to the
Prospectus as Exhibit C) or a "Subscription Agreement" (in
the form attached to the Prospectus as Exhibit D) with
respect to a Limited Owner in an existing Series and (ii)
within four business days following receipt of
subscription documents from Prudential Securities for a new
Subscriber. For subscriptions which are accepted, proceeds
will be transferred to the applicable Series account with The
Chase Manhattan Bank in New York, New York from the Subscriber's
account with Prudential Securities (or from the Subscriber's
account at an Additional Seller), which funds must be in
the Subscriber's account with Prudential Securities
(or an Additional Seller) at the time of the
subscription. For an existing Limited Owner, such
transfer will occur on the Subsequent Closing Date which first
follows the date on which the Managing Owner accepts the
subscription. For a new Subscriber, such transfer will occur
on the Subsequent Closing Date which first occurs five
business days after the subscription documents are delivered
by the Subscriber to Prudential Securities (or an Additional
Seller).
e. On the Initial Closing Date for a Series, and
thereafter on each Subsequent Closing Date with respect to
that Series, the acceptance, delivery and receipt of
subscriptions for Interests will be subject to the terms and
conditions set forth in this Agreement, including, but not
limited to, (i) the payment of the full subscription price for
Interests and delivery of a properly completed Subscription
Agreement/Power of Attorney by each subscriber, (ii) the fact
that a new subscriber's subscription will not be final and
binding until five business days following the
Subscriber's delivery of his subscription documents to
Prudential Securities (or an Additional Seller) and (iii)
compliance with Section 5 of this Agreement. Upon the satisfaction
of such terms and conditions, the aggregate subscription price
for Interests (exclusive of any interest earned on such
subscriptions while held in escrow which is payable to the
subscribers) will be paid and delivered to the Trust in
accordance with the Escrow Agreement.
f. Prudential Securities represents and warrants
that: (i) it is a duly organized and validly existing
corporation and is in good standing and qualified to transact
its business in the jurisdictions where it shall sell the
Interests; (ii) it has all requisite corporate power and
authority to act as selling agent in the manner contemplated
by this Agreement, the Prospectus and the Registration
Statements; (iii) with respect to the offer and sale of the
Interests, all references to it in the Prospectus are accurate
in all material respects and such information does not contain
an untrue statement of a material fact or omit to state a
material fact required to be stated therein or necessary to
make the statements therein, in light of the circumstances in
which they were made, not misleading; and (iv) this Agreement
has been duly authorized, executed and delivered on behalf of
it and is a valid and binding agreement enforceable in
accordance with its terms;
g. No selling commissions shall be paid to
Prudential Securities by the Trust or the Managing Owner in
connection with the transactions contemplated hereby.
Prudential Securities will, however, provide the branch office
from which a Limited Owner was sold an Interest during the
Initial and Continuous Offering Periods with a per Interest
sales credit. From this sales credit the branch office
normally will pay not more than 2.5% of the applicable Series
Net Asset Value per Interest to each of its employees (as may
be agreed upon by Prudential Securities and such employee)
with respect to Interests sold by such employee; provided,
however, that Prudential Securities will only pay such amounts
to employees who have all appropriate federal and state
securities registrations. Aggregate expenses incurred in
connection with retail salaries, expense reimbursement, sales
seminars, bonus and sales incentives will not exceed the
limitation imposed on such expenses by the NASD.
Notwithstanding the foregoing, the Trust understands that so
long as Prudential Securities is registered as a futures
commission merchant ("FCM"), Prudential Securities will,
commencing 12 months after the effective date of the sale
of each Interest, compensate each of its employees who have
sold such Interests who (i) is or will be registered as an
Associated Person ("AP") under the CE Act and be qualified to
do futures brokerage (in addition to having all applicable
federal and state securities registrations) and (ii) performs
or will perform certain administrative services specified in
the Prospectus on an ongoing basis for the Limited Owners who
purchased such Interests ("Continuous Compensation"). No
compensation set forth in this Section 2.g. will be paid in
respect of Interests sold to IRAs of Prudential Securities
employees.
h. As compensation for the brokerage services it will
perform for the Trust once trading commences, Prudential
Securities will receive a monthly brokerage fee from each
Series, which on an annual basis will equal 6% of its Series
Net Asset Value, from which Prudential Securities will
compensate its employees as described above in the immediately
preceding paragraph. There will be no material change related
to such brokerage fee except upon 20 business days' notice to
Limited Owners, and no increase in such fee shall take effect
except at the beginning of a quarter.
i. Prudential Securities will not pay any portion of
Continuous Compensation to any individual who it no longer
employs, but it may pay such compensation to certain of its
employees who, although not responsible for the sale of an
outstanding Interest, provide certain continuous
administrative services to Limited Owners in place of the
individual who was responsible for such sale, provided that
such replacement individual has the appropriate AP
registration and is qualified to do futures brokerage as set
forth above. Any Additional Sellers retained by the Trust, so
long as they are registered as FCMs, also will receive
Continuous Compensation, with any employees of Additional U.S.
Sellers being required to be registered as APs under the CE
Act and be futures qualified as set forth above. All APs,
whether or not affiliated with Prudential Securities,
receiving Continuous Compensation must either have passed the
Series 3 or Series 31 Commodity Brokerage Exam or be
"grandfathered" as an AP qualified to do futures brokerage.
j. Prudential Securities agrees that it will not
take any of the following actions against the Trust: (i) seek
a decree or order by a court having jurisdiction in the
premises (A) for relief in respect of the Trust in an
involuntary case or proceeding under the U.S. Bankruptcy
Code or any other federal or state bankruptcy, insolvency,
reorganization, rehabilitation, liquidation or similar law or
(B) adjudging the Trust a bankrupt or insolvent, or seeking
reorganization, rehabilitation, liquidation, arrangement,
adjustment or composition of or in respect of the Trust under
the U.S. Bankruptcy Code or any other applicable federal or
state law, or appointing a custodian, receiver, liquidator,
assignee, trustee, sequestrator or other similar official of
the Trust or of any substantial part of any of its properties,
or ordering the winding up or liquidation of any of its
affairs, (ii) seek a petition for relief, reorganization or
to take advantage of any law referred to in the preceding
clause or (iii) file an involuntary petition for bankruptcy
(collectively "Bankruptcy or Insolvency Action").
k. In addition, Prudential Securities agrees that
for any obligations due and owing to it by any Series,
Prudential Securities will look solely and exclusively to the
assets of such Series or the Managing Owner, if it has
liability in its capacity as Managing Owner, to satisfy its
claims and will not seek to attach or otherwise assert a claim
against the other assets of the Trust, whether or not there is
a Bankruptcy or Insolvency Action taken. The parties agree
that this provision will survive the termination of this
Agreement, whether terminated in a Bankruptcy or Insolvency
Action or otherwise.
l. This Agreement has been made and executed by and
on behalf of the Trust and the Managing Owner, and the
obligations of the Trust and/or the Managing Owner set forth
herein are not binding upon any of the Limited Owners
individually but are binding only upon the assets and property
identified above, and no resort shall be had to the assets of
other Series issued by the Trust or to the Limited Owners'
personal property for the satisfaction of any obligation or
claim hereunder.
m. Prudential Securities agrees that, to the extent
applicable, it will comply with the Rule 2300 Series of the
Conduct Rules of the NASD in connection with its sale of
Interests including, without limitation, Rule 2310 thereof
which impose on Prudential Securities, among other things, the
following requirements:
(i) That it have reasonable grounds to believe,
on the basis of information obtained from each
prospective subscriber concerning his financial situation
and needs, each prospective investor's tax status, his
or its investment objectives, his or its other investments
and any other information known by Prudential Securities that:
(A) the subscriber is or will be in a
financial position appropriate to enable him to
realize to a significant extent the benefits
described in the Prospectus;
(B) the subscriber has a fair market
net worth sufficient to sustain the risks inherent
in the program, including loss of investment and
lack of liquidity; and
(C) the program is otherwise suitable for
the subscriber.
(ii) That Prudential Securities maintain in its
files documents disclosing the basis upon which the
determination of suitability was reached as to each
subscriber.
(iii) That notwithstanding the requirements of (i)
and (ii) above, Prudential Securities will not execute any
transaction in connection with the sale, resale or
transfer of Interests in any discretionary account
without prior written approval of the transaction by the
customer.
(iv) That Prudential Securities has reasonable
grounds to believe, based on information made available
to it by the Managing Owner through the Prospectus, that
all material facts are adequately and accurately
disclosed therein and provide a basis for evaluating the
program.
(v) That in determining the adequacy of
disclosed facts pursuant to (iv) above, Prudential
Securities obtain information on all material facts
relating, at a minimum, to the following, if relevant:
(A) items of compensation;
(B) physical properties;
(C) tax aspects;
(D) financial stability and experience
of the Managing Owner;
(E) the Trust's conflicts and risk
factors; and
(F) all pertinent reports.
(vi) That prior to executing a transaction for
the purchase of Interests, Prudential Securities will
inform any prospective subscriber of all pertinent facts
relating to the liquidity and marketability of the
Interests during the term of the investment.
3. The Trust and Managing Owner each agree with
Prudential Securities:
a. To advise Prudential Securities, promptly after
it receives notice thereof, of (i) the time when each Registration
Statement becomes effective or any Prospectus has been filed
with the SEC, the CFTC, the NASD, the NFA or any other
federal, state or other governmental or regulatory or self-
regulatory agency or body, (ii) the issuance by the SEC, the
CFTC, the NASD, the NFA or any other federal, state or other
governmental or regulatory or self-regulatory agency or body
of any stop order or of any order to prevent or suspend the
use of the Prospectus, or the initiation or threat of any
proceeding for any such purpose or (iii) any request by the
SEC, the CFTC, the NASD, the NFA or any other federal,
state or other governmental or regulatory or self-regulatory
agency or body to amend or supplement the Registration Statements
or Prospectus or for additional information; and in the event of
the issuance of any stop order or of any order preventing or
suspending the use of the Prospectus or suspending any such
qualification, promptly to use its best efforts to obtain its
withdrawal;
b. To furnish Prudential Securities with copies of
the Prospectus in such quantities as Prudential Securities may
from time to time reasonably request, and if delivery of a
Prospectus is required at any time prior to the expiration of
nine months after the date of any Prospectus and in such
time any event shall have occurred as a result of which such
Prospectus would include an untrue statement of a material
fact or omit to state any material fact required to be stated
therein or necessary in order to make the statements therein,
in the light of the circumstances under which they were made
when such Prospectus was delivered to Prudential Securities,
not misleading, or if for any other reason it shall be
necessary to amend or supplement the Prospectus in order to
comply with the 1933 Act, the CE Act or any other law, rule
or regulation of any federal, state or other governmental,
regulatory or self-regulatory agency or body including, but
not limited to, such amendments and supplements as may be
required because of the selection of any Other Advisor, to
notify Prudential Securities and upon Prudential Securities'
request to prepare and furnish, without charge to Prudential
Securities, as many copies as Prudential Securities may from
time to time reasonably request of an amended Prospectus or a
supplement to such Prospectus which will correct such
misstatement or omission or effect such compliance;
c. Promptly from time to time to take such action
as Prudential Securities may reasonably request to use its
best efforts to qualify the Interests for offering and sale
under the securities or Blue Sky laws of such jurisdictions as
Prudential Securities may request and to comply with such laws
so as to permit the continuance of sales in such jurisdictions
for so long as may be necessary to complete the distribution
thereof;
d. To make generally available to its security
holders as soon as practicable, but in any event not later
than the 15th month following the month in which the Initial
Closing Date occurs, an earnings statement of the Trust (which
need not be audited) complying with Section 11(a) of the 1933
Act and covering a period of at least 12 consecutive
months beginning after the effective date of the applicable
Registration Statements;
e. To furnish Prudential Securities with copies of
all reports or other communications (financial or other)
furnished to the Limited Owners and to deliver to Prudential
Securities, as soon as they are available, copies of any
reports and financial statements furnished to or filed with
the SEC, the CFTC, the NASD, the NFA and any other federal,
state or other governmental or regulatory or self-regulatory
agency or body; and
f. To furnish, without charge to Prudential
Securities, two signed copies of each Registration
Statements, including all financial statements and exhibits
thereto, and such number of conformed copies of each
Registration Statement, including all financial statements,
as Prudential Securities may reasonably request.
4. Prudential Securities covenants and agrees with the
Managing Owner that Prudential Securities or an affiliate will
pay or cause to be paid all Organization and Offering expenses
(as defined in Section 4.7 of the Trust Agreement) and all
other costs and expenses incident to the performance of its
obligations hereunder which are not otherwise specifically
provided for in this Section 4, subject to the terms,
conditions and limitations described in the Prospectus.
5. The obligations of Prudential Securities hereunder
shall be subject, in its discretion, to the condition that all
representations, warranties, covenants and other statements of
the Trust and the Managing Owner herein are, at and as of the
time of effectiveness of each Registration Statement, true and
correct, the condition that each of the Trust and the Managing
Owner shall have performed all of its and their obligations
hereunder theretofore to be performed and the following
additional conditions:
a. The Registration Statements shall have become
effective, and Prudential Securities shall have received
notice thereof; no stop order suspending the effectiveness of
the Registration Statements shall have been issued, and no
proceeding for that or any similar purpose shall have been
initiated or threatened by the SEC, the CFTC, the NASD or the
NFA; and all requests for additional information on the part
of the SEC, the NASD, the NFA and/or the CFTC shall have been
complied with to the reasonable satisfaction of Prudential
Securities and its counsel.
b. Prudential Securities shall have received a
certificate of the Managing Owner, dated the Initial Closing
Date with respect to each Series, and thereafter, only if
Prudential Securities specifically requests such certificate
as of any Subsequent Closing Date with respect to a Series, to
the effect that:
(i) The representations and warranties of the
Trust and the Managing Owner contained herein are true
and correct at and as of the Initial Closing Date, or as
of a Subsequent Closing Date, as the case may be, and
each of the Trust and the Managing Owner have complied
with all the agreements and satisfied all the conditions
on its or their part to be performed or satisfied at or
prior to the Initial Closing Date or thereafter, at or
prior to any Subsequent Closing Date, as the case may be;
(ii) No stop order suspending the effectiveness
of the Registration Statements has been issued and no
proceedings for that or any similar purpose have been
instituted or are pending, or, to the best of its
knowledge, are contemplated or threatened under the 1933
Act. No order preventing or suspending the use of the
Prospectus has been issued by the SEC, the NASD, the
CFTC or the NFA, and no proceedings for that purpose have
been instituted or are pending or, to the best of the
knowledge of the Managing Owner, are contemplated or
threatened under the 1933 Act or the CE Act or under any
law, rule or regulation of any federal, state or other
governmental, regulatory or self-regulatory agency or
body.
(iii) The Registration Statement and the
Prospectus contain all statements and information
required to be included therein. Neither the
Registration Statement nor the Prospectus contains an
untrue statement of a material fact or omits to state any
material fact required to be stated therein or necessary
to make the statements therein (with respect to the
Prospectus, in light of the circumstances in which they
were made) not misleading, and since the effective date
of the Registration Statement, no event has occurred or
has been discovered which is required to be set forth in
the Registration Statement or Prospectus which has not
been so set forth in an amendment to the Registration
Statements or an amendment or supplement to the
Prospectus; provided, however, that this certification
shall not apply to any statements or omissions made in
reliance upon and in conformity with information
furnished in writing to the Trust or the Managing Owner
by Prudential Securities or by any Trading Advisors or
any Other Advisor specifically for use therein.
(iv) The Managing Owner has made the capital
contribution to the Trust and has met the Net Worth
standard required of it by the Trust Agreement.
c. Rosenman & Colin LLP shall have furnished
Prudential Securities with its written opinion, dated the
Initial Closing Date for each Series, or as soon thereafter as
reasonably practicable; such written opinion will be
furnished to Prudential Securities thereafter, as of any
Subsequent Closing Date, upon Prudential Securities' specific
request, to the effect that:
(i) The Trust is (A) a duly created and validly
existing trust in good standing under the Delaware Act,
with requisite power and authority under the Delaware
Act, the Trust Certificate and the Trust Agreement as it
shall have been amended and/or restated at the time of
such opinion, to carry out its obligations under this
Agreement, the Trust Certificate and the Trust Agreement
and to own properties and conduct business as described
in the Trust Agreement; and (B) validly existing, in good
standing and qualified to do business in each other
jurisdiction in which the nature or conduct of its
business requires such qualification and in which the
failure to be duly qualified would materially adversely
affect the Trust's ability to perform its obligations
hereunder;
(ii) The Trust's authorized capitalization is as
set forth in the Prospectus, the Interests conform in all
material respects to the descriptions thereof contained
in the Prospectus and the offer and sale of the
Interests have been duly and validly authorized by the
Trust under the Trust Agreement and the Delaware Business
Trust Act;
(iii) The Managing Owner is a duly incorporated
and validly existing corporation in good standing under
the laws of the State of Delaware with requisite
corporate power and authority under its Certificate of
Incorporation, By-Laws and the General Corporation Law
of the State of Delaware to carry out its obligations
under this Agreement, the Trust Certificate and the Trust
Agreement and to conduct its business as described in the
Prospectus, and it is duly qualified to conduct business
as a foreign corporation in good standing in the State of
New York;
(iv) The various agreements referred to in the
Prospectus, the Trust Certificate, the Trust Agreement
and this Agreement have been duly and validly authorized
or ratified, executed and delivered, and each constitutes
the legal, valid and binding obligation of the Trust and
is enforceable in accordance with its terms, except (A) as
the same may be limited by bankruptcy or insolvency,
reorganization, moratorium or similar laws at the time in
effect affecting creditors' rights generally or (B) by
applicable principles of equity, whether in an action at
law or equity, and except that the enforceability of the
indemnification provisions may be limited under
applicable federal or state securities, commodities or
other laws or by public policy;
(v) Assuming (A) that after the issuance of
Interests under the Prospectus and the Trust Agreement,
the number of Interests reserved for issuance and issued
by the Trust will not exceed the maximum number of
Interests which may be issued by the Trust under the
Prospectus and the Trust Agreement, (B) that the Trust
Agreement constitutes the entire agreement among the
parties thereto with respect to the subject matter
thereof including with respect to the admission of
Limited Owners to, and the creation, operation and
termination of, the Trust and that the Trust Agreement
(including all amendments thereto) and the Trust
Certificate are in full force and effect, have not been
amended subsequent to the date hereof and no amendment of
the Trust Agreement or the Trust Certificate is pending
or has been proposed, (C) that the Managing Owner has
taken all corporate action required to be taken by it to
authorize the issuance and sale of the Interests to each
Subscriber for Interests who is to be admitted to the
Trust as a Limited Owner and to authorize the admission
to the Trust of the Subscribers as Limited Owners of the
Trust, (D) the due authorization, execution and delivery
of a Subscription Agreement by each Subscriber, (E) that
the Managing Owner has duly accepted a Subscription
Agreement from each Subscriber and the admission of the
Subscribers as Limited Owners to the Trust at least five
business days following each Subscriber's receipt of
a Prospectus, (F) the payment by each Subscriber of the
full consideration due from it for the number of
Interests subscribed for by it, (G) the due
authorization, execution and delivery by all parties
thereto of the Trust Agreement, (H) that the books and
records of the Trust set forth all information required
by the Trust Agreement and the Delaware Act, including
all information with respect to all persons and entities
to be admitted as Limited Owners and their capital
contributions and (I) the Interests are offered and sold
as described in the Prospectus and the Trust Agreement,
the Subscribers will be Limited Owners of the Trust
entitled to all of the benefits of beneficial owners of
a Delaware business trust to the extent permitted under
the Delaware Business Trust Act;
(vi) Subject to the assumptions set forth in
paragraph (v) above, the Interests sold pursuant to the
Registration Statement will, when issued to the
Subscriber, be legally issued, fully paid and non-
assessable in conformity with the description thereof in
the Prospectus;
(vii) The offer and sale of the Interests and the
compliance by the Trust with all of the provisions of
this Agreement do not conflict with or result in a breach
of any of the terms or provisions of, or constitute a
default under, the Trust Certificate or Trust Agreement,
or to the extent of such counsel's knowledge, any
indenture, mortgage, deed of trust, loan agreement or
other instrument or agreement to which the Trust is a
party or by which it is bound, or to the extent of such
counsel's knowledge, any statute, order, rule or
regulation applicable to the Trust of any court or
governmental or regulatory authority, agency or body
having jurisdiction over the Trust;
(viii) The Registration Statement has become
effective under the 1933 Act and was filed with the CFTC,
the NFA and the NASD as required by Part 4 of the
regulations under the CE Act, NFA Compliance Rule 2-13
and the Filing Requirements set forth in the
Interpretation of the Board of Governors-Review of
Corporate Financing with respect to Article III, Section
I of the NASD's Rules of Fair Practice, respectively, and,
to the extent of such counsel's knowledge, no stop order
suspending the effectiveness of the Registration
Statement has been issued nor has any proceeding for the
issuance of such an order or any similar purpose been
initiated or threatened by the SEC, the CFTC, the NFA,
the NASD or any state in which offers and sales of
Interests are contemplated;
(ix) To the best of such counsel's knowledge,
after due inquiry and subject to paragraph (x) below,
all authorizations, consents or orders of any court or
any federal, state or other governmental or regulatory
agency or body required for the valid authorization,
issuance, offer and sale of the Interests have been
obtained, including such as may be required under the
1933 Act and the CE Act, including the rules and
regulations, respectively, thereunder, the rules and
regulations of the NASD and the NFA and the securities or
Blue Sky laws of any state in which offers and sales of
Interests are contemplated, and subject to the
qualifications set forth in paragraph (xiii) below;
(x) The Trust is not required to be
registered as an "investment company" within the meaning
of the Investment Company Act of 1940, as amended, in
order to act as described in the Registration Statement
and the Prospectus, subject to such conditions and
limitations as may be noted in the opinion;
(xi) To the best of such counsel's
knowledge, after due inquiry, the Trust and the Managing
Owner have each obtained all required governmental and
regulatory licenses, registrations and approvals required
by law as may be necessary in order for the Trust and the
Managing Owner to act as described in the Registration
Statement and the Prospectus (including, without
limitation, the Managing Owner's registration as a
commodity pool operator under the CE Act and membership
as a commodity pool operator with the NFA), and such
licenses, registrations and other authorizations have
not, to the best of such counsel's knowledge, after due
inquiry, been rescinded, revoked or otherwise removed;
(xii) The statements in the Prospectus under
the caption "U.S. FEDERAL INCOME TAX CONSEQUENCES" have
been reviewed by such counsel and such statements are
correct in all material respects as to matters of law
and legal conclusions, and it has rendered the opinion
therein referred to;
(xiii) The Interests have been registered or
otherwise approved for sale under the Blue Sky securities
laws of certain states and jurisdictions itemized on an
exhibit attached to the opinion required by this Section
5.c. of this Agreement and to the best of such counsel's
knowledge, after due inquiry, may lawfully be offered and
sold to residents thereof or from places of business
therein in the amounts specified and subject to such
conditions and limitations as may be noted in the
opinion;
(xiv) Subject to such conditions and
limitations as may be noted in the opinion, the
Registration Statement and Prospectus appear on their
faces to be appropriately responsive in all material
respects to the requirements of the 1933 Act and the CE
Act, including the rules and regulations under each such
act, and the rules and regulations of the NFA, and
nothing has come to the attention of such counsel that
leads it to believe that either the Registration
Statement (at the time it initially became effective or
at the time that any post-effective amendment to the
Registration Statement became effective) or the
Prospectus (if and as required to be filed pursuant to
Rule 424(b) and 424(c) of the 1933 Act or as of the date
hereof) contains any untrue statement of a material fact
or omits to state a material fact required to be stated
therein or which is necessary to make the statements
therein (with respect to the Prospectus, in light of the
circumstances in which they were made) not misleading,
except that such counsel is not required to express any
opinion as to (A) the financial statements or other
financial or statistical data, past performance, pro
forma and/or historical performance tables and notes
thereto or other past performance, pro forma and/or
historical information contained in the Registration
Statement or the Prospectus or (B) any statements or
omissions made in reliance on or in conformity with
information furnished by or on behalf of the Trading
Advisors (or, if applicable, any Other Advisor) or
Prudential Securities, or any controlling persons,
shareholders, directors, officers or employees of any of
the foregoing, including, without limitation, all
references to the Trading Advisors (and, if applicable,
any Other Advisor), Prudential Securities and their
affiliates, controlling persons, shareholders, directors,
officers and employees, as well as all past performance
information on the Trading Advisors (or, if applicable,
any Other Advisor) and prior Prudential Securities-
sponsored funds;
(xv) Such counsel does not know of any
pending or threatened action, suit or proceeding before
any court or other governmental or regulatory agency,
authority or body, involving the Trust or the Managing
Owner, of a character required to be disclosed in the
Registration Statement, which is not adequately described
in the Prospectus, nor of any contracts or other
documents of a character required to be described in or
filed as an exhibit to the Registration Statement or the
Prospectus, which is not described and filed as required;
In rendering such opinion, Rosenman & Colin
LLP may rely upon other opinions of counsel of firms
qualified to render such opinions as to matters of law
of the State of Delaware and any other jurisdiction where
an opinion is required to be given, and Rosenman & Colin
LLP shall state that they believe Prudential Securities
may rely on them.
d. PricewaterhouseCoopers LLP, independent public
accountants to the Trust and the Managing Owner, will have
furnished to Prudential Securities a letter, dated the Initial
Closing Date for each Series, and if requested by Prudential
Securities, a letter dated as of any Subsequent Closing Date,
and in form and substance satisfactory to Prudential
Securities, to the effect that:
(i) Such accountant is an independent certified
public accountant within the meaning of the 1933 Act, the
CE Act and the rules and regulations under such Acts
with respect to the Trust and the Managing Owner, and the
answer to Item 10 of Form S-1 set forth in the
Registration Statements are correct insofar as they
relate to such firm;
(ii) In such firm's opinion, the statements of
financial condition of the Trust and the Managing Owner
and the notes thereto included in the Prospectus and
examined by it comply as to form in all material respects
with the applicable accounting requirements of the 1933
Act, the CE Act and the rules and regulations under such
Acts;
(iii) On the basis of limited procedures not
constituting an audit, including inquiries of officials
of the Managing Owner having responsibility for financial
and accounting matters pertaining to the Trust and such
other inquiries and procedures as may be specified in
such letter, nothing has come to such accountant's
attention which causes it to believe that, as of a
specified date not more than five business days prior to
the Initial Closing Date of each Series, or a Subsequent
Closing Date, as the case may be, there has been any
decrease in the net assets of the Trust as compared to
net assets set forth in the statement of financial
condition of the Trust included in the Prospectus, except
as may be disclosed in such letter;
(iv) On the basis of limited procedures, not
constituting an audit, including a reading of the latest
available financial statements of the Managing Owner,
inspection of the minute book of the Managing Owner since
the date of the latest audited financial statements of
the Managing Owner, inquiries of officials of the
Managing Owner having responsibility for financial and
accounting matters and such other inquiries and
procedures as may be specified in such letter, nothing
has come to such accountant's attention that causes it to
believe that, as of a specified date not more than five
business days prior to the Initial Closing Date of each
Series, or a Subsequent Closing Date, as the case may be,
there has been any decrease in the Managing Owner's
stockholder's equity as compared to stockholder's equity
set forth in the statement of financial condition of the
Managing Owner included in the Prospectus, except as may
be disclosed in such letter.
e. All documents, certificates and opinions of
counsel required to be delivered to Prudential Securities on
the Initial Closing Date of a Series or on the appropriate
Subsequent Closing Date, as the case may be, by the Trading
Advisor to each Series of the Trust disclosed in the
Prospectus, pursuant to an agreement entered into by
Prudential Securities, the Trust and the Managing Owner with
the Trading Advisors entitled "REPRESENTATION AGREEMENT
CONCERNING THE REGISTRATION STATEMENT AND THE PROSPECTUS,"
such agreement being dated on or about the date of the initial
Prospectus, shall have been delivered in form and substance
satisfactory to Prudential Securities and its counsel; and
there shall have been no material changes in the Registration
Statement or the Prospectus concerning the applicable Trading
Advisor subsequent to the date hereto to which the applicable
Trading Advisor shall not have agreed.
6. a. This Agreement shall be terminated at the
conclusion of the Continuous Offering Period with respect to
each Series.
b. Until such time as this Agreement shall
terminate with respect to each Series pursuant to
Section 6.a. of this Agreement, this Agreement may be terminated by
Prudential Securities, at Prudential Securities' option, by
giving notice to the Trust and the Managing Owner, if:
(i) there shall have been, since the respective
dates as of which information is given in the
Registration Statements, any material adverse change in
the condition, financial or otherwise, of the Trust or
the Managing Owner which change, in the judgment of
Prudential Securities, shall render it inadvisable to
proceed with the offer and sale of the Interests; or
(ii) the Registration Statements and/or the
Prospectus is not amended promptly after written request
by Prudential Securities for it to be so amended because
an event has occurred which, in the opinion of counsel
for Prudential Securities, should be set forth in the
Registration Statements or the Prospectus in order to
make the statements therein not misleading; or
(iii) any of the conditions specified in Section
5 of this Agreement shall not have been fulfilled when and as
required by this Agreement to be fulfilled; or
(iv) there shall have been an outbreak of
hostilities between the U.S. and any foreign
sovereign or there shall have occurred any insurrection or
other armed conflict involving the U.S. which,
in the opinion of Prudential Securities, makes it
impractical or inadvisable to offer or sell the
Interests; or
(v) there shall have been (A) a general
suspension of, or a general limitation on prices for,
trading in (i) commodity futures or option contracts on
commodity exchanges in the U.S., or (ii) other
commodities instruments or (B) any other national or
international calamity or crisis in the financial markets
of the U.S. to the extent that it is determined
by Prudential Securities, in its discretion, that such
limitations would materially impede the Trust's trading
activities or make the offering or delivery of the
Interests impossible or impractical; or
(vi) there shall have been a declaration of a
banking moratorium by federal, New York or Delaware
authorities.
c. In addition to Section 6.b. of this Agreement,
this Agreement may be terminated with respect to a Series by
written agreement among the parties hereto. The termination
of this Agreement for any reason set forth in this Section 6
shall not affect the obligations of the Trust contained in
Sections 4 or 7 of this Agreement; nor shall the termination of this
Agreement with respect to one Series for any reason affect the
obligations of the parties with respect to any other Series.
d. The Initial Closing Date with respect to a
Series shall be a date selected by Prudential Securities on
written notice to the Managing Owner, not less than five
and not more than 15 business days following the
termination of the Initial Offering Period with respect to
that Series referred to in Section 2.a. of this Agreement. Each
Subsequent Closing Date with respect to a Series shall be the
date of the first business day of any calendar week during the
Continuous Offering Period with respect to that Series
referred to in Section 2.a. of this Agreement. Notwithstanding anything
to the contrary herein, each Closing with respect to a Series
shall be held on such date, at such time and at such place as
the Managing Owner and Prudential Securities may agree upon.
7. Each of the Managing Owner and Prudential Securities
agrees and consents (the "Consent") to look solely to each
Series that is being offered pursuant to this Agreement (the
"Contracting Series") and the assets (the "Contracting Series
Assets") of the Contracting Series and to the Managing Owner
and its assets for payment. The Contracting Series Assets
include only those funds and other assets that are paid, held
or distributed to the Trust on account of and for the benefit
of the Contracting Series including, without limitation,
funds delivered to the Trust for the purchase of interests in
a Series. In furtherance of the Consent, each of the Managing
Owner and Prudential Securities agrees that any debts,
liabilities, obligations, indebtedness, expenses and claims of
any nature and of all kinds and descriptions (collectively,
"Claims") incurred, contracted for or otherwise existing
arising from, related to or in connection with the Trust and
its assets and the Contracting Series and the Contracting
Series Assets, shall be subject to the following limitations:
a. subordination of certain claims and rights: (i)
except as set forth below, the Claims, if any, of the Managing
Owner or Prudential Securities (the "Subordinated Claims")
shall be expressly subordinate and junior in right of payment
to any and all other Claims against the Trust and any Series
thereof, and any of their respective assets, which may arise
as a matter of law or pursuant to any contract; provided,
however, that the Claims of each of the Managing Owner and
Prudential Securities (if any) against the Contracting Series
shall not be considered Subordinated Claims with respect to
enforcement against and distribution and repayment from the
Contracting Series, the Contracting Series Assets and the
Managing Owner and its assets; and provided further that the
valid Claims of either the Managing Owner or Prudential
Securities, if any, against the Contracting Series shall be
pari passu and equal in right of repayment and distribution
with all other valid Claims against the Contracting Series,
and (ii) the Managing Owner and Prudential Securities will not
take, demand or receive from any Series or the Trust or any of
their respective assets (other than the Contracting Series,
the Contracting Series Assets and the Managing Owner and its
assets) any payment for the Subordinated Claims;
b. the Claims of each of the Managing Owner and
Prudential Securities with respect to the Contracting Series
shall only be asserted and enforceable against the Contracting
Series, the Contracting Series Assets and the Managing Owner
and its assets; and such Claims shall not be asserted or
enforceable for any reason whatsoever against any other
Series, the Trust generally or any of their respective assets;
c. if the Claims of the Managing Owner or
Prudential Securities against the Contracting Series or the
Trust are secured in whole or in part, each of the Managing
Owner and Prudential Securities hereby waives (under section
1111(b) of the 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 Managing Owner and Prudential Securities
receives monies in connection with the Subordinated Claims
from a Series or the Trust (or their respective assets), other
than the Contracting Series, the Contracting Series Assets and
the Managing Owner and its assets, the Managing Owner and
Prudential Securities shall be deemed to hold such monies in
trust and shall promptly remit such monies to the Series or
the Trust that paid such amounts for distribution by the
Series or the Trust in accordance with the terms hereof; and
e. the foregoing Consent shall apply at all times
notwithstanding that the Claims are satisfied and
notwithstanding that the agreements in respect of such Claims
are terminated, rescinded or canceled.
8. a. All representations, warranties, covenants and
agreements contained in this Agreement shall remain operative
and in full force and effect regardless of (i) any
investigations made by or on behalf of Prudential Securities,
the Trustee, the Trust or the Managing Owner, (ii) delivery of
any payment for the Interests or (iii) termination of this
Agreement.
b. This Agreement is made solely for the benefit
of, and shall be binding upon, Prudential Securities, the
Trust and the Managing Owner and the respective successors and
assigns of each of them, and no other person shall have any
right or obligation under this Agreement. The terms
"successors" and "assigns" shall not include any purchasers,
as such, of Interests from the Trust.
c. This Agreement may not be assigned by any party
hereto without the prior express written consent of all other
parties, and this Agreement may not be amended except by the
express written consent of all parties hereto.
d. All notices required or desired to be given
under the provisions of this Agreement must be in writing and
will be effective when given personally on the date delivered
or, when given by mail, on the date of receipt, addressed as
follows (or to such other address as the party entitled to
notice hereafter designates in accordance with the terms
hereof): (i) if to Prudential Securities, One New York
Plaza, 13th Floor, New York, New York 10292, Attention: Guy
Scarpaci, with a copy to Fred M. Santo, Esq., Rosenman & Colin
LLP, 575 Madison Avenue, New York, New York 10022; and (ii) if
to the Trust or the Managing Owner, c/o Prudential Securities
Futures Management Inc., One New York Plaza, 13th floor, New
York, New York 10292, Attention: Joseph A. Filicetti and
Eleanor L. Thomas, with a copy to Fred M. Santo, Esq., Rosenman & Colin LLP,
575 Madison Avenue, New York, New York 10022.
e. Prudential Securities is not authorized by the
Trust to give any information or to make any representation in
connection with the offering of Interests other than those
contained in the Prospectus and such sales literature the use
of which has been authorized in writing by the Trust.
f. This Agreement has been made and executed by and
on behalf of the Trust and the Managing Owner and the
obligations of the Trust and/or the Managing Owner set forth
herein are not binding upon any of the Limited Owners
individually but are binding upon the assets and property of
each Series of the Trust individually and exclusively to the
extent that the obligations apply to such Series and, to the
extent provided herein, upon the assets and property of the
Managing Owner, and no resort shall be had to the assets of
any Series to which such obligation has no relationship or to
the Limited Owners' personal property for the satisfaction of
any obligation or claim herein.
(g) This Agreement shall be governed by and
construed in accordance with the laws of the State of New York
applicable to contracts made and to be performed in that
State, without giving effect to the principles of conflict of
laws thereof.
9. Each of Prudential Securities and the Managing Owner
represent to the Trust that its business operations and any
services provided pursuant to this Agreement will not be
materially interrupted by the advent of the Year 2000 date.
IN WITNESS WHEREOF, each of the parties hereto has executed
this Agreement as of the day and year first above written.
WORLD MONITOR TRUST II
By: Prudential Securities Futures
Management Inc., its Managing Owner
By:_____________________________
Name:_________________________
Title:________________________
PRUDENTIAL SECURITIES FUTURES
MANAGEMENT INC.
By:_____________________________
Name:_________________________
Title:________________________
Accepted as of the date of this
Agreement first above written:
PRUDENTIAL SECURITIES INCORPORATED
By: _______________________________
Name:__________________________
Title:_________________________
<PAGE>
Opinion of Rosenman & Colin LLP as to legality
<PAGE>
Opinion of Richards, Layton & Finger as to legality under
Delaware Law
<PAGE>
Opinion of Rosenman & Colin LLP as to federal bankruptcy issues
<PAGE>
Opinion of Rosenman & Colin LLP as to income tax matters
<PAGE>
ESCROW AGREEMENT
Escrow Agreement ("Agreement") entered into as of
, 1999, by and among World Monitor Trust II, a business
trust organized under Chapter 38 of Title 12 of the Delaware
Code (the "Delaware Act") (the "Trust"), Prudential Securities
Futures Management Inc., a Delaware corporation (the
"Managing Owner"), The Chase Manhattan Bank, a New York
banking corporation (the "Escrow Agent"), and Prudential
Securities Incorporated, a Delaware corporation (the
"Placement Agent").
W I T N E S S E T H:
WHEREAS, the Trust intends to offer Interests, as defined
below, in the various Series of the Trust; and
WHEREAS, the Escrow Agent has consented to act as escrow
agent for the Trust pursuant to the conditions and
requirements hereinafter set forth.
NOW, THEREFORE, in consideration of the provisions
hereinafter set forth, the parties agree as follows:
Article 1.
DEFINITIONS
Section 1.01 As used in this Agreement, the following terms shall have the
following meanings unless the context otherwise requires:
"Continuous Offering Period" means the period immediately
following the Initial Offering Period for that Series and
continuing until the offering is terminated or all of the Interests
for that Series have been sold.
"Initial Offering Period" means the period commencing with
the initial effective date of the Registration Statement for that
Series and terminating no later than the 120th day following
such date.
"Interests" means the beneficial interest of each interestholder
in the profits, losses, distributions, capital and assets of each
separate Series in the Trust. Interests need not be represented
by certificates.
<PAGE>
"Limited Owner" means any person or entity who becomes a
holder of Interests and who is listed as such on the books and
records of the Trust and may include the Managing Owner
with respect to the Interests purchased by it.
"Net Asset Value" (for any Series) means the total assets in
the Trust Estate for a Series including, but not limited to, all
cash and cash equivalents of a Series (valued at cost plus
accrued interest and amortization of original issue discount)
less the total liabilities of that Series, each determined on the
basis of generally accepted accounting principals in the U.S.
consistently applied under the accrual method of accounting
("GAAP").
"Prospectus" means the final prospectus and disclosure
document of the Trust, constituting a part of the Registration
Statement for each Series of Interests, as filed with the
Securities and Exchange Commission and declared effective
thereby, as the same may at any time and from time to time be
amended or supplemented after the effective date of the
Registration Statement.
"Registration Statement" means the registration statement on
Form S-1, as amended, filed by the Trust with the Securities
and Exchange Commission for each Series pursuant to which
the Trust registered the Interests for each Series, as the same
may at any time and from time to time be further amended or
supplemented.
"Series" means an identified group of Interests which has a
common investment objective, whose trading decisions are
made by a specified trading advisor and which share the same
assets, liabilities, profits and losses to the exclusion of any
other Interests.
"Subscriber" means an individual (or entity) who subscribes
for an Interest or Interests in any Series or in any combination
of the Series.
"Trust Estate" means any cash, commodity futures, forward
and option contracts, all funds on deposit in the Trust's
accounts for a Series and any other property held by a Series
of the Trust, and all proceeds therefrom, including any rights
of a Series of the Trust pursuant to any agreements to which
the Trust is a party.
Article 2.
APPOINTMENT OF ESCROW AGENT
Section 2.01 The parties hereby appoint the Escrow Agent as escrow agent
in accordance with the terms and conditions set forth herein,
and the Escrow Agent hereby accepts such appointment.
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<PAGE>
Article 3.
REPRESENTATIONS AND WARRANTIES
OF THE TRUST
Section 3.01 The Managing Owner, individually and on behalf of the Trust,
represents and warrants to the Escrow Agent and agrees with
the Escrow Agent for the benefit of the Escrow Agent that the
Trust is and will be on the Initial Closing Date for each Series
(as defined below in Section 5.01 and as such date will be
scheduled by the Managing Owner and the Placement Agent) a
business trust duly organized under the laws of the State of
Delaware with the power and authority to conduct its
business. The Managing Owner hereby further represents and
warrants, individually and on behalf of the Trust, that this
Agreement has been duly authorized, executed and delivered
on its behalf and constitutes the legal, valid and binding
obligation of the Managing Owner and the Trust.
Article 4.
TRANSMITTAL AND COLLECTION
Section 4.01 The Placement Agent shall deposit all the proceeds of
subscriptions from the sale of each Series (the "Proceeds")
during the Initial Offering Period for that Series into the
Escrow Account described in Section 6.01 for that Series. The
Proceeds shall be transferred to the Escrow Account by direct
transfer of immediately available funds from each Subscriber's
account with the Placement Agent, which Proceeds must be in
the Subscriber's account at the time of subscription. The
Placement Agent will provide the Escrow Agent with a
memorandum of transmittal showing the name, address and
social security number or tax identification number of each
Subscriber, along with the number of Interests in that Series
purchased, and the amount of payment being made to the
Escrow Agent. The Placement Agent will also advise the
Escrow Agent that the Placement Agent has on file a
certification from each Subscriber in compliance with the
Interest and Dividend Tax Compliance Act of 1983.
Article 5.
PROCEDURE FOR DISPOSITION OF PROCEEDS
Section 5.01
(a) As soon as practical prior to the closing date with respect to
the initial offering of a Series ("Initial Closing Date"), the
Managing Owner shall notify the Escrow Agent of (i) the
effective date of the Registration Statements and (ii) that
portion of the Proceeds in such Series' Account which
represents subscriptions to be accepted by the Managing
Owner for that Series.
(b) If subscriptions for at least the minimum amount specified on
Schedule 2 for a Series have been accepted during the Initial
Offering Period for that Series and there are at least
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<PAGE>
150 Subscribers for each Series, the Escrow Agent shall as soon
as practicable thereafter deliver all or such portion of the
Proceeds for such Series, which are identified by the
Managing Owner as having been accepted for that Series,
deposited in its Escrow Account (including all interest earned
on the Proceeds for such Series) to the Trust for that Series
upon written notification by the Managing Owner that (i)
subscriptions aggregating the requisite amount(s) have been
received and accepted for that Series and (ii) the amount of the
proceeds represented by such accepted subscriptions for that
Series are $5,000,000. Such notification shall include
appropriate information with respect to the bank account
referenced in Section 5.01(e).
(c) Any interest earned on the escrowed Proceeds for such Series
will be contributed to such Series for each Subscriber in
proportion to their respective subscriptions (taking into
account both the amount and date of deposit). Accordingly, if
the escrowed Proceeds are delivered to a Series, the interest
earned on the Proceeds will be contributed to the Series along
with the escrowed Proceeds and not individually delivered to
the Subscribers.
(d) If the notification described above in Section 5.01(a) has not
been received during the Initial Offering Period for a Series,
the Escrow Agent shall upon written instruction remit, within
ten business days following the conclusion of the Initial
Offering Period for that Series, or as soon thereafter as may be
practicable in the event payment cannot be made within that
ten day period, the escrowed Proceeds, excluding any interest
earned thereon, to the Subscribers by payment to the
Placement Agent for credit to the Subscribers' respective
accounts with the Placement Agent (in amounts shown on the
memorandum of transmittal described in Section 4.01), and
without deductions of any kind or character. In addition, the
Escrow Agent shall pay any interest earned on the Proceeds to
the Subscribers as soon as practicable by delivering a check
in the amount equal to the interest allocable to each
Subscriber (taking into account both the amount and date of
deposit), it being understood that payment of interest usually
is made by the Escrow Agent on the first or second business
day of each month, and the Escrow Agent shall provide to the
Placement Agent an itemized list of all such sums due and
owing to each Subscriber, except that in the case of Individual
Retirement Accounts and other retirement plans, the Escrow
Agent shall deliver the check for interest to the Placement
Agent for deposit into the Subscriber's securities account at
the Placement Agent.
(e) In the event funds transfer instructions are given (other than in
writing at the time of execution of the Agreement), whether in
writing, by telecopier or otherwise, the Escrow Agent is
authorized to seek confirmation of such instructions by
telephone call-back to the person or persons designated on
Schedule 2 hereto, and the Escrow Agent may rely upon the
confirmations of anyone purporting to be the person or
persons so designated. The persons and telephone numbers
for call-backs may be changed only in a writing actually
received and acknowledged by the Escrow Agent. The parties
to this Agreement acknowledge that such security procedure
is commercially reasonable.
(f) It is understood that the Escrow Agent and the beneficiary's
bank in any funds transfer may rely solely upon any account
numbers or similar identifying number provided by either of
the other parties hereto to identify (i) the beneficiary, (ii) the
beneficiary's bank, or (ii) an intermediary bank. The Escrow
Agent may apply any of the escrowed funds for any payment
4
<PAGE>
order it executes using any such identifying number, even
where its use may result in a person other than the beneficiary
being paid, or the transfer of funds to a bank other than the
beneficiary's bank, or an intermediary bank designated.
(g) The Escrow Agent shall not incur any liability for following the
instructions herein contained or expressly provided for, or
written instructions given by the parties hereto.
(h) The delivery of such Proceeds in accordance with Section
5.01(b) shall be accomplished by depositing such Proceeds in
a separate bank account for each Series maintained by the
Managing Owner on behalf of the Trust.
(i) Upon distribution of all the Proceeds, including all interest
thereon, the Escrow Agent shall be discharged from all
obligations under this Agreement and shall have no further
duties or responsibilities in connection herewith.
(j) Prior to the termination of the Escrow Account, the Managing
Owner may notify the Escrow Agent in writing of a
subscription for Interests of a Subscriber that has been
rejected in whole or in part by the Managing Owner for
whatever reason or that has been rescinded by the Subscriber,
and the Managing Owner may direct the Escrow Agent to
return by wire transfer any Proceeds held in escrow, excluding
any interest thereon, to the Placement Agent for credit to the
Subscriber's respective account, and the Escrow Agent will
forward any interest on the Proceeds to the Subscriber in the
manner described in this Section 5.01, in each case, as soon
thereafter as may be practicable.
(k) If the Trust determines that the Proceeds includes an amount
greater than the amount representing payment in respect of
Interests sold to accepted Subscribers, the Trust will instruct
the Escrow Agent in writing as to the disposition of said
excess Proceeds.
Section 5.02 Prior to the delivery of the escrowed Proceeds to the Trust as
described above in Section 5.01, (a) the Trust shall have no
title to the Proceeds on deposit in the Escrow Account, and (b)
such Proceeds shall under no circumstances be subject to the
liabilities or indebtedness of the Trust.
Article 6.
ESCROW ACCOUNT
Section 6.01 The Escrow Agent shall cause to be opened a separate escrow
account for the Proceeds of each separate Series (each, an
"Escrow Account"). The Escrow Agent shall cause Proceeds
received from the Placement Agent pursuant to Section 4.01 to
be deposited in the Escrow Account at the Escrow Agent's
Insurance Trust and Escrow Group or at any agent designated
by the Escrow Agent. Proceeds deposited in the Escrow
Account shall be invested by the Escrow Agent in accordance
with the specific written directions furnished by the Managing
Owner. The Managing Owner intends to instruct the Escrow
Agent to invest the Proceeds in U.S. Treasury Obligations or
any other investment specified by the Managing Owner which
is
5
<PAGE>
consistent with the provisions of NASD Notice to Members
84-7 (January 30, 1984) and the provisions of Rule 15c2-4 of
the Securities Exchange Act of 1934, as amended.
During the term of this Escrow Agreement, the Escrow Fund
shall be invested and reinvested by the Escrow Agent, in The
Chase Manhattan Deposit Account or such other investments
as the Managing Owner, the Placement Agent, and Escrow
Agent may mutually agree upon that is consistent with the
provisions of NASD Notice to Members 84-7 (January 30, 1984)
and the provisions of Rule 15c2-4 of the Securities Exchange
Act of 1934, as amended.
The Escrow Agent shall present for redemption any obligation
so purchased or sell any such obligation, in every case upon
the written direction of the Managing Owner. Obligations so
purchased as an investment of monies in the Escrow Account
shall be deemed at all times to be a part of such Escrow
Account, and the interest accruing thereon shall be credited to
such Escrow Account.
Section 6.02 Interest earned by the Escrow Account for the period
commencing on the date on which Proceeds are received by
the Escrow Agent until the conclusion of the Initial Offering
Period for each Series (as defined in Section 1.01 above), shall
be held by the Escrow Agent in trust for the Subscribers and
distributed to the Subscribers in accordance with Article 5
hereof.
Article 7.
MAINTENANCE OF RECORDS
The Escrow Agent shall maintain accurate records of all
transactions hereunder. As soon as practicable after the
termination of the Escrow Account, or as may reasonably be
requested by the Trust before such termination, but no more
frequently than monthly, the Escrow Agent shall provide the
Trust with a complete copy of such records, represented by
the Escrow Agent to be a complete and accurate account of all
such transactions. The authorized representatives of the Trust
shall also have access to such books and records at all
reasonable times during normal business hours upon
reasonable notice to the Escrow Agent. All interest or other
income earned under the Escrow Agreement shall be allocated
and paid as provided herein. The Escrow Agent is authorized
and instructed to complete Form 1099 in respect of interest
payable to any Subscribers who receive escrow interest
payments pursuant to Section 5.01 and to the Placement
Agent for credits received pursuant to Section 5.01 in
compliance with the applicable sections of the Internal
Revenue Code.
Article 8.
EXCULPATION AND INDEMNIFICATION
Section 8.01
(a) Notwithstanding anything to the contrary contained in this
Agreement, the Escrow Agent shall not be liable for any of the
following, except in the event a court of
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<PAGE>
competent jurisdiction determines that it was the gross negligence
or willful misconduct on the part of the Escrow Agent:
(i) the failure of any of the conditions of this Agreement or
damage caused by the exercise of its discretion in any
particular manner, or for any reason (including, without
limitation, the liquidation of investments of the Proceeds), for
any mistake of fact or law, for any error of judgment or for any
action taken or omitted by it or any action suffered by it to be
taken or omitted or (ii) the failure to ascertain the terms or
conditions, or to comply with any of the provisions, of any
agreement, contract or other document delivered to the
Escrow Agent hereunder or for forgeries or false
impersonation.
(b) If any controversy arises among the parties hereto or with any
third party with respect to the subject matter of this
Agreement, its terms or conditions, the Escrow Agent shall not
be required to determine the same or take any action, but the
Escrow Agent may await the settlement of any such
controversy by final appropriate legal proceedings, mutual
agreement or otherwise as the Escrow Agent may require,
notwithstanding anything in this Agreement to the contrary,
and in such event, the Escrow Agent shall not be liable for
interest or damages.
(c) The Escrow Agent's duties hereunder shall be only such as
are herein specifically provided, being purely ministerial in
nature, and the Escrow Agent shall incur no liability except for
the gross negligence or willful misconduct which is
determined by a court of competent jurisdiction. Specifically
and without limiting the foregoing, the Escrow Agent shall in
no event have any liability in connection with its investment,
reinvestment or liquidation, in accordance with the terms
hereof, of any Proceeds held by it hereunder including,
without limitation, any liability for any delay not resulting from
gross negligence or willful misconduct in such investment,
reinvestment or liquidation, or for any loss of income incident
to any such delay. The Escrow Agent is not a party to, and is
not bound by, any agreement or other document out of which
this Agreement may arise or any other agreement or other
document in connection with the Trust. Except as may be
provided by law, the Escrow Agent shall not be deemed to owe
any fiduciary duty to the other parties hereto or to the
Subscribers.
(d) The Escrow Agent shall not be required to institute legal
proceedings of any kind or to defend any lawsuit brought in
connection with the escrowed funds, provided that the Escrow
Agent shall cooperate with the Trust with respect to the
institution or defense of any such legal proceeding brought by
or against the Trust, as the case may be. In the event of its
participation in any such legal proceeding, the Escrow Agent
shall be reasonably compensated for its services and
expenses as provided in Section 9.01(b). The Escrow Agent
shall have no responsibility for the genuineness or validity of
any document or other items deposited with it, and the Escrow
Agent shall be fully protected in acting or refraining from
acting in accordance with any written instruction given to it
hereunder and believed by it to have been signed or given by
the proper parties. Each of the Managing Owner and
Placement Agent shall provide the Escrow Agent with a list of
officers and employees who shall be authorized to deliver
instructions hereunder. The Escrow Agent shall not be liable
for any action taken or omitted by the Escrow Agent pursuant
to the instructions contained or expressly provided herein,
provided that such omission was in good faith.
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<PAGE>
(e) The Escrow Agent may consult with its legal counsel in the
event of any dispute or question as to the construction of the
terms of this Agreement, and the Escrow Agent shall incur no
liability and shall be fully protected in acting in good faith in
accordance with the opinion and instructions of such counsel.
The Managing Owner shall reimburse the Escrow Agent for
reasonable legal expenses actually paid by the Escrow Agent
as a result of any such consultation with counsel.
(f) In the absence of willful misconduct or gross negligence on
the part of the Escrow Agent, the Escrow Agent may rely
conclusively and shall be protected in acting or refraining
from acting upon any order, notice, demand, certificate,
statement, instrument, report or other document (not only as
to its due execution and the validity and effectiveness of its
provisions but also as to the truth, completeness and
acceptability of any information therein contained) which is
reasonably believed by the Escrow Agent to be genuine and to
have been signed or presented by the proper person or
persons.
(g) At any time, the Escrow Agent may request in writing an
instruction in writing from the Managing Owner, and may at its
own option include in such request the course of action it
proposes to take and the date on which it proposes to act,
regarding any matter arising in connection with its duties and
obligations hereunder. The Escrow Agent shall not be liable
for acting without the Managing Owner's consent in
accordance with such a proposal on or after the date specified
therein, provided that the specified date shall be at least two
business days after the Managing Agent receives the Escrow
Agent's request for instructions and its proposed course of
action and provided further that, prior to so acting, the Escrow
Agent has not received the written instructions requested.
(h) The Escrow Agent shall be indemnified and held harmless by
the Trust and the Managing Owner from and against any
expenses, including reasonable counsel fees and
disbursements, or loss suffered by the Escrow Agent in
connection with the administration of this Escrow Agreement
or any action, suit or other proceeding involving any claim or
in connection with any claim or demand, which in any way,
directly or indirectly, arises out of or relates to this Escrow
Agreement, the services of the Escrow Agent hereunder, the
Proceeds held by the Escrow Agent hereunder or any income
earned from the investment of such Proceeds, except for any
such expenses or loss caused by the willful misconduct or
gross negligence of the Escrow Agent.
(i) The Escrow Agent agrees and acknowledges that in seeking to
enforce its rights hereunder against a particular Series, it will
look solely to the assets of that Series and the Managing
Owner and not to the assets of the Trust generally or of any
other Series.
(j) The Escrow Agent agrees and consents (the "Consent") to
look solely to each Series for which brokerage and clearing
services are being performed (the "Contracting Series") and
assets (the "Contracting Series Assets") of the Contracting
Series and to the Managing Owner and its assets for payment.
The Contracting Series Assets include only those funds and
other assets that are paid, held or distributed to the Trust on
account of and for the benefit of the Contracting Series
including, without limitation, funds delivered to the Trust for
8
<PAGE>
the purchase of interests in a Series. In furtherance of the
Consent, the Escrow Agent agrees that any debts, liabilities,
obligations, indebtedness, expenses and claims of any nature
and of all kinds and descriptions (collectively, "Claims")
incurred, contracted for or otherwise existing arising from,
related to or in connection with the Trust and its assets and
the Contracting Series and the Contracting Series Assets,
shall be subject to the following limitations:
(1) Subordination of certain claims and rights: (a) except as set
forth below, the Claims, if any, of the Escrow Agent (the
"Subordinated Claims") shall be expressly subordinate and
junior in right of payment to any and all other Claims against
the Trust and any Series thereof, and any of their respective
assets, which may arise as a matter of law or pursuant to any
contract; provided, however, that the Escrow Agent's Claims
(if any) against the Contracting Series shall not be considered
Subordinated Claims with respect to enforcement against and
distribution and repayment from the Contracting Series, the
Contracting Series Assets and the Managing Owner and its
assets; and provided further that the Escrow Agent's valid
Claims, if any, against the Contracting Series shall be pari
passu and equal in right of repayment and distribution with all
other valid Claims against the Contracting Series, and (b) the
Escrow Agent will not take, demand or receive from any Series
or the Trust or any of their respective assets (other than the
Contracting Series, the Contracting Series Assets and the
Managing Owner and its assets) any payment for the
Subordinated Claims;
(2) the Claims of the Escrow Agent with respect to the
Contracting Series shall only be asserted and enforceable
against the Contracting Series, the Contracting Series Assets
and the Managing Owner and its assets, and such Claims shall
not be asserted or enforceable for any reason whatsoever
against any other Series, the Trust generally or any of their
respective assets;
(3) if the Claims of the Escrow Agent against the Contracting
Series or the Trust are secured in whole or in part, the Escrow
Agent hereby waives (under section 1111(b) of the 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;
(4) in furtherance of the foregoing, if and to the extent that the
Escrow Agent receives monies in connection with the
Subordinated Claims from a Series or the Trust (or their
respective assets), other than the Contracting Series, the
Contracting Series Assets and the Managing Owner and its
assets, the Escrow Agent shall be deemed to hold such
9
<PAGE>
monies in trust and shall promptly remit such monies to the
Series or the Trust that paid such amounts for distribution by
the Series or the Trust in accordance with the terms hereof;
and
(5) the foregoing Consent shall apply at all times notwithstanding
that the Claims are satisfied and notwithstanding that the
agreements in respect of such Claims are terminated,
rescinded or canceled.
(k) The Escrow Agent is authorized, in its sole discretion, to
disregard any and all notices or instructions given by any of
the parties hereto or by any other person, firm, or corporation,
except for such notices or instructions as are hereunder
provided for and orders or process of any court entered or
issued with or without jurisdiction. Upon the receipt of any
court order, the Escrow Agent will immediately cause a copy
thereof to be sent by facsimile transmission to David
Buchalter, Esq. (or his successor) at (212) 214-6150 or at such
other number as is provided in writing to the Escrow Agent in
the future. If the Proceeds are, or any part thereof is, at any
time attached, garnished or levied upon under any court order,
or if payment, assignment, transfer, conveyance or delivery of
the Proceeds is stayed or enjoined by any court order, or in
case any order, judgment or decree is made or entered by any
court affecting the Proceeds or any part thereof, then, and in
any such event, the Escrow Agent is authorized, in its sole
discretion, to rely upon and comply with any such order, writ,
judgment or decree that the Escrow Agent is advised is
binding upon it, by its legal counsel, and if the Escrow Agent
complies with any such order, writ, judgment or decree it shall
not be liable to any of the Parties or to any other person, firm
or corporation by reason of such compliance even though
such order, writ, judgment or decree may be subsequently
reversed, modified, annulled, set aside or vacated.
(l) The Escrow Agent makes no representation as to the validity,
value, genuineness or collectability of any security or other
document or instrument held by or delivered to it.
(m) The Escrow Agent shall not be called upon to advise any party
as to selling or retaining, or taking or refraining from taking
any action with respect to, any securities or other property
deposited hereunder.
(n) No provision of this Agreement shall require the Escrow Agent
to expend or risk its own funds or otherwise incur any
financial liability in the performance of any of its duties
hereunder. The duties and responsibilities of the Escrow
Agent hereunder shall be determined solely by the express
provisions of this Escrow Agreement, and no other or further
duties or responsibilities shall be implied. The Escrow Agent
shall not have any liability under, nor duty to inquire into the
terms and provisions of any agreement or instructions, other
than outlined in the Agreement.
(o) In the event that the Escrow Agent shall be uncertain as to its
duties or rights hereunder or shall receive instructions, claims
or demands from any party hereto which, in its opinion,
conflict with any of the provisions of this Agreement, it shall
be entitled to refrain
10
<PAGE>
from taking any action and its sole
obligation shall be to keep safely all property held in escrow
until it shall be directed otherwise in writing.
(p) The provisions of Articles 8 and 9 of this Agreement shall
survive termination of this Agreement and/or the resignation
or removal of the Escrow Agent.
(q) In the administration of the escrow account hereunder, the
Escrow Agent may execute any of its powers and perform its
duties hereunder directly or through agents or attorneys and
may, consult with counsel, accountants and other skilled
persons to be selected and retained by it.
(r) Anything in this agreement to the contrary notwithstanding, in
no event shall the Escrow Agent be liable for special, indirect
or consequential loss or damage of any kind whatsoever
(including but not limited to lost profits), even if the Escrow
Agent has been advised of the likelihood of such loss or
damage and regardless of the form of action.
Article 9.
FEES
Section 9.01
(a) The Escrow Agent shall receive fees as described in the
attached Schedule 1.
(b) It is understood that the fees and usual charges agreed upon
for the Escrow Agent's services hereunder shall be considered
compensation for its ordinary services as contemplated by
this Agreement and that in the event that the conditions of this
Agreement are not promptly fulfilled or that the Escrow Agent
renders any service not provided for in this Agreement or that
there is any modification hereof or that any controversy with
any third party arises hereunder or that the Escrow Agent is
made a party to, or intervenes in, any litigation with a third
party pertaining to this Agreement or the subject matter
hereof, the Escrow Agent and its legal counsel shall, provided
that prior notification is given to the Trust and the Managing
Owner, be reasonably compensated for such extraordinary
services and reimbursed for all costs and expenses
occasioned by such default, delay, controversy or litigation.
The Managing Owner hereby promises to pay the foregoing
sums upon demand.
Article 10
RESIGNATION AND DISCHARGE
Section 10.01 Notwithstanding anything to the contrary contained in this
Agreement, the Escrow Agent (i) may resign from its duties
under this Agreement by giving 30 days' prior written notice of
such resignation to the other parties hereto and (ii) may be
discharged from its
11
<PAGE>
duties under this Agreement upon receipt
from the other parties hereto of 30 days' prior written notice of
such discharge. Upon the effective date of such resignation or
discharge of the Escrow Agent and upon payment to the
Escrow Agent of all amounts owed to it hereunder, the
Proceeds held by the Escrow Agent shall be returned to the
Trust or paid over to a substitute Escrow Agent that the Trust
shall retain to perform the functions theretofore performed by
the Escrow Agent under this Agreement, as the Trust shall
direct the Escrow Agent in writing or in accordance with the
directions of a final order or judgment or a court of competent
jurisdiction, and the pro rata portion of the Escrow Agent's fee
up to the effective date of resignation or discharge shall be
paid by the Placement Agent. If a successor Escrow Agent
has not been appointed or has not accepted such appointment
within 30 days of notice of resignation or removal, the Escrow
Agent may apply to a court of competent jurisdiction for the
appointment of a successor Escrow Agent or for other
appropriate relief, and the costs, expenses and reasonable
attorney's fees and expenses which the Escrow Agent incurs
in connection with any such a proceeding shall be paid by the
Managing Owner. In the absence of such directions, the
Escrow Agent may return the Proceeds to the Trust.
Article 11.
MISCELLANEOUS
Section 11.01 The Trust may assign and grant a security interest in
all sums payable to the Trust pursuant to this Agreement, and the
Escrow Agent agrees to accept and acknowledge the
instructions for the payment of the funds within the Escrow
Account in accordance with the provisions of Article 5 hereof
designating the disposition of Proceeds. Once such
instructions are given in accordance with this Section 11.01,
and subject to all of the rights of the Trust to receive the
Proceeds as set forth herein, such instructions will be deemed
to be final and attributable to all future distributions of
Proceeds as contemplated hereunder. It is understood that in
order for the parties hereto to amend this Agreement and
thereby change such instructions, any party who has been
assigned or granted a security interest in such Proceeds shall
join in the execution of such amendment or shall otherwise
give its written consent to such amendment. All reasonable
expenses incurred by the Escrow Agent as a result of the
assignment or the granting of a security interest in the
Proceeds shall be paid by the Trust.
Section 11.02 Except as provided in Section 8.01(j), all notices,
communications and instructions required or desired to be
given under this Agreement shall be in writing and shall be
deemed to be duly given if hand delivered or sent by express
delivery service or by registered or certified mail, return
receipt requested, to the following addresses or to such other
address as may be furnished to the other parties as herein
provided:
To the Escrow Agent:
The Chase Manhattan Bank
450 West 33rd Street, 10th Floor
New York, New York 10001
Attention: Escrow Administration Department
Capital Markets Fiduciary Services
12
<PAGE>
To the Trust:
World Monitor Trust II
c/o Prudential Securities Futures Management Inc.
One New York Plaza, 13th floor
New York, New York 10292
Attention: Eleanor L. Thomas
To the Managing Owner:
Prudential Securities Futures Management Inc.
One New York Plaza, 13th floor
New York, New York 10292
Attention: Eleanor L. Thomas
In the case of the Trust and the Managing Owner, with a copy to:
Prudential Securities Incorporated
One Seaport Plaza, 29th Floor
New York, New York 10292
Attention: David Buchalter, Esq.
and
Rosenman & Colin LLP
575 Madison Avenue
New York, New York 10022
Attention: Fred M. Santo, Esq.
To the Placement Agent:
Prudential Securities Incorporated
One New York Plaza, 13th Floor
New York, New York 10292
Attention: Guy Scarpaci
(a) This Agreement shall not be amended, modified or rescinded
except upon receipt by the Escrow Agent of a written
instrument signed by all the parties including the Escrow
Agent.
(b) This Agreement may be executed in two or more counterparts,
each of which shall be deemed an original and all of which
together shall constitute one and the same instrument.
13
<PAGE>
Section 11.03 This Agreement, the rights and obligations of the parties
hereunder and all performance hereunder shall be governed
by and construed in accordance with the laws of the State of
New York without regard to its principles of conflicts of laws
and any action brought hereunder shall be brought in the
courts of the State of New York, located in the County of New
York. Each party hereto irrevocably waives any objection on
the grounds of venue, forum non-conveniens or any similar
grounds and irrevocably consents to service of process by
mail or in any other manner permitted by applicable law and
consents to the jurisdiction of said courts in accordance with
the laws of the State of New York without giving effect to the
choice of law provisions thereof.
(a) The Escrow Agent agrees that it will not take any of the
following actions against the Trust: LISTNUM \l 4 \s 1 seek
a decree or order by a court having jurisdiction in the
premises (A) for relief in respect of the Trust in an involuntary
case or proceeding under the U.S. Bankruptcy Code or any
other federal or state bankruptcy, insolvency, reorganization,
rehabilitation, liquidation or similar law or (B) adjudging the
Trust a bankrupt or insolvent or seeking reorganization,
rehabilitation, liquidation, arrangement, adjustment or
composition of or in respect of the Trust under the U.S.
Bankruptcy Code or any other applicable federal or state law,
or appointing a custodian, receiver, liquidator, assignee,
trustee, sequestrator or other similar official of the Trust or of
any substantial part of any of its properties or ordering the
winding up or liquidation of any of its affairs, (ii) seek a
petition for relief, reorganization or to take advantage of any
law referred to in the preceding clause or (iii) file an
involuntary petition for bankruptcy (collectively "Bankruptcy
or Insolvency Action").
(b) This Agreement has been made and executed by and on behalf
of the Trust and the Managing Owner, and the obligations of
the various Series of the Trust and/or the Managing Owner set
forth herein are not binding upon any of the Limited Owners
individually but are binding only upon the assets and property
identified above; no resort shall be had to the assets of one
Series for the obligations of another Series or to the Limited
Owners' personal property for the satisfaction of any
obligation or claim hereunder.
Section 11.04 Nothing in this Agreement, expressed or implied, shall give or
be construed to give any persons, firm or corporation, other
than the parties hereto and their successors and assigns, any
legal claim under any covenant, condition or provision hereof,
all the covenants, conditions and provisions contained in this
Agreement being for the sole benefit of the parties hereto and
their successors and assigns. No party may assign any of its
rights or obligations under this Agreement without the written
consent of all the other parties, which consent may be
withheld in the sole discretion of the party whose consent is
sought, provided, however, that any corporation into which
the Escrow Agent in its individual capacity may be merged or
converted or with which it may be consolidated, or any
corporation resulting from any merger, conversion or
consolidation to which the Escrow Agent in its individual
capacity shall be a party, or any corporation to which
substantially all the corporate trust business of the Escrow
Agent in its individual capacity maybe transferred, shall be the
Escrow Agent under this Escrow Agreement without further
act.
14
<PAGE>
Section 11.05 No printed or other material in any language, including
notices, reports, and promotional material which mentions any
of the parties by name or which mentions the rights, powers or
duties of the Escrow Agent under this Agreement shall be
issued by any of the other parties hereto, or on such party's
behalf, without the prior written consent of such party. The
Managing Owner is given permission by the Escrow Agent to
mention The Chase Manhattan Bank by name and to mention
the rights, powers and duties of the Escrow Agent under this
Agreement in the Prospectus.
Section 11.06 The parties agree that the provisions of Articles 8
and 9 will survive the termination of this Agreement, whether terminated
in a Bankruptcy or Insolvency Action or otherwise.
15
<PAGE>
IN WITNESS WHEREOF, the parties hereto have executed this
Agreement as of the date first above written.
WORLD MONITOR TRUST II
By: Prudential Securities Futures
Management Inc., the Managing Owner
By:___________________________
Name: Eleanor L. Thomas
Title: Executive Vice President
PRUDENTIAL SECURITIES FUTURES
MANAGEMENT INC., as Managing Owner
By:_______________________________
Name: Eleanor L. Thomas
Title: Executive Vice President
THE CHASE MANHATTAN BANK, as Escrow Agent
By:_______________________________
Name:
Title:
PRUDENTIAL SECURITIES
INCORPORATED, as Placement Agent
By:_______________________________
Name:
Title:
16
<PAGE>
SCHEDULE 1
World Monitor Trust II/Prudential Securities Futures Management Inc.
Escrow Agent Services
Schedule of Fees
, 1999
Initial Fee Waived
This fee covers the acceptance of the appointment,
review of agreements and supporting documentation,
and establishment of appropriate accounts.
Annual Administration Fee $7,500 per Series
This fee covers the normal administration of
the agreement.
Legal Fees: (if applicable) At Cost
Subject to the notification and approval of the Managing
Owner prior to the submission to counsel not employed by the
Escrow Agent. This Fee covers the initial review of
agreements and supporting documentation.
Account Maintenance $2,500 per Series
This Fee covers the creation and maintenance of
the account for the first 500 investors in
each Series. If there are more than
500 investors in a Series, then the following
fees will be charged for each investor over
the initial 500 investors in the Series.
$3.00 per investor
$1.00 per 1099
$1.00 per check, if applicable
Additional Terms:
1. Fees for services not contemplated on this schedule are
determined by an appraisal of the work involved and will be
provided upon request.
2. No additional charges will be incurred for "bust outs". A
"bust out" is a reversal of a subscription once the dollar
amount of the subscription has been transferred to the Escrow
Agent.
<PAGE>
SCHEDULE 2
Minimum Amount of Interests
By Series Required
to be Sold
Series D $5 million
Series E $5 million
Series F $5 million
<PAGE>
SCHEDULE 3
Telephone Number(s) for Call-Backs and
Person(s) Designated to Confirm Funds Transfer Instructions
If to Managing Owner:
Name Telephone Number
1.
2.
3.
If to Placement Agent:
Name Telephone Number
1.
2.
3.
Telephone call-backs shall be made to the Managing Owner
and the Placement Agent if joint instructions are required
pursuant to the Agreement.
<PAGE>
EXHIBIT 10.2
BROKERAGE AGREEMENT
THIS BROKERAGE AGREEMENT, made as of the ______ day of
________, 1999, by and between WORLD MONITOR TRUST II (the
"Trust"), a business trust organized under Chapter 38 of Title
12 of the Delaware Code (the "Delaware Act"), and PRUDENTIAL
SECURITIES INCORPORATED, a Delaware corporation (the
"Broker").
W I T N E S S E T H :
WHEREAS, Prudential Securities Futures Management Inc.
(the "Managing Owner"), a Delaware corporation, is acting as
the Managing Owner of the Trust; and
WHEREAS, the Trust has been organized to trade, buy,
sell, spread, or otherwise acquire, hold, or dispose of
commodity futures, forward and options contracts (collectively
"Commodity Interests"); and
WHEREAS, the Trust made a public offering of limited
liability beneficial interests (the "Interests") in Series D,
E, and F (the "Series") of the Trust through the Broker, and in
connection therewith, the Trust filed with the U.S.
Securities and Exchange Commission (the "SEC"), pursuant to
the U.S. Securities Act of 1933, as amended (the
"Act"), registration statements on Form S-1, and as a part
thereof a prospectus, which registration statements, together
with all amendments thereto, shall be referred to herein as
the "Registration Statements" and which prospectus in final
form, included as part of the Registration Statements,
together with all amendments and supplements thereto, shall be
referred to herein as the "Prospectus"; and
WHEREAS, the assets of each Series of Interests in the
Trust will be managed by a different trading advisor and will
be separately valued; and
WHEREAS, the Trust desires to engage the Broker to
provide commodity brokerage and certain other types of
services for the Trust;
NOW, THEREFORE, in consideration of the mutual covenants
contained herein, it is agreed that:
1. Commodity Brokerage Services. The Trust hereby
authorizes the Broker, and the Broker hereby agrees, to act as
the Trust's commodity broker for all Commodity Interest
transactions effected for the benefit of each Series in
accordance with the authorized written or oral instructions of
each authorized commodity trading advisor (an "Advisor")
retained by the Trust for the various Series, in each instance
in accordance with the terms of the then current Advisory
Agreement by and among the Trust, the Managing Owner and each
such Advisor, and to act as the clearing broker for the
transactions effected for each Series. In this regard, the
Trust will each execute a copy of the Broker's Commodity
Customer's Agreement (and related documents), as appropriate,
substantially in the form attached hereto as Exhibit A (the
"Customer's Agreement"). This Brokerage Agreement and the
Customer's Agreement are hereinafter collectively referred to
as the "Brokerage Agreement".
The Broker agrees to establish a separate account for
each Series with sub-accounts, if requested by the Managing
Owner, for any Advisor's different trading approaches, and
maintain separate records for the trading activities of each
Series.
Notwithstanding any provisions of this Brokerage
Agreement to the contrary, the Broker shall assume financial
responsibility for any error committed by it in executing
orders for the purchase or sale of Commodity Interests for any
of the Trust's accounts. However, the Broker shall not be
responsible for errors committed by any Advisor and shall not
be responsible for any action of the Trust in following or
declining to follow any instruction, advice or recommendation
given by any Advisor.
2. Custodial Services. The Broker agrees to perform
certain custodial functions in connection with Series' assets
including, but not limited to, providing monthly accountings
of all dealings done and actions taken during the applicable
reporting period by the Broker with respect to the assets for
each Series, and providing each Series with an accounting of
all securities, commodities, funds, and other property held by
the Broker or its nominees for or on behalf of such Series.
3. Administrative Services. The Broker agrees to
perform certain administrative functions for each Series,
including, but not limited to, preparing and transmitting
daily confirmations of transactions and monthly statements of
account, calculating equity balances and margin requirements,
assisting the Managing Owner in providing continuing
informational services to the holders of Interests (the
"Limited Owners"), keeping the Limited Owners apprised of
developments affecting the Series, communicating valuations of
the Series, providing information with respect to procedures
for redemptions, exchanges, transfers, and distributions, if
any, interpreting monthly and annual reports, providing tax
information to the Limited Owners, explaining developments in
the commodity markets in the United States and abroad, and
providing information to the Managing Owner, when requested,
regarding the status of each Series accounts. The Broker
further agrees to perform such additional recordkeeping
services on behalf of the Series as the Managing Owner shall
reasonably request, and to furnish to the Trust as soon as
practicable all such other information in its possession which
the Managing Owner is required to furnish to the Limited
Owners of the Trust pursuant to the Amended and Restated
Declaration of Trust and Trust Agreement of World Monitor Trust II,
dated as of May 15, 1999 (the "Trust Agreement") as from time
to time in effect, or any applicable law, rules or regulations.
4. General Services. As part of its general services to
the Trust, the Broker will assist the Managing Owner in
managing the holdings of the various Series, other than
commodities assets, as the Managing Owner may reasonably
request. The Broker agrees to perform such other services on
behalf of the Trust and each Series from time to time as the
Managing Owner may reasonably request.
5. Agreement Nonexclusive. The Broker shall be free to
render services of the nature to be rendered to the Trust
hereunder to other persons or entities in addition to the
Trust, and the parties acknowledge that the Broker may render
such services to additional entities similar in nature to the
Trust, including other trusts organized with the Managing
Owner as their managing owner, as well as limited partnerships
of which the Managing Owner acts as general partner. It is
expressly understood and agreed that this Brokerage Agreement
is nonexclusive and that the Trust has no obligation to
execute any or all of its trades for Commodity Interests
through the Broker, and the parties acknowledge that any
Series may execute trades for Commodity Interests through such
other broker or brokers as the Managing Owner may direct from
time to time. The Trust's utilization of an additional
commodity broker shall neither terminate this Brokerage
Agreement nor modify in any regard the respective rights and
obligations of the Trust and the Broker hereunder.
6. Compensation of the Broker. The Broker's
compensation for its services hereunder shall be limited to
the commodity brokerage fees charged to each Series in
accordance herewith. The Broker shall charge each Series a
separate brokerage fee for all services provided by the Broker
for such Series at an annualized rate of 6% of each Series'
Net Asset Value plus all fees and expenses related to the execution
of each Series' Commodity Interest trading (including,
without limitation, floor brokerage, any costs associated with
taking delivery of Commodity Interests and National Futures
Association ("NFA"), exchange and clearing fees). The
brokerage fee shall be determined at the close of business
each Friday based on the Series' then Net Asset Value but
before the deduction of (i) any fees, including the
brokerage fee, the management fee, the incentive fee,
if any, and the ordinary and extraordinary expenses of each
Series and (ii) redemptions for such week. The
sum of the amounts determined weekly shall be paid monthly.
In the event a Series commences trading activities subsequent
to the first business day of a week or terminates prior to the
last business day of a week, the brokerage fee shall be
prorated for any such week on the basis of the number of
trading days in the week the services were provided by the
Broker as compared to the total number of trading days in that
week. There will be no material change related to the
aforementioned monthly brokerage fee except upon 20
business days' notice to Limited Owners of each
Series, and no increase in such fee shall take effect except
at the beginning of a quarter. The brokerage fee shall be
paid by each Series within 20 days of the end of each month.
7. Investment Discretion. The Broker shall have no
authority or responsibility to direct the Commodity Interests
to be purchased or sold for the account of any Series.
8. Standard of Liability. Subject to Section 1 hereof,
the Broker and its stockholders, directors, officers,
employees, and its or their respective successors or assigns
shall not be liable to the Trust, the Limited Owners of the
Trust, or any of its or their respective successors or
assigns, except by reason of acts of, or omissions due to, bad
faith, misconduct, or negligence, or for not having acted in
good faith in the reasonable belief that such acts or
omissions were in the best interests of the Trust, or by
reason of any material breach of this Brokerage Agreement.
9. Limits on Claims. The Broker agrees that it will not
take any of the following action against the Trust: (i) seek
a decree or order by a court having jurisdiction in the
premises (A) for relief in respect of the Trust in an
involuntary case or proceeding under the Federal Bankruptcy
Code or any other federal or state bankruptcy, insolvency,
reorganization, rehabilitation, liquidation or similar law or
(B) adjudging the Trust a bankrupt or insolvent, or seeking
reorganization, rehabilitation, liquidation, arrangement,
adjustment or composition of or in respect of the Trust under
the Federal Bankruptcy Code or any other applicable federal or
state law, or appointing a custodian, receiver, liquidator,
assignee, trustee, sequestrator (or other similar official) of
the Trust or of any substantial part of any of its properties,
or ordering the winding up or liquidation of any of its
affairs, or (ii) seek a petition for relief, reorganization or
to take advantage of any law referred to in the preceding
clause or (iii) file an involuntary petition for bankruptcy
(collectively "Bankruptcy or Insolvency Action").
In addition, the Broker agrees that for any
obligations due and owing to it by any Series, the Broker will
look solely and exclusively to the assets of such Series or
the Managing Owner, if it has liability in its capacity as
Managing Owner, to satisfy its claims and will not seek to
attach or otherwise assert a claim against the assets of any
other Series or the Trust as a whole, whether or not there is
a Bankruptcy or Insolvency Action taken. The parties agree
that this provision will survive the termination of this
Brokerage Agreement, whether terminated in a Bankruptcy or
Insolvency Action or otherwise.
This Brokerage Agreement has been made and executed
by and on behalf of the Trust and the Managing Owner and the
obligations of the Trust and/or the Managing Owner set forth
herein are not binding upon any of the Limited Owners
individually but are binding only upon the assets and property
identified above and no resort shall be had to the assets of
other Series issued by the Trust or the Limited Owners'
personal property for the satisfaction of any obligation or
claim hereunder.
10. Term and Termination. This Brokerage Agreement
shall commence on the date hereof and shall be automatically
renewed for additional one year periods unless sooner
terminated by either party hereto. This Brokerage Agreement
may be terminated by either party hereto at any time, upon
sixty (60) days' prior written notice to the other party.
This Brokerage Agreement shall terminate automatically if the
Broker's registration as a futures commission merchant ("FCM")
under the Commodity Exchange Act, as amended, ("CE Act") or
membership as an FCM with the NFA is revoked, suspended,
terminated or not renewed.
11. Subordination Agreement. The Broker agrees and
consents (the "Consent") to look solely to each Series for
which brokerage and clearing services are being performed (the
"Contracting Series") and assets (the "Contracting Series
Assets") of the Contracting Series and to the Managing Owner
and its assets for payment. The Contracting Series Assets
include only those funds and other assets that are paid, held
or distributed to the Trust on account of and for the benefit
of the Contracting Series, including, without limitation,
funds delivered to the Trust for the purchase of interests in
a Series. In furtherance of the Consent, the Broker agrees
that any debts, liabilities, obligations, indebtedness,
expenses and claims of any nature and of all kinds and
descriptions (collectively, "Claims") incurred, contracted for
or otherwise existing arising from, related to or in
connection with the Trust and its assets and the Contracting
Series and the Contracting Series Assets, shall be subject to
the following limitations:
(a) subordination of certain claims and rights: (i)
except as set forth below, the Claims, if any, of
the Broker (the "Subordinated Claims") shall be
expressly subordinate and junior in right of payment
to any and all other Claims against the Trust and
any Series thereof, and any of their respective
assets, which may arise as a matter of law or
pursuant to any contract; provided, however, that
the Broker's Claims (if any) against the Contracting
Series shall not be considered Subordinated Claims
with respect to enforcement against and distribution
and repayment from the Contracting Series, the
Contracting Series Assets and the Managing Owner and
its assets; and provided further that the Broker's
valid Claims, if any, against the Contracting Series
shall be pari passu and equal in right of repayment
and distribution with all other valid Claims against
the Contracting Series, and (ii) the Broker will not
take, demand or receive from any Series or the Trust
or any of their respective assets (other than the
Contracting Series, the Contracting Series Assets
and the Managing Owner and its assets) any payment
for the Subordinated Claims;
(b) the Claims of the Broker with respect to the
Contracting Series shall only be asserted and
enforceable against the Contracting Series, the
Contracting Series Assets and the Managing Owner and
its assets; and such Claims shall not be asserted or
enforceable for any reason whatsoever against any
other Series, the Trust generally or any of their
respective assets;
(c) if the Claims of the Broker against the Contracting
Series or the Trust are secured in whole or in part,
the Broker hereby waives (under section 1111(b) of
the 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 Broker receives monies in connection
with the Subordinated Claims from a Series or the
Trust (or their respective assets), other than the
Contracting Series, the Contracting Series Assets
and the Managing Owner and its assets, the Broker
shall be deemed to hold such monies in trust and
shall promptly remit such monies to the Series or
the Trust that paid such amounts for distribution by
the Series or the Trust in accordance with the terms
hereof; and
(e) the foregoing Consent shall apply at all times
notwithstanding that the Claims are satisfied, and
notwithstanding that the agreements in respect of
such Claims are terminated, rescinded or canceled.
12. Year 2000 Representation. Prudential represents to the
Trust that its business operations and any services provided
pursuant to this Agreement will not be materially interrupted
by the advent of the Year 2000 date.
13. Complete Agreement. This Agreement and the
Customer's Agreement constitutes the entire agreement between
the parties with respect to the matters referred to herein and
therein (provided that if there are any inconsistencies
between the text of this Agreement and the Customer's
Agreement, this Agreement shall control), and no other
agreement, verbal or otherwise, shall be binding as between
the parties unless in writing and signed by the party against
whom enforcement is sought.
14. Assignment; Binding Effect. This Brokerage
Agreement may not be assigned by either party without the
express written consent of the other party. This Brokerage
Agreement shall be binding on and inure to the benefit of the
parties hereto and the respective successors and permitted
assigns of each of them, and no other person shall have any
right or obligation under this Brokerage Agreement. The terms
"successors" and "assigns" shall not include any purchasers,
as such, of Interests.
15. Amendment. This Brokerage Agreement may not be
amended except by the written consent of the parties.
16. Notices. All notices required or desired to be
delivered under this Brokerage Agreement shall be in writing
and shall be effective when delivered personally on the day
delivered, or when given by registered or certified mail,
postage prepaid, return receipt requested, on the day of
receipt, addressed as follows (or to such other address as the
party entitled to notice shall hereafter designate in
accordance with the terms hereof):
If to the Trust:
WORLD MONITOR TRUST II
Prudential Securities Futures Management Inc.
One New York Plaza, 13th Floor
New York, New York 10292
Attn: Eleanor L. Thomas
if to the Broker:
PRUDENTIAL SECURITIES INCORPORATED
One New York Plaza, 13th Floor
New York, New York 10292
Attn: Eleanor L. Thomas
17. Survival. The provisions of this Brokerage
Agreement. shall survive the termination of this Agreement
with respect to any matter arising while this Agreement was in
effect.
18. Severability. Whenever any statute shall be enacted
which shall affect in any manner or be inconsistent with any
of the provisions of this Brokerage Agreement, or whenever any
rule or regulation shall be prescribed or promulgated by any
government agency having jurisdiction which shall affect in
any manner or be inconsistent with any of the provisions of
this Brokerage Agreement, the provisions of this Brokerage
Agreement so affected shall be deemed modified or superseded,
as the case may be, by such statute, rule or regulation, and
all other provisions of this Brokerage Agreement and the
provisions so modified or superseded, shall in all respects
continue and be in full force and effect.
19. Headings. Headings of sections herein are for the
convenience of the parties only and are not intended to be a
part of, or to affect the meaning or interpretation of, this
Brokerage Agreement.
20. Definitions. All capitalized terms used herein and
not defined shall have the meaning ascribed to such terms in
the Trust Agreement and the Prospectus.
21. Governing Law. This Brokerage Agreement shall be
governed by and construed in accordance with the laws of the
State of New York applicable to contracts made and to be
performed in that State, without giving effect to the
principles of conflicts of laws thereof.
22. Representations and Warranties of the Broker.
The Broker hereby represents and warrants to the Trust that:
a. On the date hereof the Broker is, and at all
times during the term of this Brokerage Agreement will
be, a duly formed and validly existing corporation in
good standing under the laws of the state of its
organization, and at all times during the term of this
Brokerage Agreement will be in good standing and
qualified to do business in each jurisdiction in which
the nature or conduct of its business requires such
qualifications and the failure to be so qualified
materially adversely would affect its ability to perform
its obligations under this Brokerage Agreement and to
operate as described in the Prospectus, and has full
capacity and authority to conduct its business and to
perform its obligations under this Brokerage Agreement,
and to act as described in the Registration Statements as
of its effective date and the Prospectus as of the
Closing Date.
b. This Brokerage Agreement has been duly and
validly authorized, executed and delivered on behalf of
the Broker, is a valid and binding agreement of the
Broker, and is enforceable in accordance with its terms.
The performance of the Broker's obligations under this
Brokerage Agreement, and the consummation of the
transactions set forth in this Brokerage Agreement, and
in the Registration Statements as of its effective date
and Prospectus as of the Closing Date are not contrary to
the provisions of the Broker's Certificate of
Incorporation or By-Laws, or to the best of its
knowledge, after due inquiry, any applicable law, rule or
regulation of any federal, state or other governmental
regulatory or self-regulatory agency or body and will not
result in any violation, breach or default under any term
or provision of any undertaking, contract, agreement or
order, to which the Broker is a party or by which the
Broker is bound.
c. The Broker has obtained all required
governmental and regulatory licenses, registrations and
approvals required by law as may be necessary to perform
their obligations under this Brokerage Agreement and to
act as described in the Registration Statements as of its
effective date and the Prospectus as of the Closing Date
(including, without limitation, the Broker's registration
as a futures commission merchant under the CE Act and
membership as a futures commission merchant with the NFA)
and will maintain and renew any required licenses,
registrations, approvals and memberships required during
the term of this Brokerage Agreement.
IN WITNESS WHEREOF, this Brokerage Agreement has been
executed for and on behalf of the undersigned as of the day
and year first above written.
WORLD MONITOR TRUST II
By: Prudential Securities Futures
Management Inc., Managing Owner
By:___________________________
Name:
Title:
PRUDENTIAL SECURITIES INCORPORATED
By:___________________________
Name:
Title:
<PAGE>
ADVISORY AGREEMENT
ADVISORY AGREEMENT (the "Agreement") dated as of the
___ day of _____, 1999, by and among World Monitor Trust II, a
Delaware business trust (the "Trust"), Prudential Securities Futures
Management Inc., a Delaware corporation (the "Managing Owner")
and Beacon Management Corporation (USA), a Delaware
corporation (the "Advisor").
W I T N E S S E T H:
WHEREAS, the Trust has been organized primarily for the
purpose of trading, buying, selling, spreading or otherwise
acquiring, holding or disposing of futures, forward and options
contracts with respect to commodities. Other transactions also
may be effected from time to time, including among others, those as
more fully identified in Exhibit A hereto. The foregoing
commodities and other transactions are collectively referred to as
"Commodities"; and
WHEREAS, the Managing Owner is authorized to utilize the
services of one or more professional commodity trading advisors in
connection with the Commodities trading activities of the various
Series (as defined below) of the Trust; and
WHEREAS, the Trust proposes to make an initial public
offering (the "Offering") of limited liability beneficial interests in the
Trust (the "Interests") evidenced by different series of Interests
(each, a "Series") through Prudential Securities Incorporated
("Prudential Securities"), an affiliate of the Managing Owner, and in
connection therewith, the Trust intends to file with the U. S.
Securities and Exchange Commission (the "SEC"), pursuant to the
Securities Act of 1933, as amended (the "1933 Act"), a registration
statement on Form S-1 to register the Interests,
<PAGE>
and as part thereof
a prospectus (which registration statement, together with all
amendments thereto, shall be referred to herein as the "Registration
Statement" and which prospectus, in final form, shall be referred to
herein as the "Prospectus"); and
WHEREAS, the Trust will prepare and file applications for
registration of the Interests under the securities or Blue Sky laws of
such jurisdictions as the Managing Owner deems appropriate; and
WHEREAS, the Advisor's present business includes the
management of Commodities accounts for its clients; and
WHEREAS, the Advisor is registered as a commodity trading
advisor under the Commodity Exchange Act, as amended (the "CE
Act"), and is a member of the National Futures Association (the
"NFA") as a commodity trading advisor and will maintain such
registration and membership for the term of this Agreement; and
WHEREAS, the Trust and the Advisor desire to enter into this
Agreement in order to set forth the terms and conditions upon
which the Advisor will render and implement commodity advisory
services on behalf of the Trust during the term of this Agreement;
NOW, THEREFORE, the parties agree as follows:
1. Duties of the Advisor.
(a) Appointment. The Trust hereby appoints the
Advisor, and the Advisor hereby accepts appointment, as its limited
attorney-in-fact to exercise discretion to invest and reinvest in
Commodities during the term of this Agreement the portion of the
Trust's Net Asset
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<PAGE>
Value (as defined in the Prospectus) which is
comprised of the assets attributable to the Trust's Series F Interests
allocated to the Advisor (the "Series F Allocated Assets") on the
terms and conditions and for the purposes set forth herein. This
limited power-of-attorney is a continuing power and shall continue
in effect with respect to the Advisor until terminated hereunder.
The Advisor shall have sole authority and responsibility for
independently directing the investment and reinvestment in
Commodities of the Series F Allocated Assets for the term of this
Agreement pursuant to the trading programs, methods, systems,
and strategies described in Exhibit A hereto, which the Trust and
the Managing Owner have selected to be utilized by the Advisor in
trading the Series F Allocated Assets (collectively referred to as the
Advisor's "Trading Approach"), subject to the trading policies and
limitations as set forth in the Prospectus and attached hereto as
Exhibit B (the "Trading Policies and Limitations"), as the same may
be modified from time to time and provided in writing to the
Advisor. The portion of the Series F Allocated Assets to be
allocated by the Advisor at any point in time to one or more of the
various trading strategies comprising the Advisor's Trading
Approach will be determined as set forth in Exhibit A hereto, as it
may be amended from time to time, with the consent of the parties,
it being understood that trading gains and losses automatically will
alter the agreed upon allocations. Upon receipt of a new allocation,
the Advisor will determine and, if required, adjust its trading in light
of the new allocation.
(b) Allocation of Responsibilities. The Managing
Owner will have the responsibility for the management of any
portion of the Series F Allocated Assets that are not invested in
Commodities. The Advisor will use its good faith and best efforts in
determining the investment and reinvestment in Commodities of the
Series F Allocated Assets in compliance with the Trading Policies
and Limitations, and in accordance with the Advisor's Trading
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<PAGE>
Approach. In the event that the Managing Owner shall, in its sole
discretion, determine in good faith following consultation
appropriate under the circumstances with the Advisor that any
trading instruction issued by the Advisor violates the Trust's
Trading Policies and Limitations, then the Managing Owner,
following reasonable notice to the Advisor appropriate under the
circumstances, may override such trading instruction and shall be
responsible therefor. Nothing herein shall be construed to prevent
the Managing Owner from imposing any limitation(s) on the trading
activities of the Trust beyond those enumerated in the Prospectus if
the Managing Owner determines that such limitation(s) are
necessary or in the best interests of the Trust, in which case the
Advisor will adhere to such limitations following written notification
thereof.
(c) Gains From Trading Approach. The Advisor agrees
that at least 90% of the gains and income, if any, generated by its
Trading Approach for Series F will be from buying and selling
Commodities, as described in Exhibit D hereto.
(d) Modification of Trading Approach. In the event the
Advisor requests to use, or the Managing Owner requests the
Advisor to use, a trading program, system, method or strategy other
than or in addition to the trading programs, systems, methods or
strategies comprising the Trading Approach in connection with
trading for the Trust (including, without limitation, the deletion or
addition of an agreed upon trading program, system, method or
strategy to the then agreed upon Trading Approach or a
modification in the leverage employed), either in whole or in part,
the Advisor may not do so and/or shall not be required to do so, as
appropriate, unless both the Managing Owner and the Advisor
consent thereto in writing.
(e) Notification of Material Changes. The Advisor also
agrees to give the Trust prior written notice of any proposed
material change in its Trading Approach and agrees
4
<PAGE>
not to make any material change in such Trading Approach (as applied
to the Trust) over the objection of the Managing Owner, it being
understood that the Advisor shall be free to institute non-material
changes in its Trading Approach (as applied to the Trust) without
prior written notification. Without limiting the generality of the
foregoing, refinements to the Advisor's Trading Approach, and the
deletion (but not the addition) of commodities (other than the
addition of commodities then being traded (i) on organized
domestic commodities exchanges, (ii) on foreign commodities
exchanges recognized by the Commodity Futures Trading
Commission (the "CFTC") as providing customer protections
comparable to those provided on domestic exchanges or (iii) in the
interbank foreign currency market) to or from the Advisor's Trading
Approach, shall not be deemed a material change in the Advisor's
Trading Approach, and prior approval of the Managing Owner shall
not be required therefor. The utilization of forward markets in
addition to those enumerated in Exhibit D hereto would be deemed
a material change to the Advisor's Trading Approach and prior
approval shall be required therefor.
Subject to adequate assurances of confidentiality, the
Advisor agrees that it will discuss with the Managing Owner upon
request any trading methods, programs, systems or strategies used
by it for trading customer accounts which differ from the Trading
Approach used for the Trust, provided, that nothing contained in
this Agreement shall require the Advisor to disclose what it deems
to be proprietary or confidential information.
(f) Request for Information. The Advisor agrees to
provide the Trust with any reasonable information concerning the
Advisor that the Trust may reasonably request (other than the
identity of its customers or proprietary or confidential information
concerning the Trading Approach), subject to receipt of adequate
assurances of confidentiality by the Trust, including, but not limited
to, information regarding any change in control, key personnel,
5
<PAGE>
Trading Approach and financial condition which the Trust
reasonably deems to be material to the Trust; the Advisor also shall
notify the Trust of any such matters the Advisor, in its reasonable
judgment, believes may be material to the Trust relating to the
Advisor and its Trading Approach. During the term of this
Agreement, the Advisor agrees to provide the Trust with updated
monthly information related to the Advisor's performance results
within a reasonable period of time after the end of the month to
which it relates.
(g) Notice of Errors. The Advisor is responsible for
promptly reviewing all oral and written confirmations it receives to
determine that the Commodities trades were made in accordance
with the Advisor's instructions. If the Advisor determines that an
error was made in connection with a trade or that a trade was made
other than in accordance with the Advisor's instructions, the
Advisor shall promptly notify the Managing Owner of this fact and
shall utilize its best efforts to cause the error or discrepancy to be
corrected.
(h) Liability. Neither the Advisor nor any employee,
director, officer or shareholder of the Advisor, nor any person who
controls the Advisor, shall be liable to the Managing Owner, its
officers, directors, shareholders or employees, or any person who
controls the Managing Owner, or the Trust or the owners of Series F
Interests ("Limited Owners"), or any of their respective successors
or assignees under this Agreement, except by reason of acts or
omissions in material breach of this Agreement or due to their
misconduct or negligence or by reason of their not having acted in
good faith in the reasonable belief that such actions or omissions
were in the best interests of the Trust; it being understood that the
Advisor makes no guarantee of profit nor offers any protection
against loss, and that all purchases and sales of Commodities shall
be for the account and risk of the Trust, and the Advisor shall incur
no liability for trading profits or losses resulting therefrom provided
the Advisor would not
6
<PAGE>
otherwise be liable to the Trust under the terms hereof.
(i) Initial Allocation. Initially, the Series F Allocated
Assets will total an amount equal to the assets of the Trust
allocable to the Series F Interests, including all cash and cash
equivalents held by the Trust in respect of such Interests reduced
by all liabilities of the Trust incurred specifically in respect of the
Series F Interests and further reduced by a pro-rata share of the
total liabilities of the Trust which are not otherwise specifically
allocable to another Series of Interests, at the conclusion of the
Trust's Initial Offering Period (as described in the Prospectus).
(j) Additional Allocations and Reallocations. Subject
to Section 10 below, the Trust may, on a weekly basis during the
Trust's Continuous Offering Period, as described in the Prospectus,
(A) allocate additional assets to the Advisor, (B) reallocate the
Series F Allocated Assets away from the Advisor to another
commodity trading advisor (an "Other Advisor"), (C) reallocate
assets to the Advisor from an Other Advisor, or (D) allocate
additional capital with respect to the Series F Allocated Assets to an
Other Advisor.
(k) Delivery of Disclosure Document. The Advisor
agrees to provide to the Managing Owner with any amendment or
supplement to the Disclosure Document attached hereto as Exhibit
D (an "Update") as soon as such Update is available for
distribution.
2. Indemnification.
(a) The Advisor. Subject to the provisions of Section 3,
the Advisor, and each officer, director, shareholder and employee of
the Advisor, and each person who controls the Advisor, shall be
indemnified, defended and held harmless by the Trust and the
Managing
7
<PAGE>
Owner, jointly and severally from and against any and all
claims, losses, judgments, liabilities, damages, costs, expenses
(including, without limitation, reasonable investigatory and
attorneys' fees and reasonable expenses) and amounts paid in
settlement of any claims in compliance with the conditions
specified below (collectively, "Losses") sustained by the Advisor (i)
in connection with any acts or omissions of the Advisor, or any of
its officers, directors or employees relating to its management of
the Series F Allocated Assets, including in connection with this
Agreement or otherwise as a result of the Advisor's performance of
services on behalf of the Trust or its role as trading advisor to
Series F Allocated Assets and/or (ii) as a result of a material breach
of this Agreement by the Trust or the Managing Owner, provided
that, (i) such Losses were not the result of negligence, misconduct
or a material breach of this Agreement on the part of the Advisor,
and its officers, directors, shareholders and employees, and each
person controlling the Advisor, (ii) the Advisor, and its officers,
directors, shareholders and employees, and each person
controlling the Advisor, acted in good faith and in a manner
reasonably believed by it and them to be in or not opposed to the
best interests of the Trust and (iii) any such indemnification will
only be recoverable from the Series F Allocated Assets and the
assets of the Managing Owner and not from any other assets of any
other Series of the Trust, provided further, that no indemnification
shall be permitted under this Section 2 for amounts paid in
settlement if either (A) the Advisor fails to notify the Trust of the
terms of any settlement proposed, at least 15 days before any
amounts are paid or (B) the Trust does not approve the amount of
the settlement within 15 days (such approval not to be withheld
unreasonably). Notwithstanding the foregoing, the Trust shall at all
times have the right to offer to settle any matter with the approval of
the Advisor (which approval shall not be withheld unreasonably),
and if the Trust successfully negotiates a settlement and tenders
payment therefor to the party claiming indemnification (the
8
<PAGE>
"Indemnitee"), the Indemnitee must either use its best efforts to
dispose of the matter in accordance with the terms and conditions
of the proposed settlement or the Indemnitee may refuse to settle
the matter and continue its defense in which latter event the
maximum liability of the Trust to the Indemnitee shall be the amount
of said proposed settlement. Any indemnification by the Trust
under this Section 2, unless ordered by a court, shall be made by
the Trust only as authorized in the specific case and only upon a
determination by mutually acceptable independent legal counsel in
a written opinion that indemnification is proper in the
circumstances because the Indemnitee has met the applicable
standard of conduct set forth hereunder.
(b) Default Judgments and Confessions of Judgment.
None of the foregoing provisions for indemnification shall be
applicable with respect to default judgments or confessions of
judgment entered into by the Indemnitee, with its knowledge,
without the prior consent of the Trust.
(c) Procedure. In the event that an Indemnitee under
this Section 2 is made a party to an action, suit or proceeding
alleging both matters for which indemnification can be made
hereunder and matters for which indemnification may not be made
hereunder, such Indemnitee shall be indemnified only for that
portion of the Losses incurred in such action, suit or proceeding
which relates to the matters for which indemnification can be made.
(d) Expenses. Expenses incurred in defending a
threatened or pending civil, administrative or criminal action, suit or
proceeding against an Indemnitee shall be paid by the Trust in
advance of the final disposition of such action, suit or proceeding if
(i) the legal action, suit or proceeding, if sustained, would entitle the
Indemnitee to indemnification pursuant to the
9
<PAGE>
terms of this Section
2, (ii) the Advisor undertakes to repay the advanced funds to the
Trust in cases in which the Indemnitee is not entitled to
indemnification pursuant to this Section 2 and (iii) in the case of
advancement of expenses by the Trust, the Indemnitee obtains a
written opinion of mutually acceptable independent legal counsel
that advancing such expenses is proper in the circumstances.
3. Limits on Claims.
(a) Prohibited Acts. The Advisor agrees that it will not
take any of the following actions against the Trust: (i) seek a decree
or order by a court having jurisdiction in the premises (A) for relief
in respect of the Trust in an involuntary case or proceeding under
the federal Bankruptcy Code or any other federal or state
bankruptcy, insolvency, reorganization, rehabilitation, liquidation or
similar law or (B) adjudging the Trust a bankrupt or insolvent or
seeking reorganization, rehabilitation, liquidation, arrangement,
adjustment or composition of or in respect of the Trust under the
federal Bankruptcy Code or any other applicable federal or state law
or appointing a custodian, receiver, liquidator, assignee, trustee,
sequestrator (or other similar official) of the Trust or of any
substantial part of any of its properties or ordering the winding up
or liquidation of any of its affairs or (ii) seek a petition for relief,
reorganization or to take advantage of any law referred to in the
preceding clause or (iii) file an involuntary petition for bankruptcy
(collectively, "Bankruptcy or Insolvency Action").
(b) Limited Assets Available. In addition, the Advisor
agrees that for any obligations due and owing to it by the Trust, the
Advisor will look solely and exclusively to Series F Allocated Assets
or to the assets of the Managing Owner, if it has liability in its
capacity as Managing Owner, to satisfy its claims and will not seek
to attach or otherwise assert a claim
2
<PAGE>
against the other assets of the
Trust, whether there is a Bankruptcy or Insolvency Action taken or
otherwise. The parties agree that this provision will survive the
termination of this Agreement, whether terminated in a Bankruptcy
or Insolvency Action or otherwise.
(c) No Limited Owner Liability. This Agreement has
been made and executed by and on behalf of the Trust and the
Managing Owner for the benefit of the Series F Interests of the Trust
and the obligations of the Trust and/or the Managing Owner set
forth herein are not binding upon any of the Limited Owners
individually but are binding only upon the assets and property
identified above, and no resort shall be had to the assets of other
Series issued by the Trust or the Limited Owners' personal property
for the satisfaction of any obligation or claim hereunder.
(d) Subordination Agreement. The Advisor agrees and
consents (the "Consent") to look solely to each Series for which
advisory services are being performed ("Series F") and assets (the
"Series F Assets") of Series F and to the Managing Owner and its
assets for payment. The Series F 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 Series F, including, without
limitation, funds delivered to the Trust for the purchase of interests
in Series F. In furtherance of the Consent, the Advisor agrees that
any debts, liabilities, obligations, indebtedness, expenses and
claims of any nature and of all kinds and descriptions (collectively,
"Claims") incurred, contracted for or otherwise existing arising
from, related to or in connection with the Trust and its assets and
Series F and the Series F Assets, shall be subject to the following
limitations:
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(1) Subordination of certain claims and rights. (i)
except as set forth below, the Claims, if any, of the Advisor
(the "Subordinated Claims") shall be expressly subordinate
and junior in right of payment to any and all other Claims
against the Trust and any Series thereof and any of their
respective assets which may arise as a matter of law or
pursuant to any contract; provided, however, that the
Advisor's Claims (if any) against Series F shall not be
considered Subordinated Claims with respect to enforcement
against and distribution and repayment from Series F, the
Series F Assets and the Managing Owner and its assets; and
provided, further that the Advisor's valid Claims, if any,
against Series F shall be pari passu and equal in right of
repayment and distribution with all other valid Claims against
Series F and (ii) the Advisor will not take, demand or receive
from any Series or the Trust or any of their respective assets
(other than Series F, the Series F Assets and the Managing
Owner and its assets) any payment for the Subordinated
Claims;
(2) the Claims of the Advisor with respect to
Series F shall only be asserted and enforceable against
Series F, the Series F Assets and the Managing Owner and its
assets, and such Claims shall not be asserted or enforceable
for any reason whatsoever against any other Series, the Trust
generally or any of their respective assets;
(3) if the Claims of the Advisor against Series F or
the Trust are secured in whole or in part, the Advisor hereby
waives (under section 1111(b) of the Bankruptcy Code (11
U.S.C. S 1111(b)) any right to have any deficiency Claims
(which deficiency Claims may arise in the event such security
is inadequate to satisfy such Claims) treated as unsecured
Claims against the Trust or any Series (other than Series F), as
the case may be;
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<PAGE>
(4) in furtherance of the foregoing, if and to the
extent that the Advisor receives monies in connection with the
Subordinated Claims from a Series or the Trust (or their
respective assets), other than Series F, the Series F Assets
and the Managing Owner and its assets, the Advisor shall be
deemed to hold such monies in trust and shall promptly remit
such monies to the Series or the Trust that paid such amounts
for distribution by the Series or the Trust in accordance with
the terms hereof; and
(5) the foregoing Consent shall apply at all times
notwithstanding that the Claims are satisfied and
notwithstanding that the agreements in respect of such Claims
are terminated, rescinded or canceled.
4. Obligations of the Trust, the Managing Owner and the
Advisor.
(a) The Registration Statement and Prospectus. Each
of the Trust and the Managing Owner agrees to cooperate and use
its good faith and best efforts in connection with (i) the preparation
by the Trust of the Registration Statement and the Prospectus (and
any amendments or supplements thereto), (ii) the filing of the
Registration Statement and the Prospectus (and any amendments
or supplements thereto) with such governmental and self-regulatory
authorities as the Managing Owner deems appropriate for the
registration and sale of the Interests and the taking of such other
actions not inconsistent with this Agreement as the Managing
Owner may determine to be necessary or advisable in order to make
the proposed offer and sale of Interests lawful in any jurisdiction
and (iii) causing the Registration Statement (and any amendment
thereto) to become effective under the 1933 Act and the Blue Sky
securities laws of such jurisdictions as the Managing Owner may
deem appropriate. The Advisor agrees to make all necessary
disclosures regarding itself, its officers and principals, trading
performance,
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Trading Approach, customer accounts (other than the
names of customers, unless such disclosure is required by law or
regulation) and otherwise as may be required, in the reasonable
judgment of the Managing Owner, to be made in the Registration
Statement and Prospectus and in applications to any such
jurisdictions. No description of or other information relating to the
Advisor may be distributed by the Managing Owner without the
prior written consent of the Advisor; provided that, distribution of
performance information relating to Series F's account shall not
require consent of the Advisor.
(b) Road Shows. The Advisor agrees to make
representatives of its marketing department available to participate
in "road show" and similar presentations in connection with the
offering of the Series F Interests to the extent reasonably requested
by the Managing Owner, on the following conditions: (i) all
expenses incurred by the Advisor in the course of such
participation will be shared between and among the Advisor, the
Managing Owner and/or Prudential Securities, in such amounts as
shall be agreed among the parties, (ii) the Advisor shall not be
obligated to take any action which might require registration as a
broker-dealer or investment adviser under any applicable federal or
state law and (iii) the Advisor shall not be required to assist in "road
show" or similar presentations to the extent that it reasonably
believes that doing so would interfere with its trading, marketing or
other activities.
(c) Advisor Not A Promoter. The parties acknowledge
that the Advisor has not been, either alone or in conjunction with
Prudential Securities or its affiliates, an organizer or promoter of the
Trust, and it is not intended by the parties that the Advisor shall
have any liability as such.
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(d) Filings. The Trust may at any time determine not to
file the Registration Statement with the SEC or withdraw the
Registration Statement from the SEC or any other governmental or
self-regulatory authority with which it is filed or otherwise terminate
the Registration Statement or the offering of Interests. Upon any
such withdrawal or termination, or if the "minimum" (i) aggregate
number of Interests or (ii) Series F Interests required to be sold
pursuant to the Prospectus is not sold, this Agreement shall
terminate and, except for the payment of expenses as set forth in
subparagraph 4(b) above and in paragraph 2, neither the Trust nor
the Managing Owner shall have any obligations to the Advisor with
respect to this Agreement nor shall the Advisor have any
obligations to the Trust or the Managing Owner with respect to this
Agreement.
(e) Representation Agreement. On or prior to
commencement of the offering of Interests pursuant to the
Prospectus, the parties agree to execute a Representation
Agreement relating to the offering of the Interests (the
"Representation Agreement") substantially in the form of Exhibit C
to this Agreement.
5. Advisor Independence.
(a) Independent Contractor. The Advisor shall for all
purposes herein be deemed to be an independent contractor with
respect to the Trust, the Managing Owner and each other
commodity trading advisor that may in the future provide
commodity trading advisory services to the Trust and Prudential
Securities and shall, unless otherwise expressly authorized, have
no authority to act for or to represent the Trust, the Managing
Owner, any other commodity trading advisor or Prudential
Securities in any way or otherwise be deemed to be a general agent,
joint venturer or partner of the Trust, the Managing Owner, any
other commodity trading advisor or Prudential Securities or in any
way be responsible for the acts or omissions of the Trust, the
Managing Owner, any other commodity trading advisor
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or Prudential Securities as long as it is acting independently of such
persons.
(b) Unauthorized Activities. Without limiting the
obligations of the Trust set forth under this Agreement, nothing
herein contained shall be deemed to require the Trust to take any
action contrary to its Trust Agreement or Certificate of Trust or any
applicable statute, regulation or rule of any exchange or self-
regulatory organization.
(c) Purchase of Interests. Any of the Advisor, its
principals and employees may, in its discretion, purchase Interests
in the Trust.
(d) Confidentiality. The Trust and the Managing Owner
acknowledge that the Trading Approach including methods,
models, and strategies of the Advisor is the confidential property of
the Advisor. Nothing in this Agreement shall require the Advisor to
disclose the confidential or proprietary details of its Trading
Approach. The Trust and the Managing Owner further agree that
they will keep confidential and will not disseminate the Advisor's
trading advice to the Trust, except as, and to the extent that, it may
be determined by the Managing Owner to be (i) necessary for the
monitoring of the business of the Trust, including the performance
of brokerage services by the Trust's commodity broker(s), or (ii)
expressly required by law or regulation.
6. Commodity Broker.
All Commodities traded for the account of the Trust shall
be made through such commodity broker or brokers, or
counterparty or counterparties, as the Managing Owner directs
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or otherwise in accordance with such order execution procedures as
are agreed upon between the Advisor and the Managing Owner.
Except as set forth below, the Advisor shall not have any authority
or responsibility in selecting or supervising any floor broker or
counterparty for execution of Commodities trades of the Trust or for
negotiating floor brokerage commission rates or other
compensation to be charged therefor. The Advisor shall not be
responsible for determining that any such broker or counterparty
used in connection with any Commodities transactions meets the
financial requirements or standards imposed by the Trust's Trading
Policies and Limitations. At the present time, it is contemplated
that the Trust will execute and clear all Commodities trades through
Prudential Securities and its affiliates. The Advisor may, however,
with the consent of the Managing Owner, such consent not to be
unreasonably withheld, execute transactions at such other firm(s)
and upon such terms and conditions as the Advisor and the
Managing Owner agree if such firm(s) agree to "give up" all such
transactions to Prudential Securities for clearance. To the extent
that the Trust determines to utilize a broker or counterparty other
than Prudential Securities, it will consult with the Advisor prior to
directing it to utilize such broker or counterparty and will not retain
the services of such firm over the reasonable objection of the
Advisor.
7. Fees.
In consideration of and in compensation for the
performance of the Advisor's services under this Agreement, the
Advisor shall receive from Series F a management fee (the
"Management Fee") and an incentive fee (the "Incentive Fee")
based on the Series F Allocated Assets, as follows:
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(a) A Management Fee equal to 0.0384615% of
Series F's Allocated Assets determined as of the close of business
each Friday (an annual rate of 2.0%). The sum of the amounts
determined each Friday will be paid monthly. For purposes of
determining the Management Fee, any distributions, redemptions or
reallocation of the Series F's Allocated Assets made as of the last
Friday of a week shall be added back to the Series F Allocated
Assets, and there shall be no reduction for (i) the weekly
Management Fees being calculated, (ii) any accrued but unpaid
incentive fees due the Advisor under paragraph (b) below for the
quarter in which such fees are being computed or (iii) any accrued
but unpaid extraordinary expenses unrelated to Series F (as defined
in the Trust Agreement). The Management Fee determined for any
week in which an Advisor manages the Series F Allocated Assets
for less than a full week shall be prorated, such proration to be
calculated on the basis of the number of days in the week the
Series F Allocated Assets were under the Advisor's management as
compared to the total number of days in such week with such
proration to include appropriate adjustments for any funds taken
away from the Advisor's management during the week for reasons
other than distributions or redemptions, including, but not limited
to, the reduction of the Series F Allocated Assets allocated to the
Advisor's management resulting from the payment of extraordinary
expenses. Management fees paid pursuant to this section are non-
refundable.
(b) An incentive fee of 20% (the "Incentive Fee") of
"New High Net Trading Profits" (as hereinafter defined) generated
on the Series F Allocated Assets, including realized and unrealized
gains and losses thereon, as of the close of business on the last
Friday of each calendar quarter (the "Incentive Measurement Date").
For purposes of computing the Net Asset Value of the Series F
Allocated Assets only, the Incentive Fee will be accrued weekly.
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New High Net Trading Profits (for purposes of calculating
the Advisor's Incentive Fee only) will be computed as of the
Incentive Measurement Date and will include such profits (as
outlined below) since the Incentive Measurement Date of the most
recent preceding calendar quarter for which an incentive fee was
earned (or, with respect to the first Incentive Fee, as of the
commencement of operations) (the "Incentive Measurement
Period"). New High Net Trading Profits for any Incentive
Measurement Period will be the net profits, if any, from trading of
the Series F Allocated Assets during such period (including (i)
realized trading profit (loss) plus or minus (ii) the change in
unrealized trading profit (loss) on open positions) and will be
calculated after the determination of Series F's fixed brokerage
fee and other transaction costs attributable to the Series F
Allocated Assets, the Advisor's Management Fee, and the operating
expenses for which Series F Allocated Assets is responsible, but
before deduction of any Incentive Fees payable during the Incentive
Measurement Period. New High Net Trading Profits will not include
interest earned or credited on Series F's assets and will be adjusted
(either increased or decreased, as the case may be) to reflect
extraordinary expenses (e.g., litigation, costs or damages) paid
during an Incentive Measurement Period. New High Net Trading
Profits will be generated only to the extent that the Advisor's
cumulative New High Net Trading Profits exceed the highest level of
cumulative New High Net Trading Profits achieved by the Advisor
as of a previous Incentive Measurement Date. Except as set forth
below, net losses from prior quarters must be recouped before New
High Net Trading Profits can again be generated. If a withdrawal or
distribution occurs or if this Agreement is terminated at any date
that is not an Incentive Measurement Date, the date of the
withdrawal or distribution or termination will be treated as if it were
an Incentive Measurement Date, but any Incentive Fee accrued in
respect of the withdrawn assets on such date shall not be paid to
the Advisor until the next scheduled Incentive Measurement Date.
New High Net
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Trading Profits for an Incentive Measurement Period
shall exclude capital contributions to Series F in an Incentive
Measurement Period, distributions or redemptions paid or payable
by Series F during an Incentive Measurement Period, as well as
losses, if any, associated with redemptions, distributions, and
reallocations of assets during the Incentive Measurement Period and
prior to the Incentive Measurement Date (i.e., to the extent that
assets are allocated away from the Advisor, any loss carryforward
attributable to the Advisor shall be reduced in the same proportion
that the assets allocated away from the Advisor through
redemptions, distributions or allocations caused by the Trust or the
Managing Owner bears to the Series F Allocated Assets prior to the
re-allocation and New High Net Trading Profits shall reflect this
reduction in loss carryforward). 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.
(c) Timing of Payment. Management Fees and
Incentive Fees shall be paid generally within 15 business days
following the end of the period for which they are payable. The first
incentive fee which may be due and owing to the Advisor in respect
of any New Trading Profits will be due and owing as of the last
Friday of the first calendar quarter during which the Trading
Advisor managed the Allocated Assets for at least 45 days. If an
Incentive Fee shall have been paid by the Trust to the Advisor in
respect of any calendar quarter and the Advisor shall incur
subsequent losses on the Series F Allocated Assets, the Advisor
shall nevertheless be entitled to retain amounts previously paid to it
in respect of New High Net Trading Profits.
(d) Fee Data. The Managing Owner will provide the
Advisor with the data used by the Managing Owner to compute the
foregoing fees generally within ten business days
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of the end of the relevant period.
(e) Third Party Payments. Neither the Advisor, nor any
of its officers, directors, employees or stockholders, shall receive
any commissions, compensation, remuneration or payments
whatsoever from any broker with which the Trust carries an account
for transactions executed in the Trust's account. The parties
acknowledge that a spouse of any of the foregoing persons may
receive floor brokerage commissions in respect of trades effected
pursuant to the Advisor's Trading Approach on behalf of the Trust,
which payment shall not violate the preceding sentence.
8. Term and Termination.
(a) Term. This Agreement shall commence on the date
hereof and, unless sooner terminated pursuant to paragraph (b), (c),
or (d) of this Section 8, shall continue in effect until the close of
business on the last day of the month ending fifteen full months
following the commencement of Series F's trading activities.
Thereafter, unless this Agreement is terminated pursuant to
paragraphs (b), (c) or (d) of this Section 8, this Agreement shall be
renewed automatically on the same terms and conditions set forth
herein for successive additional one-year terms, each of which shall
commence on the first day of the month subsequent to the
conclusion of the preceding term. Subject to Section 8(d)(iv)
hereof, the automatic renewal(s) set forth in the preceding sentence
hereof shall not be affected by (i) any allocation of the Series F
Allocated Assets away from the Advisor pursuant to this Agreement
or (ii) the retention of Other Advisors following a reallocation or
otherwise.
(b) Automatic Termination. This Agreement shall
terminate automatically in the event that the Trust is terminated. In
addition, this Agreement shall terminate automatically
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in the event that the Series F Allocated Assets decline as of the
end of any business day by at least 40% from the Series F Allocated
Assets (i) as of the first day of this Agreement or (ii) as of the
first day of any calendar year, as adjusted on an ongoing basis by (A) any
decline(s) in the Series F Allocated Assets caused by distributions,
redemptions, reallocations and withdrawals, and (B) additions to
the Series F Allocated Assets caused by additional allocations.
(c) Optional Termination Right of Trust. This
Agreement may be terminated at any time at the election of the
Managing Owner in its sole discretion upon at least 30 days' prior
written notice to the Advisor. The Managing Owner will use its best
efforts to cause any termination to occur as of a month-end. This
Agreement also may be terminated upon prior written notice,
appropriate under the circumstances, to the Advisor in the event
that: (i) the Managing Owner determines in good faith following
consultation appropriate under the circumstances with the Advisor
that the Advisor is unable to use its agreed upon Trading Approach
to any material extent, as such Trading Approach may be refined or
modified in the future in accordance with the terms of this
Agreement for the benefit of the Trust; (ii) the Advisor's registration
as a commodity trading advisor under the CE Act or membership as
a commodity trading advisor with the NFA is revoked, suspended,
terminated or not renewed; (iii) the Managing Owner determines in
good faith following consultation appropriate under the
circumstances with the Advisor that the Advisor has failed to
conform, and after receipt of written notice, continues to fail to
conform in any material respect, to (A) any of the Trust's Trading
Policies and Limitations or (B) the Advisor's Trading Approach; (iv)
there is an unauthorized assignment of this Agreement by the
Advisor; (v) the Advisor dissolves, merges or consolidates with
another entity or sells a substantial portion of its assets, any
portion of its Trading Approach utilized by the Trust or its business
goodwill, in each instance without the
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consent of the Managing Owner; (vi) Grant W. Schaumburg
Jr. is not in control of the Advisor's trading
activities for the Trust; (vii) the Advisor becomes
bankrupt (admitted or decreed) or insolvent; (viii) for any other
reason, the Managing Owner determines in good faith that such
termination is essential for the protection of the Trust and the
Series F Interests, including, without limitation a good faith
determination by the Managing Owner that the Advisor has
breached a material obligation to the Trust under this Agreement
relating to the trading of the Series F Allocated Assets.
(d) Optional Termination Right of Advisor. The Advisor
shall have the right to terminate this Agreement at any time upon
written notice to the Trust, appropriate under the circumstances, in
the event (i) of the receipt by the Advisor of an opinion of
independent counsel satisfactory to the Advisor and the Trust that
by reason of the Advisor's activities with respect to the Trust it is
required to register as an investment adviser under the Investment
Advisers Act of 1940 and it is not so registered; (ii) that the
registration of the Managing Owner as a commodity pool operator
under the CE Act or its NFA membership as a commodity pool
operator is revoked, suspended, terminated or not renewed; (iii) that
the Managing Owner (A) imposes additional trading limitation(s)
pursuant to Section 1 of this Agreement which the Advisor does not
agree to follow in its management of the Series F Allocated Assets
or (B) overrides trading instructions of the Advisor or does not
consent to a material change to the Trading Approach requested by
the Advisor; (iv) if the amount of the Series F Allocated Assets
decreases to less than $4 million as the result of redemptions,
distribution, reallocation of assets, or deliveraging initiated by the
Trust or the Managing Owner but not trading losses, as of the close
of business on any Friday; (v) the Managing Owner elects (pursuant
to Section 1 of this Agreement) to have the Advisor use a different
Trading Approach in the Advisor's management of Trust assets
from
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that which the Advisor is then using to manage such assets
and the Advisor objects to using such different Trading Approach;
(vi) there is an unauthorized assignment of this Agreement by the
Trust or the Managing Owner; (vii) there is a material breach of this
Agreement by the Trust and/or the Managing Owner and after giving
written notice to the Managing Owner which identifies such breach
and such material breach has not been cured within ten days
following receipt of such notice by the Managing Owner; (viii) an
Other Advisor is allocated a portion of the Series F Assets; (ix)
the Advisor provides the Managing Owner with written notice,
at least 90 days' prior to the end of the then current term,
of the Advisor's desire and intention to terminate
this Agreement as of the end of the then current term;
or (x) other good cause is shown and the written
consent of the Managing Owner is obtained
(which shall not be withheld unreasonably).
(e) Termination Fees. In the event that this Agreement
is terminated with respect to, or by, the Advisor pursuant to this
Section 8 or the Managing Owner allocates the Trust's assets to
Other Advisors, the Advisor shall be entitled to, and the Trust shall
pay, the Management Fee and the Incentive Fee, if any, which shall
be computed (i) with respect to the Management Fee, on a pro rata
basis, based upon the portion of the month for which the Advisor
had the Series F Allocated Assets under management and (ii) with
respect to the Incentive Fee, if any, as if the effective date of
termination was the last day of the then current calendar quarter.
The rights of the Advisor to fees earned through the earlier to occur
of the date of expiration or termination shall survive this Agreement
until satisfied.
(f) Termination and Open Positions. Once terminated,
the Advisor shall have no responsibility for existing positions,
including delivery issues, if any, which may result from such
positions.
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9. Liquidation of Positions.
The Advisor agrees to liquidate open positions in the
amount that the Managing Owner informs the Advisor, in writing via
facsimile or other equivalent means, that the Managing Owner
considers necessary or advisable to liquidate in order to (i) effect
any termination or reallocation pursuant to Sections 1 or 8,
respectively or (ii) fund its pro rata share of any redemption,
distribution or Trust expense. The Managing Owner shall not,
however, have authority to instruct the Advisor as to which specific
open positions to liquidate, except as provided in Section 1 hereof.
The Managing Owner shall provide the Advisor with such
reasonable prior notice of such liquidation as is practicable under
the circumstances and will endeavor to provide at least three days
prior notice. In the event that losses incurred as a result of such
liquidation by the Advisor exceed the amount of the Series F
Allocated Assets, the Managing Owner agrees to cover such excess
losses from its assets, but in no event from the assets of the other
Series issued by the Trust. The Advisor shall have no liability for
any such losses.
10. Other Accounts of the Advisor.
(a) Management of Other Accounts and Trading of
Proprietary Capital. Subject to paragraph (c) of this Section 10, the
Advisor shall be free to (i) manage and trade accounts for other
investors (including other public and private commodity pools), and
(ii) trade for its own account, and for the accounts of its
shareholders, directors, officers and employees, as applicable,
using the same or other information and Trading Approach utilized
in the performance of services for the Trust, so long as in the
Advisor's reasonable judgment the aggregate amount of capital
being managed or traded by the Adviser does not (i) materially
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impair the Advisor's ability to carry out its obligations and duties to
the Trust pursuant to this Agreement or (ii) create a reasonable
likelihood of the Advisor having to modify materially its agreed
upon Trading Approach being used for the Trust in a manner which
might reasonably be expected to have a material adverse effect on
the Trust. The aggregate amount of capital referred to in the
preceding sentence hereinafter shall be called "Advisor's Capacity,"
and currently is estimated by the Advisor to be $500 million.
The Advisor shall not be required to accept capital from the Trust in
an amount which exceeds $50 million if such excess amount will
cause the Advisor to be managing or trading funds pursuant to its
Trading Approach which exceed the Advisor's Capacity.
(b) Acceptance of Non-Trust Capital. So long as the
Advisor is performing services for the Trust, it agrees that it will not
manage or trade funds which exceed the Advisor's Capacity.
Without limiting the generality of the foregoing, it is understood
that this paragraph shall not prohibit routine adjustments to trading
patterns in order to comply with speculative position limits or daily
trading limits. The Advisor agrees to notify the Managing Owner
when the Advisor's Capacity is likely to be reached, and when it
agrees to manage or trade additional funds of at least $100 million.
(c) Equitable Treatment of Accounts. The Advisor
agrees, in its management of accounts other than the account of
the Trust, that it will not knowingly or deliberately favor any other
account managed or controlled by it or any of its principals or
affiliates (in whole or in part) over the Trust. The preceding
sentence shall not be interpreted to preclude (i) the Advisor from
charging another client fees which differ from the fees to be paid to
it hereunder or (ii) an adjustment by the Advisor in the
implementation of any agreed upon Trading Approach in
accordance with the procedures set forth in Section 1 hereof which
is undertaken by the Advisor
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in good faith in order to accommodate
additional accounts. Notwithstanding the foregoing, the Advisor
also shall not be deemed to be favoring another commodity interest
account over the Trust's account if the Advisor, in accordance with
specific instructions of the owner of such account, shall trade such
account at a degree of leverage or in accordance with trading
policies which shall be different from that which would normally be
applied or if the Advisor, in accordance with the Advisor's money
management principles, shall not trade certain commodity interest
contracts for an account based on the amount of equity in such
account. The Advisor, upon reasonable request and receipt of
adequate assurances of confidentiality, shall provide the Managing
Owner with an explanation of the differences, if any, in performance
between the Trust and any other similar account pursuant to the
same Trading Approach for which the Advisor or any of its
principals or affiliates acts as a commodity trading advisor (in
whole or in part), provided, however, that the Advisor may, in its
discretion, withhold from any such inspection the identity of the
client for whom any such account is maintained.
(d) Inspection of Records. Upon the reasonable
request of and upon reasonable notice from the Managing Owner,
the Advisor shall permit the Managing Owner to review at the
Advisor's offices, in each case at its own expense, during normal
business hours such trading records as it reasonably may request
for the purpose of confirming that the Trust has been treated
equitably with respect to advice rendered during the term of this
Agreement by the Advisor for other accounts managed by the
Advisor, which the parties acknowledge to mean that the Managing
Owner may inspect, subject to such restrictions as the Advisor may
reasonably deem necessary or advisable so as to preserve the
confidentiality of proprietary information and the identity of its
clients, all trading records of the Advisor as it reasonably may
request during normal business hours. The Advisor may, in its
discretion, withhold from any such report or
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inspection the identity
of the client for whom any such account is maintained and in any
event the Trust and the Managing Owner shall keep all such
information obtained by them from the Advisor confidential unless
disclosure thereof legally is required or has been made public.
Such right will terminate one year after the termination of this
Agreement and does not permit access to computer programs,
records, or other information used in determining trading decisions.
11. Speculative Position Limits.
If, at any time during the term of this Agreement, it
appears to the Advisor that it may be required to aggregate the
Trust's Commodities positions with the positions of any other
accounts it owns or controls for purposes of applying the
speculative position limits of the CFTC, any exchange, self-
regulatory body or governmental authority, the Advisor promptly
will notify the Managing Owner if the Trust's positions under its
management are included in an aggregate amount which equals or
exceeds the applicable speculative limit. The Advisor agrees that if
its trading recommendations pursuant to its agreed upon Trading
Approach are altered because of the potential application of
speculative position limits, the Advisor will modify its trading
instructions to the Trust and its other accounts in a good faith effort
to achieve an equitable treatment of all accounts; to wit, the Advisor
will liquidate Commodities positions and/or limit the taking of new
positions in all accounts it manages, including the Trust, as nearly
as possible in proportion to the assets available for trading of the
respective accounts (including "notional" equity) to the extent
necessary to comply with applicable speculative position limits.
The Advisor presently believes that its Trading Approach for the
management of the Trust's account, assuming that the allocation is
not more than $50 million, can be implemented for the benefit of the
Trust notwithstanding the possibility that, from time to time,
speculative position limits may become applicable.
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12. Redemptions, Distributions, Reallocations and Additional
Allocations.
(a) Notice. The Managing Owner agrees to give the
Advisor at least one business day prior notice of any proposed
redemptions or exchanges, and two business days prior notice of
any proposed distributions, reallocations, additional allocations or
withdrawals controlled by the Managing Owner affecting the
Series F Allocated Assets.
(b) Allocations. Redemptions, exchanges, withdrawals
and distributions of Series F Interests shall be charged against the
Series F Allocated Assets.
13. Brokerage Confirmations and Reports.
The Managing Owner will instruct the Trust's brokers and
counterparties to furnish the Advisor with copies of all trade
confirmations, daily equity runs and monthly trading statements
relating to the Series F Allocated Assets. The Advisor will maintain
records and will monitor all open positions relating thereto;
provided, however, that the Advisor shall not be responsible for any
errors by the Trust's brokers or counterparties. The Managing
Owner also will furnish the Advisor with a copy of the form of all
reports, including but not limited to, monthly, quarterly and annual
reports, sent to the Limited Owners and copies of all reports filed
with the SEC, the CFTC and the NFA. The Advisor shall, at the
Managing Owner's request, make a good faith effort to provide the
Managing Owner with copies of all trade confirmations (if the broker
is other than Prudential Securities), daily equity runs, monthly
trading reports or other reports sent to the Advisor by the Trust's
commodity broker regarding the Trust and in the Advisor's
possession or control as the Managing Owner deems appropriate if
the Managing Owner cannot obtain such copies on its own behalf.
Upon request, the Managing Owner will provide the Advisor with
accurate information with respect to the Series F Allocated Assets.
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14. The Advisor's Representations and Warranties.
The Advisor represents and warrants that:
(a) it has full capacity and authority to enter into this
Agreement and to provide the services required of it hereunder;
(b) it will not by entering into this Agreement and by
acting as a commodity trading advisor to the Trust (i) be required to
take any action contrary to its incorporating or other formation
documents or, to the best of its knowledge, any applicable statute,
law or regulation of any jurisdiction or (ii) breach or cause to be
breached, to the best of its knowledge, any undertaking, agreement,
contract, statute, rule or regulation to which it is a party or by which
it is bound which, in the case of (i) or (ii), would materially limit or
materially adversely affect its ability to perform its duties under this
Agreement;
(c) it is duly registered as a commodity trading advisor
under the CE Act and is a member of the NFA as a commodity
trading advisor and it will maintain and renew such registration and
membership during the term of this Agreement;
(d) a copy of its most recent Commodity Trading
Advisor Disclosure Document as required by Part 4 of the CFTC's
regulations has been provided to the Managing Owner on behalf of
the Trust in the form of Exhibit D hereto (and the Managing Owner
acknowledges receipt of such Disclosure Document on behalf of
the Trust) and, except as disclosed in such Disclosure Document,
all information in such Disclosure Document (including, but not
limited to, background, performance, trading methods and trading
systems) is true, complete and accurate in all material respects and
is in conformity in all material respects with
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the provisions of the
CE Act, including the rules and regulations thereunder; as well as
all rules and regulations of the National Futures Association;
(e) assuming that the Series F Allocated Assets equal
not more than $50 million as of the commencement of trading, the
amount of such assets should not, in the reasonable judgment of
the Advisor, result in the Advisor being required to manage funds in
an amount which will exceed the Advisor's Capacity; and
(f) neither the Advisor nor its stockholders, directors,
officers, employees, agents, principals, affiliates nor any of its or
their respective successors or assigns: (i) shall knowingly use or
distribute for any purpose whatsoever any list containing the names
and/or residence addresses of, and/or other information about, the
Limited Owners of the Trust nor (ii) shall solicit any person it or
they know is a Limited Owner of the Trust for the purpose of
soliciting commodity business from such Limited Owner, unless
such Limited Owner shall have first contacted the Advisor or is
already a client of the Advisor or a prospective client with which the
Advisor has commenced discussions or is introduced to or referred
to the Advisor by an unaffiliated agent other than in violation of
clause (i).
(g) the Advisor has taken all reasonable steps
necessary to assure that its business operations and any services
under the Advisor's control provided pursuant to this Agreement
will not be materially interrupted by the advent of the Year 2000
date.
The within representations and warranties shall be
continuing during the term of this Agreement, and if at any time any
event has occurred which would make or tend to make any of the
foregoing not true in any material respect with respect to the
Advisor, the Advisor promptly will notify the Trust in writing
thereof.
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<PAGE>
15. The Managing Owner's Representations and Warranties.
The Managing Owner represents and warrants on behalf
of the Trust and itself that:
(a) each has the full capacity and authority to enter into
this Agreement and to perform its obligations hereunder;
(b) it will not, by acting as managing owner to the Trust
or by entering into this Agreement, and the Trust will not (i) be
required to take any action contrary to its incorporating or other
formation documents or any applicable statute, law or regulation of
any jurisdiction or (ii) breach or cause to be breached (A) any
undertaking, agreement, contract, statute, rule or regulation to
which it or the Trust is a party or by which it or the Trust is bound
or (B) any order of any court or governmental or regulatory agency
having jurisdiction over it or the Trust, which in the case of (i) or (ii)
would materially limit or materially adversely affect the performance
of its or the Trust's duties under this Agreement;
(c) it is registered as a commodity pool operator under
the CE Act and is a commodity pool operator member of the NFA,
and it will maintain and renew such registration and membership
during the term of this Agreement;
(d) this Agreement has been duly and validly
authorized, executed and delivered and is a valid and binding
agreement, enforceable against each of them, in accordance with its
terms;
(e) on the date hereof, it is, and during the term of this
Agreement, it will be (i) in the case of the Trust, a duly formed and
validly existing Delaware Business Trust and (ii)
32
<PAGE>
in the case of the Managing Owner, a duly formed
and validly existing corporation, in each case, in
good standing under the laws of the State of Delaware
and in good standing and qualified to do business in each
jurisdiction in which the nature and conduct of its business
requires such qualification and where the failure to be so qualified
would materially adversely affect its ability to perform its
obligations under this Agreement; and
(f) its business operations and any services provided
pursuant to this Agreement will not be materially interrupted by the
advent of the Year 2000 date.
The within representations and warranties shall be
continuing during the term of this Agreement, and if at any time any
event has occurred which would make or tend to make any of the
foregoing not true in any material respect, the Managing Owner
promptly will notify the Advisor in writing.
16. Assignment.
This Agreement may not be assigned by any of the
parties hereto without the express prior written consent of the other
parties hereto, except that the Advisor need not obtain the consent
of any Other Advisor.
17. Successors.
This Agreement shall be binding upon and inure to the
benefit of the parties hereto and the successors and permitted
assignees of each of them, and no other person (except as
otherwise provided herein) shall have any right or obligation under
this Agreement. The terms "successors" and "assignees" shall not
include any purchasers, as such, of Interests.
33
<PAGE>
18. Amendment or Modification or Waiver.
(a) Changes to Agreement. This Agreement may not be
amended or modified, nor may any of its provisions be waived,
except upon the prior written consent of the parties hereto, except
that an amendment to, a modification of or a waiver of any
provision of the Agreement as to the Advisor need not be
consented to by any Other Advisor.
(b) No Waiver. No failure or delay on the part of any
party hereto in exercising any right, power or remedy hereunder
shall operate as a waiver thereof, nor shall any single or partial
exercise of any such right, power or remedy preclude any other or
further exercise thereof or the exercise of any other right, power or
remedy. Any waiver granted hereunder must be in writing and shall
be valid only in the specific instance in which given.
19. Notices.
Except as otherwise provided herein, all notices required
to be delivered under this Agreement shall be effective only if in
writing and shall be deemed given by the party required to provide
notice when received by the party to whom notice is required to be
given and shall be delivered personally or by registered mail,
postage prepaid, return receipt requested or by facsimile, as follows
(or to such other address as the party entitled to notice shall
hereafter designate by written notice to the other parties):
34
<PAGE>
If to the Managing Owner or the Trust:
Prudential Securities Futures
Management Inc
One New York Plaza, 13th Floor
New York, New York 10292-2013
Attention: Joseph A. Filicetti and
Eleanor L. Thomas
Facsimile: (212) 778-3694
and in either case with a copy to:
Rosenman & Colin LLP and Prudential Securities Incorporated
575 Madison Avenue One Seaport Plaza, 28th Floor
New York, New York 10022 199 Water Street
Attention: Fred M. Santo, Esq. New York, New York 10292
Facsimile: (212) 940-7079 Attention: David Buchalter
Facsimile: (212) 214-6150
If to the Advisor: with a copy to:
Beacon Management Mayer, Brown & Platt
Corporation (USA) 190 So. LaSalle Street
47 Hulfish Street Chicago, Illinois 60603-3441
Princeton, New Jersey 08542 Attention: Joseph E. Collins, Esq.
Attention: Tom Nash Facsimile: (312) 701-7711
Facsimile: (609)921-1973
20. Governing Law.
Each party agrees that this Agreement shall be governed
by and construed in accordance with the laws of the State of New
York without regard to conflict of laws principles.
21. Survival.
The provisions of this Agreement shall survive the
termination of this Agreement with respect to any matter arising
while this Agreement was in effect.
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<PAGE>
22. Promotional Literature.
Each party agrees that prior to using any promotional
literature in which reference to the other parties hereto is made, it
shall furnish in advance a copy of such information to the other
parties and will not make use of any promotional literature
containing references to such other parties to which such other
parties object, except as otherwise required by law or regulation.
23. No Liability of Limited Owners.
This Agreement has been made and executed by and on
behalf of the Trust, and the obligations of the Trust and/or the
Managing Owner set forth herein are not binding upon any of the
Limited Owners individually, but rather, are binding only upon the
assets and property of the Trust and, to the extent provided herein,
upon the assets and property of the Managing Owner.
24. Headings.
Headings to Sections herein are for the convenience of
the parties only and are not intended to be or to affect the meaning
or interpretation of this Agreement.
25. Complete Agreement.
Except as otherwise provided herein, this Agreement and
the Representation Agreement constitute the entire agreement
between the parties with respect to the matters referred to herein,
and no other agreement, verbal or otherwise, shall be binding upon
the parties hereto.
36
<PAGE>
26. Counterparts.
This Agreement may be executed in one or more
counterparts, each of which shall be deemed an original and all of
which, when taken together, shall constitute one original
instrument.
27. Arbitration, Remedies.
Each party hereto agrees that any dispute relating to the
subject matter of this Agreement shall be settled and determined by
arbitration in the City of New York pursuant to the rules of the NFA
or, if the NFA should refuse to accept the matter, the American
Arbitration Association.
IN WITNESS WHEREOF, this Agreement has been executed for
and on behalf of the undersigned as of the day and year first above
written.
WORLD MONITOR TRUST II-Series F
By: PRUDENTIAL SECURITIES FUTURES
MANAGEMENT INC.,
Its: Managing Owner
By: ________________________________
Eleanor L. Thomas
Executive Vice-President
BEACON MANAGEMENT
CORPORATION (USA)
By: ________________________________
37
<PAGE>
EXHIBIT A
SERIES F TRADING APPROACH
MEKA
The Advisor will make its trading decisions for Series F
according to Meka, its systemized trading strategy, as described in
Exhibit D as amended from time to time.
A-1
<PAGE>
EXHIBIT B
TRADING LIMITATIONS AND POLICIES
The following limitations and policies are applicable to assets
representing the Series F Allocated Assets of the Trust as a whole
and at the outset to the Advisor individually; since the Advisor
initially will manage 100% of the Trust's Series F Allocated Assets,
such application of the limitations and policies is identical initially
for the Series F Allocated Assets of the Trust and the Advisor. The
Advisor sometimes may be prohibited from taking positions for the
Series F Allocated Assets which it would otherwise acquire due to
the need to comply with these limitations and policies. The
Managing Owner will monitor compliance with the trading
limitations and policies set forth below, and it may impose
additional restrictions (through modification of such limitations and
policies) upon the trading activities of the Advisor as it, in good
faith, deems appropriate in the best interests of Series F of the
Trust, subject to the terms of the Advisory Agreement.
The Managing Owner will not approve a material change in the
following trading limitations and policies without obtaining the
prior written approval of Limited Owners owning more than 50% of
the Series F Interests. The Managing Owner may, however, impose
additional trading limitations on the trading activities of the Series F
Interests of the Trust without obtaining such approval if the
Managing Owner determines such additional limitations to be
necessary in the best interests of Series F of the Trust.
Trading Limitations
Series F of the Trust will not: (i) engage in pyramiding its
commodities positions (i.e., the use of unrealized profits on existing
positions to provide margin for the acquisition of additional
positions in the same or a related commodity provided, however,
unrealized profits may be considered in determining the current
Allocated Assets) but may take into account open trading equity on
existing positions in determining generally whether to acquire
additional commodities positions; (ii) borrow or loan money (except
with respect to the initiation or maintenance of commodities
positions or obtaining lines of credit for the trading of forward
currency contracts; provided, however, that Series F of the Trust is
prohibited from incurring any indebtedness on a non-recourse
basis); (iii) permit rebates to be received by the Managing Owner or
its affiliates or permit the Managing Owner or any affiliate to engage
in any reciprocal business arrangements which would circumvent
the foregoing prohibition; (iv) permit the Advisor to share in any
portion of the commodity brokerage fees paid by the Series F
Interests of the Trust; (v) commingle its assets, except as permitted
by law; or (vi) permit the churning of its commodity accounts.
Series F of the Trust will conform in all respects to the rules,
regulations and guidelines of the markets on which its trades are
executed.
Trading Policies
Subject to the foregoing limitations, the Advisor has agreed to
abide by the trading policies of Series F of the Trust, which
currently are as follows:
B-1
<PAGE>
(1) Series F Allocated Assets will generally be invested in
contracts which are traded in sufficient volume which, at the time
such trades are initiated, are reasonably expected to permit entering
and liquidating positions.
(2) Stop or limit orders may, in the Advisor's discretion, be
given with respect to initiating or liquidating positions in order to
attempt to limit losses or secure profits. If stop or limit orders are
used, no assurance can be given, however, that Prudential
Securities will be able to liquidate a position at a specified stop or
limit order price, due to either the volatility of the market or the
inability to trade because of market limitations.
(3) Series F of the Trust generally will not initiate an open
position in a futures contract (other than a cash settlement
contract) during any delivery month in that contract, except when
required by exchange rules, law or exigent market circumstances.
This policy does not apply to forward and cash market transactions.
(4) Series F of the Trust may occasionally make or accept
delivery of a commodity including, without limitation, currencies.
Series F of the Trust also may engage in EFP transactions involving
currencies and metals and other commodities.
(5) Series F of the Trust may, from time to time, employ
trading techniques such as spreads, straddles and conversions.
(6) Series F of the Trust will not initiate open futures or
option positions which would result in net long or short positions
requiring as margin or premium for outstanding positions in excess
of 15% of the Trust's Series F Allocated Assets for any one
commodity or in excess of 66 2/3% of the Trust's Series F Allocated
Assets for all commodities combined. Under certain market
conditions, such as an inability to liquidate open commodities
positions because of daily price fluctuations, the Managing Owner
may be required to commit Allocated Assets as margin in excess of
the foregoing limits, and in such case the Managing Owner will
cause the Advisor to reduce its open futures and option positions
to comply to these limits before initiating new commodities
positions.
(7) To the extent Series F of the Trust engages in
transactions in forward currency contracts other than with or
through Prudential Securities and/or PBFI, Series F of the Trust will
only engage in such transactions with or through a bank which as
of the end of its last fiscal year had an aggregate balance in its
capital, surplus and related accounts of at least $100 million, as
shown by its published financial statements for such year and
through other broker-dealer firms with an aggregate balance in its
capital, surplus and related accounts of at least $50 million.
B-2
<PAGE>
EXHIBIT C
[REPRESENTATION AGREEMENT]
C-1
<PAGE>
EXHIBIT D
[ATTACH LATEST DISCLOSURE DOCUMENT]
D-1
<PAGE>
EXHIBIT C
REPRESENTATION AGREEMENT CONCERNING THE
REGISTRATION STATEMENT AND THE PROSPECTUS
REPRESENTATION AGREEMENT ("Agreement") dated as of
the ___ day of _________, 1999, by and among World Monitor
Trust II (the "Trust"), a business trust organized under Chapter
38 of Title 12 of the Delaware Code (the "Delaware Act"),
Prudential Securities Incorporated, a Delaware corporation
("Prudential Securities"), Prudential Securities Futures
Management Inc., a Delaware corporation (the "Managing
Owner"), Wilmington Trust Company, a Delaware corporation
(the "Trustee") and Beacon Management Corporation (USA), a
Delaware corporation (the "Advisor").
W I T N E S S E T H:
WHEREAS, the Trust proposes to make an initial public
offering (the "Offering") of limited liability interests in the
Trust (the "Interests") issuable in multiple series (the
"Series"), each separately managed by a different professional
commodity trading advisor through Prudential Securities
Incorporated ("Prudential Securities"), an affiliate of the
Managing Owner, and in connection therewith, the Trust
intends to file with the U.S. Securities and Exchange
Commission (the "SEC"), pursuant to the U.S. Securities Act
of 1933, as amended (the "1933 Act"), a registration statement
on Form S-1 to register the Interests in Series F, and as a part
thereof a prospectus (which registration statement, together
with all amendments thereto, shall be referred to herein as the
"Registration Statement" and which prospectus in final form,
together with all amendments and supplements thereto, shall
be referred to herein as the "Prospectus"); and
<PAGE>
WHEREAS, the Trust and the Managing Owner entered into an
agreement with the Advisor, dated as of ________________,
1999 (the "Advisory Agreement"), pursuant to which the
Advisor has agreed to act as a commodity trading advisor to
the Trust with respect to the portion of the Trust Estate
represented by Series F Interests; and
WHEREAS, the parties hereto wish to set forth their duties and
obligations to each other with respect to the Registration
Statement as of its effective date and the Prospectus as of the
date(s) on which subscribers' funds are transferred to the
portion of the Trust Estate represented by Series F Interests
("Closing Dates(s)").
NOW, THEREFORE, the parties agree as follows:
1. Representations and Warranties of the Advisor. The
Advisor hereby represents and warrants to Prudential
Securities, the Trust, the Trustee and the Managing Owner
that:
a. All references in the Registration Statement, consented
to in writing by the Advisor in the form attached hereto as
Exhibit A, as of its effective date and the Prospectus as of the
Closing Date to (i) the Advisor and its affiliates, and the
controlling persons, shareholders, directors, officers and
employees of any of the foregoing, (ii) the Advisor's Trading
Approach (as defined in the Advisory Agreement) and (iii) the
actual past performance of discretionary accounts directed by
the Advisor or any principal thereof, including the notes to the
tables reflecting such actual past performance (hereinafter
referred to as the Advisor's "Past Performance History") are
complete and accurate in all material respects, and as to such
persons, the Advisor's Trading Approach and the Advisor's
Past
2
<PAGE>
Performance History, the Registration Statement as of its
effective date and the Prospectus as of each Closing Date
contain all information required to be included therein by the
Commodity Exchange Act, as amended (the "CE Act"), and the
regulations (including interpretations thereof) thereunder, and
do not contain an untrue statement of a material fact or omit to
state a material fact required to be stated therein or necessary
to make the statements therein (with respect to the
Prospectus, in light of the circumstances in which they were
made) not misleading. The Advisor also represents and
warrants as to the accuracy and completeness in all material
respects of the underlying data made available by the Advisor
to the Trust and the Managing Owner for purposes of
preparing the pro forma performance tables, it being
understood that no representation or warranty is being made
with respect to the pro forma performance tables or notes
thereto. The term "principal" in this Agreement shall have the
same meaning as that term in Commodity Futures Trading
Commission (the "CFTC") Regulation S 4.10(e) under the CE
Act.
b. The Advisor will not distribute the Registration
Statement, the Prospectus and/or the selling materials related
thereto, except as may be requested by the Managing Owner
in connection with "road show" presentations or otherwise.
c. This Agreement and the Advisory Agreement have been
duly and validly authorized, executed and delivered on behalf
of the Advisor and each is a valid and binding agreement
enforceable in accordance with its terms. The performance of
the Advisor's obligations under this Agreement and the
consummation of the transactions set forth in this Agreement,
in the Advisory
3
<PAGE>
Agreement and in the Registration Statement
as of its effective date and Prospectus as of the Closing Date
are not contrary to the provisions of the Advisor's formation
documents, or to the best of its knowledge, any applicable
statute, law or regulation of any jurisdiction, and will not result
in any violation, breach or default under any term or provision
of any undertaking, contract, agreement or order to which the
Advisor is a party or by which the Advisor is bound.
d. The Advisor has all governmental and regulatory
licenses, registrations and approvals required by law as may
be necessary to perform its obligations under the Advisory
Agreement and this Agreement and to act as described in the
Registration Statement as of its effective date and the
Prospectus as of the Closing Date including, without
limitation, registration as a commodity trading advisor under
the CE Act and membership as a commodity trading advisor
with the National Futures Association (the "NFA"), and it will
maintain and renew any required licenses, registrations,
approvals or memberships during the term of the Advisory
Agreement.
e. On the date hereof, the Advisor is, and at all times during
the term of this Agreement will be, a corporation duly formed
and validly existing and in good standing under the laws of its
jurisdiction of incorporation and in good standing and
qualified to do business in each jurisdiction in which the
nature or conduct of its business requires such qualifications
and the failure to be so qualified would materially adversely
affect the Advisor's ability to perform its obligations hereunder
or under the Advisory Agreement. The Advisor has full
capacity and
4
<PAGE>
authority to conduct its business and to perform
its obligations under this Agreement and to act as described
in the Registration Statement as of its effective date and the
Prospectus as of the Closing Date.
f. Subject to adequate assurances of confidentiality, and as
requested of the Managing Owner, the Advisor has supplied to
or made available for review by the Managing Owner and
Prudential Securities (and if requested by the Managing Owner
and Prudential Securities to its designated auditor) all
documents, statements, agreements and workpapers
requested by them relating to all accounts covered by the
Advisor's Past Performance History in the Registration
Statement as of its effective date and the Prospectus as of the
Closing Date which are in the Advisor's possession or to
which it has access; provided, however, that the Advisor may,
in its sole discretion withhold from any such inspection the
identity of the clients for whom any such accounts are
maintained.
g. Without limiting the generality of paragraph a. of this
Section 1, neither the Advisor nor any of its principals has
managed, controlled or directed, on an overall discretionary
basis, the trading for any commodity account which is
required by CFTC regulations and the rules and regulations
under the 1933 Act to be disclosed in the Registration
Statement as of its effective date and the Prospectus as of the
Closing Date which is not set forth in the Registration
Statement as of its effective date and in the Prospectus as of
the Closing Date as required.
5
<PAGE>
h. The Advisor does not provide any services to any
persons or conduct any business involving advice with
respect to investments other than Commodities (as defined in
the Advisory Agreement), except as has been disclosed in
writing to the Managing Owner. The Advisor is not required to
be registered as an investment adviser under the Investment
Advisers Act of 1940, as amended (the "Advisers Act"), but
voluntarily may so register in the future.
i. As of the date hereof, there has been no material adverse
change in the Advisor's Past Performance History as set forth
in the Registration Statement or in the Prospectus under the
caption "SERIES F Past Performance For All Of Its Clients"
which has not been communicated in writing to and received
by the Managing Owner and Prudential Securities or their
counsel.
j. Except for subsequent performance, as to which no
representation is made, since the date of the Advisory
Agreement, (i) there has not been any material adverse change
in the condition, financial or otherwise, of the Advisor or in the
earnings, affairs or business prospects of the Advisor,
whether or not arising in the ordinary course of business, and
(ii) there have not been any material transactions entered into
by the Advisor other than those in the ordinary course of its
business, except for the intended sale by the Advisor of its
interests in Mt. Lucas Corporation (USA) ("Mt. Lucas
Transaction").
k. The Mt. Lucas Transaction will have no material affect on
the Advisor's ability to (i) continue it operations as it has in the
past and provide the services required by this Agreement, or
(ii) research, operate and implement its trading
6
<PAGE>
strategy, as defined in the Advisory Agreement dated as of
______________-, 1999 between the Trust, the Managing
Owner, and the Advisor (the "Trading Strategy"), nor will the
Mt. Lucas Transaction result in the loss of any significant
employees or access to significant resources that will or could
have a detrimental effect on the Advisor's trading performance
and continue development of its Trading Strategy.
l. Except as disclosed in the Registration Statement and in
the Prospectus, there is no pending, or to the best of its
knowledge, threatened or contemplated action, suit or
proceeding before or by any court, governmental,
administrative or self-regulatory body or arbitration panel to
which the Advisor or its principals is a party, or to which any
of the assets of the Advisor is subject which reasonably might
be expected to result in any material adverse change in the
condition (financial or otherwise), business or prospects of
the Advisor or which reasonably might be expected to
materially adversely affect any of the material assets of the
Advisor or which reasonably might be expected to (A) impair
materially the Advisor's ability to discharge its obligations to
the Trust or (B) result in a matter which would require
disclosure in the Registration Statement and/or Prospectus;
furthermore the Advisor has not received any notice of an
investigation by the NFA regarding non-compliance with its
rules or the CE Act, the CFTC regarding non-compliance with
the CE Act, or the rules and regulations thereunder or any
exchange regarding non-compliance with the rules of such
exchange which investigation reasonably might be expected
to materially impair the Advisor's
7
<PAGE>
ability to discharge its obligations under this Agreement
or the Advisory Agreement.
2. Covenants of the Advisor. If, at any time during the term
of the Advisory Agreement, the Advisor discovers any fact,
omission or event, or that a change of circumstances has
occurred, which would make the Advisor's representations
and warranties in Section 1 of this Agreement inaccurate or
incomplete in any material respect, or which might reasonably
be expected to render the Registration Statement or
Prospectus, with respect to (i) the Advisor or its principals, (ii)
the Advisor's Trading Approach or (iii) the Advisor's Past
Performance History, untrue or misleading in any material
respect, the Advisor will provide prompt written notification to
the Trust, the Managing Owner and Prudential Securities of
any such fact, omission, event or change of circumstance, and
the facts related thereto, and it is agreed that the failure to
provide such notification or the failure to continue to be in
compliance with the foregoing representations and warranties
during the term of the Advisory Agreement as soon as
possible following such notification shall be cause for the
Trust and the Managing Owner to terminate the Advisory
Agreement with the Advisor on prior written notice to the
Advisor. The Advisor also agrees that, during the term of the
Advisory Agreement, from and after the Effective Date of the
Registration Statement and for so long as Interests in the
Trust are being offered, whether during the Initial Offering
Period or during the Continuous Offering Period (as those
terms are described in the Prospectus), it will provide
Prudential Securities, the Trust and the Managing Owner with
updated month-end information relating to the Advisor's Past
Performance History, as required to be disclosed in the
performance tables relating to the performance of the Advisor
in the Prospectus under the caption "SERIES F -- Past
Performance For All Of Its Clients" beyond the periods
disclosed therein. The Advisor shall use its best
8
<PAGE>
efforts to provide such information within a reasonable period of time
after the end of the month to which such updated information
relates and the information is available to it.
3. Modification of Registration Statement or Prospectus. If
any event or circumstance occurs as a result of which it
becomes necessary, in the judgment of the Managing Owner
and Prudential Securities, to amend the Registration
Statement in order to make the Registration Statement not
materially misleading or to amend or to supplement the
Prospectus in order to make the Prospectus not materially
misleading in light of the circumstances existing at the time it
is delivered to a subscriber, or if it is otherwise necessary in
order to permit the Trust to continue to offer its Interests
subsequent to the Initial Offering Period subject to the
limitations set forth in the Advisory Agreement, the Advisor
will furnish such information with respect to itself and its
principals, as well as its Trading Approach and Past
Performance History as the Managing Owner or Prudential
Securities may reasonably request, and will cooperate to the
extent reasonably necessary in the preparation of any required
amendments or supplements to the Registration Statement
and/or the Prospectus.
4. Advisor's Closing Obligations. On or prior to the Closing
Date with respect to the initial offering of Series F Interests
(the "Initial Closing Date"), and thereafter, only if requested,
on or prior to each closing date during the continuous offering
of Series F Interests (each a "Subsequent Closing Date"), the
Advisor shall deliver or cause to be delivered, at the expense
of the Advisor, to Prudential Securities, the Trust and the
Managing Owner, the reports, certificates, documents and
opinions described below addressed to them and, except as
may be set forth below, dated the Initial Closing Date or the
Subsequent Closing Date, as appropriate (provided that the
Advisor shall not be obligated to provide an opinion of its
counsel more frequently than once per annum absent good
cause shown). Unless the context otherwise
9
<PAGE>
requires, the Initial Closing Date and each Subsequent Closing
Date shall each be referred to as a "Closing Date."
a. A report from the Advisor which shall present, for the
period from the date after the last day covered by the
Advisor's Past Performance History as set forth under
"SERIES F -- Past Performance For All Of Its Clients" in the
Prospectus to the latest practicable month-end before the
Closing Date, figures which shall show the actual past
performance of the Advisor (or, if such actual past
performance information is unavailable, then the estimated
past performance) for such period, and which shall certify that,
to the best of the Advisor's knowledge, such figures are
complete and accurate in all material respects.
b. A certificate of the Advisor in the form proposed prior to
the Closing Date by counsel to Prudential Securities, the Trust
and the Managing Owner, with such changes in such form as
are proposed by the Advisor or its counsel and as are
acceptable to Prudential Securities, the Trust and the
Managing Owner and their counsel so as to make such form
mutually acceptable to Prudential Securities, the Trust, the
Managing Owner, the Advisor and their respective counsel, to
the effect that:
(i) The representations and warranties of the
Advisor in Section 1 of this Agreement are true and correct in
all material respects on the date of the certificate as though
made on such date.
(ii) Nothing has come to the Advisor's attention
which would cause the Advisor to believe that, at any time
from the time the
10
<PAGE>
Registration Statement initially became
effective to the Closing Date, the Registration Statement, as
amended from time to time, or the Prospectus, as amended or
supplemented from time to time, with respect to the Advisor,
or its affiliates, and controlling persons, shareholders,
directors, officers or employees of any of the foregoing, or
with respect to the Advisor's Trading Approach or Past
Performance History, contained an untrue statement of a
material fact or omitted to state a material fact required to be
stated therein or necessary to make the statements therein
(with respect to the Prospectus, in light of the circumstances
in which they were made) not misleading.
(iii) The Advisor has performed all covenants and
agreements herein contained to be performed on its part at or
prior to the Closing Date.
c. A certificate of the Advisor (together with such
supporting documents as are set forth in such certificate), in
the form proposed prior to the Closing Date by counsel to
Prudential Securities, the Trust and the Managing Owner, with
such changes in such form as are proposed by the Advisor or
its counsel and are acceptable to Prudential Securities, the
Trust and the Managing Owner and their counsel so as to
make such form mutually acceptable to Prudential Securities,
the Trust, the Managing Owner, the Advisor and their
respective counsel, with respect to, (i) the continued
effectiveness of the organizational documents of the Advisor,
(ii) the continued effectiveness of the Advisor's registration as
a commodity
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trading advisor under the CE Act and
membership as a commodity trading advisor with the NFA and
(iii) the incumbency and genuine signature of the President
and Secretary of the Advisor.
d. A certificate from the state of formation of the Advisor, to
be dated at, on or around the Closing Date, as to its formation
and good standing.
e. An opinion of counsel, in form and substance
satisfactory to the Trust, the Managing Owner and Prudential
Securities and their counsel, dated the Closing Date, to the
following effect:
(i) The Advisor is a duly formed and validly
existing corporation in good standing under the laws of the
state of its formation and, if different, the state where it
conducts its primary business activity, and the Advisor has
full corporate power and authority under its Certificate of
Incorporation to perform its obligations under the Advisory
Agreement and under this Agreement and to act as described
in the Registration Statement as of its effective date and in the
Prospectus as of the Closing Date.
(ii) Each of the Advisory Agreement and this
Agreement have been duly and validly authorized, executed
and delivered on behalf of the Advisor, and assuming the due
execution and delivery of each such Agreement by the Trust,
Prudential Securities, the trustee and the Managing Owner, as
applicable, each such agreement constitutes the legal, valid
and binding obligations of the Advisor, enforceable in
accordance with their respective terms, except as the same
may be limited by
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bankruptcy, insolvency, reorganization,
moratorium or similar laws at the time in effect affecting
creditors rights generally, or by applicable principles of equity,
whether in an action at law or in equity, and except that the
enforceability of the indemnification, exculpation, and
severability provisions may be limited under applicable federal
or state securities, commodities and other laws or by public
policy; and the execution and delivery of such agreements and
the incurrence of the obligations thereunder and the
consummation of the transactions set forth in such
agreements and in the Prospectus will not violate or result in a
breach of the Advisor's formation documents, and, to the best
of such counsel's knowledge, after due inquiry, will not result
in any violation, breach or default under any term or provision
of any undertaking, contract, agreement or order to which the
Advisor is a party or by which the Advisor is bound.
(iii) Subject to subparagraph (iv) of this Section 4.e, to the
best of such counsel's knowledge, after due inquiry, the
Advisor has obtained all required governmental and regulatory
licenses, registrations and approvals required by law as may
be necessary in order to perform its obligations under the
Advisory Agreement and under this Agreement and to act as
described in the Registration Statement as of its effective date
and the Prospectus as of the Closing Date (including, without
limitation, registration as a commodity trading advisor under
the CE Act and
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<PAGE>
membership as a commodity trading advisor
with the NFA), and such licenses, registrations and approvals
have not, to the best of such counsel's knowledge, after due
inquiry, been rescinded, revoked or otherwise removed.
(iv) Assuming that the Trust is operated as
described in the Prospectus, the Advisor is not required to be
licensed or registered as an investment adviser under the
Advisers Act (even if it voluntarily is so registered), or to such
counsel's knowledge, without independent investigation, as
an investment adviser or commodity trading advisor under the
laws of any state of the U.S., in order to perform its obligations
under the Advisory Agreement or under this Agreement, or to
act as described in the Registration Statement as of its
effective date and the Prospectus as of the Closing Date. The
foregoing opinion may be qualified by the fact that such
counsel is not admitted to practice law in all jurisdictions, and
by the fact that in rendering its opinion such counsel has
relied solely upon an examination of the Blue Sky securities
laws and related rules, regulations, and administrative
determinations, if any, promulgated thereunder, of the various
jurisdictions as reported in customarily relied upon standard
compilations, and upon such counsel's understanding of the
various conclusions expressed, formally or informally, by
administrative officials or other employees of the various
regulatory or other governmental agencies or authorities
concerned.
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(v) To such counsel's knowledge without
independent investigation, except as described in the
Prospectus or in a schedule delivered by counsel to Prudential
Securities and the Managing Owner prior to the date hereof,
there is no pending or threatened suit or proceeding, known to
such counsel, before or by any court, governmental or
regulatory body or arbitration panel to which the Advisor or
any of the assets of the Advisor or any of its principals is
subject and which reasonably might be expected to result in
any material adverse change in the condition (financial or
otherwise), business or prospects of the Advisor or any of its
principals or which reasonably might be expected materially
adversely to affect any of the assets of the Advisor or any of
its principals or which reasonably might be expected to (A)
impair materially the Advisor's ability to discharge its
obligations to the Trust or (B) result in a matter which would
require disclosure in the Registration Statement or
Prospectus; and, to the best of such counsel's knowledge,
neither the Advisor nor any of its principals has received any
notice of an investigation by (i) the NFA regarding non-
compliance with its rules or the CE Act, (ii) the CFTC regarding
non-compliance with the CE Act or (iii) any exchange,
regarding non-compliance with its rules, which investigation
reasonably might be expected to (A) impair materially the
Advisor's ability to discharge its obligations to the Trust or (B)
result in a matter which would require disclosure in the
Registration Statement or Prospectus.
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(vi) With respect to the Advisor and its
affiliates, and controlling persons, shareholders, directors,
officers and employees of any of the foregoing, and with
respect to the Advisor's Trading Approach, nothing has come
to the attention of such counsel that leads such counsel to
believe that the Registration Statement (at the time it initially
became effective and at the time any post-effective
amendment thereto became effective) or the Prospectus
contains any untrue statement of a material fact or omits to
state a material fact required to be stated therein or which is
necessary to make the statements therein (with respect to the
Prospectus, in light of the circumstances in which they are
made) not misleading, except that such counsel is not
required to express any opinion or belief as to the financial
statements or other financial or statistical data, past
performance tables, notes, or descriptions thereto or other
past performance information contained in the Registration
Statement or the Prospectus.
In rendering the foregoing opinions, such counsel may rely (i)
as to matters of fact, on a certificate of an officer of the
Advisor, unless such counsel has actual knowledge otherwise,
and (ii) as to matters of law of states other than that in which
they are licensed to practice law, upon the opinions of other
counsel, in each case satisfactory in form and substance to
counsel to the Managing Owner and Prudential Securities, and
such counsel shall state that they believe the Managing Owner
and Prudential Securities may rely on them.
5. Advisor Acknowledgements. The Advisor acknowledges
that: (i) it may be a condition to each closing under the
Underwriting Agreement that Prudential Securities shall
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<PAGE>
have received, at no cost to the Advisor, letter(s) from certified
public accountants or other reputable professionals selected
by Prudential Securities with respect to the Past Performance
History of the Advisor as set forth in the Underwriting
Agreement, (ii) the Trust may at any time withdraw the
Registration Statement from the SEC or otherwise terminate
the Registration Statement or the offering of Interests, and
upon any such withdrawal or termination or if the "minimum"
number of Interests, as described in the Prospectus, is not
sold, this Agreement shall terminate and none of the parties
hereto shall have any obligation to any other party pursuant to
this Agreement, except pursuant to Section 10 of this
Agreement to the extent that such section is applicable.
6. Representations and Warranties of the Trust and the
Managing Owner. The Managing Owner hereby represents
and warrants (on its own behalf and on behalf of the Trust, as
applicable) to the Advisor that:
a. On the date hereof, the Trust is, and at all times during
the term of this Agreement and the Advisory Agreement will
be, a duly formed and validly existing business trust in good
standing under the laws of the State of Delaware and at all
times during the term of this Agreement and the Advisory
Agreement will be in good standing and qualified to do
business in each jurisdiction in which the nature or conduct of
its business requires such qualifications and the failure to be
so qualified materially adversely would affect its ability to
perform its obligations under this Agreement and the Advisory
Agreement and to operate as described in the Prospectus, and
the Managing Owner is, and at all times during the term of this
Agreement and the Advisory Agreement will be, a duly formed
and validly existing corporation in good standing under the
laws of the State of
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Delaware and is, and at all times during the
term of this Agreement and the Advisory Agreement will be, in
good standing and qualified to do business as a foreign
corporation in the State of New York and in each other
jurisdiction in which the nature or conduct of its business
requires such qualifications and in which the failure to be so
qualified materially adversely would affect its ability to act as
Managing Owner of the Trust and to perform its obligations
hereunder and under the Advisory Agreement, and each has
full capacity and authority to conduct its business and to
perform its obligations under this Agreement and the Advisory
Agreement and to act as described in the Registration
Statement as of its effective date and the Prospectus as of the
Closing Date.
b. Each of this Agreement and the Advisory Agreement has
been duly and validly authorized, executed and delivered on
behalf of the Trust and the Managing Owner, is a valid and
binding agreement of the Trust and the Managing Owner and
is enforceable in accordance with its terms. The performance
of the Trust's and the Managing Owner's obligations under
this Agreement and under the Advisory Agreement, and the
consummation of the transactions set forth in this Agreement
and the Advisory Agreement, and in the Registration
Statement as of its effective date and Prospectus as of the
Closing Date are not contrary to the provisions of the Trust's
First Amended and Restated Declaration of Trust and Trust
Agreement (the "Trust Agreement"), Certificate of Trust or the
Managing Owner's Certificate of Incorporation or By-Laws,
respectively, any applicable statute, law or regulation of any
jurisdiction and will not result in any violation, breach or
default under any term or provision of any undertaking,
contract,
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<PAGE>
agreement or order, to which the Trust or the
Managing Owner, is a party or by which the Trust or the
Managing Owner is bound.
c. Each of the Trust and the Managing Owner has obtained
all required governmental and regulatory licenses,
registrations and approvals required by law as may be
necessary to perform their obligations under this Agreement
and under the Advisory Agreement and to act as described in
the Registration Statement as of its effective date and in the
Prospectus as of the Closing Date (including, without
limitation, the Managing Owner's registration as a commodity
pool operator under the CE Act and membership as a
commodity pool operator with the NFA) and will maintain and
renew any required licenses, registrations, approvals and
memberships required during the term of this Agreement and
the Advisory Agreement.
d. The Trust is not required to be registered as an
investment company under the Investment Company Act of
1940, as amended (the "Investment Company Act").
e. All authorizations, consents or orders of any court or of
any federal, state or other governmental or regulatory agency
or body required for the valid authorization, issuance, offer
and sale of the Interests have been obtained, and no order
preventing or suspending the use of the Prospectus with
respect to the Interests has been issued by the SEC, the CFTC
or the NFA. The Registration Statement as of its effective date
and the Prospectus as of the Closing Date contain all
statements which are required to be made therein, conform in
all
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<PAGE>
material respects with the requirements of the 1933 Act and
the CE Act, and the rules and regulations of the SEC and the
CFTC, respectively, thereunder, and with the rules of the NFA
and do not contain an untrue statement of a material fact or
omit to state a material fact required to be stated therein or
necessary to make the statements therein (with respect to the
Prospectus, in light of the circumstances in which they are
made) not misleading; and at all times subsequent hereto up
to and including the date of termination of the Initial Offering
Period and any Subsequent Offering Period, the Registration
Statement as of its effective date and the Prospectus as of the
Closing Date will contain all statements required to be made
therein and will conform in all material respects with the
requirements of the 1933 Act and the CE Act, and the rules and
regulations of the SEC and the CFTC, respectively, thereunder,
and with the rules of the NFA and will not contain any untrue
statement of a material fact or omit to state a material fact
required to be stated therein (with respect to the Prospectus,
in light of the circumstances in which they are made) not
misleading; provided, however, that this representation and
warranty shall not apply to any statements or omissions made
in reliance upon and in conformity with information furnished
to the Managing Owner, the Trust or to Prudential Securities
by or on behalf of the Advisor for the express purpose of
inclusion in the Registration Statement or the Prospectus
including, without limitation, references to the Advisor and its
affiliates, and controlling persons, shareholders, directors,
officers and employees, as well as to the Advisor's Trading
Approach and Past Performance History provided such
references have been approved.
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f. The Registration Statement as of its effective date and
the Prospectus as of the Closing Date have been delivered to
the Advisor.
g. There is no pending, or to its knowledge, threatened or
contemplated action, suit or proceeding before any court or
arbitration panel or before or by any governmental,
administrative or self-regulatory body to which the Trust, the
Managing Owner or the principals of either is a party, or to
which any of the assets of any of the foregoing persons is
subject, which might reasonably be expected to result in any
material adverse change in their condition (financial or
otherwise), business or prospects or reasonably might be
expected to affect adversely in any material respect any of
their assets or which reasonably might be expected to
materially impair their ability to discharge their obligations
under this Agreement or under the Advisory Agreement; and
neither the Trust nor the Managing Owner has received any
notice of an investigation by (i) the NFA regarding non-
compliance with NFA rules or the CE Act, (ii) the CFTC
regarding non-compliance with the CE Act or the rules and
regulations thereunder or (iii) any exchange regarding non-
compliance with the rules of such exchange which
investigation reasonably might be expected to materially
impair the ability of each of the Trust and the Managing Owner
to discharge its obligations under this Agreement or under the
Advisory Agreement.
7. Covenants of the Managing Owner and the Trust. If, at
any time during the term of the Advisory Agreement, the
Managing Owner or the Trust discovers any fact, omission or
event or that a change of circumstance has occurred which
would make the Managing Owner's or the Trust's
representations and warranties in Section 6 of this Agreement
20
<PAGE>
inaccurate or incomplete in any material respect, the Trust or
the Managing Owner, as appropriate, promptly will provide
written notification to the Advisor of such fact, omission,
event or change of circumstance and the facts related thereto.
The Managing Owner and the Trust shall provide the Advisor
with a copy of each amendment to the Registration Statement
and amendment or supplement to the Prospectus, and no
amendment to the Registration Statement or amendment or
supplement to the Prospectus which contains any statement
or information regarding the Advisor will be filed or used
unless the Advisor has received reasonable prior notice and a
copy thereof and has consented in writing to such statement
or information being filed and used.
8. Trust's and Managing Owner's Closing Obligations. On
or prior to the Initial Closing Date, and thereafter on or prior to
each Subsequent Closing Date, if the Trust and the Managing
Owner have requested that the Advisor provide certificates,
documents and opinions pursuant to Section 4 of this
Agreement, the Trust and the Managing Owner shall deliver or
cause to be delivered to the Advisor, the certificates,
documents and opinions described below addressed to the
Advisor and, except as may be set forth below, dated each
such Closing Date:
a. Certificates of the Trust and the Managing Owner,
addressed to the Advisor, in the form proposed prior to the
Closing Date by counsel to the Trust and the Managing Owner
with such changes in such form as are proposed by the
Advisor or its counsel and are acceptable to the Trust, the
Managing Owner and their counsel so as to make such form
mutually acceptable to the Trust, the Managing Owner, the
Advisor and their respective counsel, with respect to, as
applicable, (i) the continued effectiveness of the Trust
Agreement and the
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<PAGE>
Certificate of Trust of the Trust and the
Certificate of Incorporation and By-Laws of the Managing
Owner, (ii) the continued effectiveness of the registration of
the Managing Owner as a commodity pool operator under the
CE Act and membership as a commodity pool operator with
the NFA and (iii) the incumbency and genuine signature of the
President and Secretary of the Managing Owner.
b. Certificates from the States of Delaware and New York
with respect to each of the Trust and the Managing Owner to
be dated at, on or around the Closing Date as to the formation
and good standing of the Trust and the Managing Owner.
c. Certificates of the Trust and the Managing Owner in the
form proposed prior to the Closing Date by counsel to the
Trust and the Managing Owner with such changes in such
form as are proposed by the Advisor or its counsel and are
acceptable to the Trust, the Managing Owner and their counsel
so as to make such form mutually acceptable to the Trust, the
Managing Owner, the Advisor and their respective counsel, to
the effect that:
(i) The representations and warranties in
Section 6 of this Agreement are true and correct in all material
respects on the date of the certificates as though made on
such date, and
(ii) The Trust and the Managing Owner have
each performed all covenants and agreements herein
contained to be performed on their part at or prior to the
Closing Date.
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<PAGE>
d. An opinion letter of Rosenman & Colin LLP, dated the
Closing Date, in form and substance satisfactory to the
Advisor, as follows:
(i) The Trust is a duly created and validly
existing business trust in good standing under the Delaware
Act, with requisite power and authority under the Delaware
Act, its Trust Agreement and its Certificate of Trust to perform
its obligations under this Agreement and under the Advisory
Agreement and to act as described in the Registration
Statement as of its effective date and the Prospectus as of the
Closing Date.
(ii) The Managing Owner is a duly formed
and validly existing corporation in good standing under the
laws of the State of Delaware and is duly qualified to conduct
business as a foreign corporation in good standing in the
State of New York. The Managing Owner has full corporate
power and authority under its Certificate of Incorporation, By-
Laws and the General Corporation Law of the State of
Delaware to perform its obligations under this Agreement and
under the Advisory Agreement and to act as described in the
Registration Statement as of its effective date and the
Prospectus as of the Closing Date.
(iii) Each of this Agreement and the Advisory
Agreement has been duly and validly authorized or ratified,
executed and delivered on behalf of each of the Trust and the
Managing Owner, and, assuming due execution and delivery
of each such Agreement by the Advisor, each agreement
constitutes the legal, valid and binding obligations of the Trust
and the Managing
24
<PAGE>
Owner, respectively, enforceable in
accordance with their respective terms, except as the same
may be limited by bankruptcy, insolvency, reorganization,
moratorium or similar laws at the time in effect affecting
creditors rights generally, or by applicable principles of equity,
whether in an action at law or in equity, and except that the
enforceability of the indemnification provisions may be limited
under applicable federal or state securities, commodities and
other laws or by public policy; and the execution and delivery
of such agreements and incurrence of the obligations
thereunder and the consummation of the transactions set forth
in such agreements and in the Prospectus will not violate or
result in a breach of their formation documents, and, to the
best of such counsel's knowledge, after due inquiry, will not
result in any violation, breach or default under any term or
provision of any undertaking, contract, agreement or order to
which they are parties or by which they are bound.
(iv) The Trust is not required to be registered
as an investment company under the Investment Company Act
in order to act as described in the Registration Statement as of
its effective date and in the Prospectus as of the Closing Date
or to perform its obligations under this Agreement or the
Advisory Agreement.
(v) To the best of such counsel's knowledge,
after due inquiry, all authorizations, consents or orders of any
court or of any federal, state or other governmental or
regulatory agency or body required for the valid authorization,
issuance, offer and sale of Interests have been obtained,
25
<PAGE>
including such as may be required under the 1933 Act,
including the rules and regulations thereunder, the CE Act,
including the rules and regulations thereunder, the rules and
regulations of the NFA or the Blue Sky securities laws of any
state or of any jurisdiction in which offers and sales were
made, and, to the extent of such counsel's knowledge, no
order suspending the effectiveness of the Registration
Statement or the use of the Prospectus has been issued by the
SEC, the CFTC, the NFA or any state in which offers and sales
of Interests were made nor has any proceeding for the
issuance of such an order been instituted or threatened by the
SEC, the CFTC, the NFA or any such state. The foregoing may
be qualified by the fact that such counsel is not admitted to
practice law in all jurisdictions and that in rendering its
opinion such counsel shall rely solely upon an examination of
the Blue Sky securities laws and related rules, regulations and
administrative determinations, if any, promulgated thereunder,
of the various jurisdictions as reported in customarily relied
upon standard compilations, and upon such counsel's
understanding of the various conclusions expressed, formally
or informally, by administrative officials or other employees of
the various regulatory or other governmental agencies or
authorities concerned.
(vi) To the best of such counsel's knowledge,
after due inquiry, each of the Trust and the Managing Owner
has obtained all required governmental and regulatory
licenses, registrations and approvals required by law as may
be necessary in order for each of the Trust and the Managing
Owner to perform its obligations under this Agreement and
under the Advisory
26
<PAGE>
Agreement and to act as described in the
Registration Statement as of its effective date and the
Prospectus as of the Closing Date (including, without
limitation, the Managing Owner's registration as a commodity
pool operator under the CE Act and membership as a
commodity pool operator with the NFA) and such licenses,
registrations and approvals have not, to the best of such
counsel's knowledge, after due inquiry, been rescinded,
revoked or otherwise removed.
(vii) To such counsel's knowledge without independent
investigation, except as described in the Prospectus, or in a
schedule delivered by counsel to Prudential Securities and the
Managing Owner prior to the date hereof, there is no pending
or threatened suit or proceeding known to such counsel,
before or by any court, governmental or regulatory body or
arbitration panel to which the Trust and the Managing Owner
or any of the assets of the Trust or the Managing Owner or any
of their principals is subject and which reasonably might be
expected to result in any material adverse change in the
condition (financial or otherwise), business or prospects of
the Trust or Managing Owner or any of their principals or
which reasonably might be expected materially adversely to
affect any of the assets of the Trust or Managing Owner or any
of their principals or which reasonably might be expected to
(A) impair materially the Trust's or Managing Owner's ability to
discharge their obligations to the Advisor or (B) result in a
matter which would require disclosure in the Registration
Statement or Prospectus which is not so disclosed; and, to the
extent of such counsel's knowledge, neither the
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<PAGE>
Trust or Managing Owner, nor any of their principals has received any
notice of an investigation by (i) the NFA regarding non-
compliance with its rules or the CE Act, (ii) the CFTC regarding
non-compliance with the CE Act or (iii) any exchange,
regarding non-compliance with its rules, which investigation
reasonably might be expected to (A) impair materially the
Trust's or Managing Owner's ability to discharge its
obligations to the Advisor or (B) result in a matter which would
require disclosure in the Registration Statement or Prospectus
which is not so disclosed.
(viii) The Registration Statement as of its effective date
and the Prospectus as of the Closing Date are responsive in all
material respects to the requirements of the 1933 Act,
including the rules and regulations thereunder, the CE Act,
including the rules and regulations thereunder, and the rules
and regulations of the NFA, and nothing has come to the
attention of such counsel that leads it to believe that either the
Registration Statement (at the time it initially became effective
and at the time any post-effective amendment thereto became
effective) or the Prospectus contains any untrue statement of a
material fact or omits to state a material fact required to be
stated therein or which is necessary to make the statements
therein (with respect to the Prospectus, in light of the
circumstances in which they were made) not misleading,
except that such counsel is not required to express any
opinion or belief (A) as to the financial statements or other
financial or statistical data, past performance tables and notes
thereto or other past performance information contained in the
Registration Statement or the
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<PAGE>
Prospectus or (B) as to any
statements or omissions made in reliance on and in
conformity with information furnished by the Advisor for the
express purpose of inclusion in the Registration Statement or
the Prospectus including, without limitation, references to the
Advisor and its affiliates, controlling persons, shareholders,
directors, officers and employees, as well as to the Advisor's
Trading Approach and Past Performance History.
In rendering such opinions, such counsel may rely (i) as to
matters of fact, on a certificate of an officer of the Managing
Owner, unless such counsel has actual knowledge otherwise
and (ii) as to matters of law of states other than that in which
they are licensed to practice law, upon the opinions of other
counsel, in each case satisfactory in form and substance to
the Advisor and its counsel, and such counsel shall state that
they believe the Advisor may rely on them.
9. Survival of Representations, Warranties and Covenants.
All representations, warranties and covenants in this
Agreement or contained in certificates required to be delivered
hereunder shall survive the delivery of any payment for the
Interests under the Underwriting Agreement and the
termination of the Advisory Agreement and this Agreement,
with respect to any matter arising while the Advisory
Agreement or this Agreement was in effect. Furthermore, all
representations, warranties and covenants hereunder shall
inure to the benefit of each of the parties to this Agreement
and to their respective successors and permitted assigns.
10. Indemnification.
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<PAGE>
a. In any action in which Prudential Securities, the Trust,
the Trustee or the Managing Owner, or its controlling persons,
shareholders, partners, directors, officers and/or employees of
any of the foregoing (the "PSI Indemnified Parties") are
parties, the Advisor agrees to indemnify and hold harmless the
foregoing persons against any loss, claim, damage, charge,
liability or expense (including, without limitation, reasonable
attorneys' and accountants' fees) ("Losses") to which such
persons may become subject, insofar as such Losses arise
out of or are based exclusively upon (i) any misrepresentation
or alleged misrepresentation or material breach or alleged
material breach of any warranty, covenant or agreement of the
Advisor contained in this Agreement or (ii) any untrue
statement or alleged untrue statement of any material fact
contained in the Registration Statement or the Prospectus or
the omission or alleged omission to state in the Registration
Statement or the Prospectus a material fact required to be
stated therein or necessary to make the statements therein
(with respect to the Prospectus, in light of the circumstances
in which they are made) not misleading, in each case under
this subclause (ii) to the extent, but only to the extent, that
such untrue statement or alleged untrue statement or
omission or alleged omission was made in reliance upon and
in material conformity with information furnished by the
Advisor to the Managing Owner for inclusion in the
Registration Statement or Prospectus and approved in writing
by the Advisor, in the form attached hereto as Exhibit A,
including, without limitation, all information relating to the
Advisor and its affiliates, controlling persons, shareholders,
directors, officers and employees, as well as to the Advisor's
Trading Approach and Past Performance
30
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History, provided, however, that in respect of any Loss regarding (A)
an alleged (as opposed to an actual) misrepresentation or material breach
of any warranty, covenant or agreement of the Advisor
contained in this Agreement or (B) an alleged (as opposed to
an actual) untrue statement of any material fact contained in
the Registration Statement or the Prospectus, or an alleged (as
opposed to an actual) omission to state in the Registration
Statement or the Prospectus a material fact required to be
stated therein or necessary to make the statements therein
(with respect to the Prospectus, in light of the circumstances
in which they are made), not misleading, the Advisor's
obligations shall be limited to 40% of any payments made from
time to time by the PSI Indemnified Parties in respect thereof.
b. In any action in which the Advisor, or any of its
controlling persons, shareholders, directors, officers and/or
employees (the "Advisor Indemnified Parties") are parties, the
Managing Owner agrees (A) to indemnify and hold harmless
the Advisor Indemnified Parties against any Losses, insofar as
such Losses arise out of or are based exclusively upon (i) any
misrepresentation or alleged misrepresentation or material
breach or alleged material breach of any warranty, covenant or
agreement of the Trust or the Managing Owner contained in
this Agreement, or (ii) any untrue statement or alleged untrue
statement of any material fact contained in the Registration
Statement or the
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Prospectus or the omission or alleged
omission to state in the Registration Statement or the
Prospectus a material fact required to be stated therein or
necessary to make the statements therein (with respect to the
Prospectus, in light of the circumstances in which they are
made) not misleading.
c. None of the indemnifications contained in this Section 10
shall be applicable with respect to default judgments or
confessions of judgment, or to settlements entered into by an
indemnified party claiming indemnification without the prior
written consent of the indemnifying party.
d. Promptly after receipt by an indemnified party under this
Section 10 of notice of any claim or dispute or commencement
of any action or litigation, such indemnified party will, if a
claim in respect thereof is to be made against an indemnifying
party under this Section 10, notify the indemnifying party of
the commencement thereof; but the omission to notify the
indemnifying party will not relieve it from any liability which it
may have to any indemnified party otherwise than under this
Section 10 except to the extent, if any, that such failure or
delay prejudiced the indemnifying party in defending against
the claim. In case any such claim, dispute, action or litigation
is brought or asserted against any indemnified party, and it
timely notifies the indemnifying party of the commencement
thereof, the indemnifying party will be entitled to participate in
the defense therein, and to the extent that it may wish, to
assume such defense thereof, with counsel specifically
approved in writing by such indemnified party, such approval
not to be unreasonably withheld, following notice from the
indemnifying party to such indemnified party of its election so
to assume the defense thereof; in which event, the
indemnifying party will not be liable to such
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indemnified party under this Section 10 for any legal or other expenses
subsequently incurred by such indemnified party in
connection with the defense thereof, but shall continue to be
liable to the indemnified party in all other respects as
heretofore set forth in this Section 10. Notwithstanding any
other provisions of this Section 10, if, in any claim, dispute,
action or litigation as to which indemnity is or may be
available, any indemnified party reasonably determines that its
interests are or may be, in whole or in part, adverse to the
interests of the indemnifying party, the indemnified party may
retain its own counsel in connection with such claim, dispute,
action or litigation and shall continue to be indemnified by the
indemnifying party for any legal or any other expenses
reasonably incurred in connection with investigating or
defending such claim, dispute, action or litigation.
e. Expenses incurred by an indemnified party in defending
a threatened or asserted claim or a threatened or pending
action shall be paid by the indemnifying party in advance of
final disposition or settlement of such matter, if and to the
extent that the person on whose behalf such expenses are
paid shall agree in writing to reimburse the indemnifying party
in the event indemnification is not permitted under this
Section 10 upon final disposition or settlement.
f. The parties hereto acknowledge and agree on their own
behalf that the indemnities provided in this Agreement shall be
inapplicable in the event of any loss, claim, damage, charge or
liability arising out of or based upon, but limited to the extent
caused by, any misrepresentation or breach of any warranty,
covenant
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<PAGE>
or agreement of any indemnified party to any
indemnifying party contained in this Agreement.
11. Limits on Claims. The Advisor agrees that it will not take
any of the following actions against the Trust: (i) seek a
decree or order by a court having jurisdiction in the premises
(A) for relief in respect of the Trust in an involuntary case or
proceeding under the U.S. Bankruptcy Code or any other
federal or state bankruptcy, insolvency, reorganization,
rehabilitation, liquidation or similar law or (B) adjudging the
Trust a bankrupt or insolvent or seeking reorganization,
rehabilitation, liquidation, arrangement, adjustment or
composition of or in respect of the Trust under the U.S.
Bankruptcy Code or any other applicable federal or state law,
or appointing a custodian, receiver, liquidator, assignee,
trustee, sequestrator (or other similar official) of the Trust or of
any substantial part of any of its properties, or ordering the
winding up or liquidation of any of its affairs, (ii) seek a
petition for relief, reorganization or to take advantage of any
law referred to in the preceding clause or (iii) file an
involuntary petition for bankruptcy (collectively "Bankruptcy
or Insolvency Action"). In addition, the Advisor agrees that for
any obligations due and owing to it by the Trust, the Advisor
will look solely and exclusively to the assets of Series F or the
Managing Owner, if it has liability in its capacity as Managing
Owner, to satisfy its claims and will not seek to attach or
otherwise assert a claim against the assets of any other Series
or the other assets of the Trust, whether there is a Bankruptcy
or Insolvency Action taken. The parties agree that this
provision will survive the termination of this Agreement,
whether terminated in a Bankruptcy or Insolvency Action or
otherwise.
12. Subordination Agreement. Each of the Advisor, the
Managing Owner and the Trustee (the "Potential Creditor(s)")
agrees and consents (the "Consent") to look solely
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to Series F, the Series for which advisory services are being
performed hereunder and assets of Series F (the "Series F
Assets") and to the Managing Owner and its assets for
payment. Series F 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 Series F, including, without
limitation, funds delivered to the Trust for the purchase of
interests in Series F. In furtherance of the Consent, the
Potential Creditors agree that (i) any debts, liabilities,
obligations, indebtedness, expenses and claims of any nature
and of all kinds and descriptions (collectively, "Claims")
incurred, contracted for or otherwise existing arising from,
related to or in connection with the Trust and its assets and
Series F and Series F Assets, shall be subject to the following
limitations:
a. Subordination of certain claims and rights: (i) except as
set forth below, the Claims, if any, of the Potential Creditors
(the "Subordinated Claims") shall be expressly subordinate
and junior in right of payment to any and all other Claims
against the Trust and any Series thereof, and any of their
respective assets, which may arise as a matter of law or
pursuant to any contract; provided, however, that the Potential
Creditors' Claims (if any) against Series F shall not be
considered Subordinated Claims with respect to enforcement
against and distribution and repayment from Series F, the
Series F Assets and the Managing Owner and its assets; and
provided further that the Potential Creditors' valid Claims, if
any, against Series F shall be pari passu and equal in right of
repayment and distribution with all other valid Claims against
Series F and (ii) the Potential Creditors, individually or
collectively, will not take, demand or receive from any Series
or the Trust or any of their respective assets (other than
Series F, the Series F Assets and the Managing Owner and its
assets) any payment for the Subordinated Claims;
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<PAGE>
b. The Claims of each of the Potential Creditors with respect
to Series F shall only be asserted and enforceable against
Series F, Series F Assets and the Managing Owner and its
assets; and such Claims shall not be asserted or enforceable
for any reason whatsoever against any other Series, the Trust
generally or any of their respective assets;
c. If the Claims of a Potential Creditor against Series F or
the Trust are secured in whole or in part, each of the Potential
Creditors 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 Series F), as the case may be;
d. In furtherance of the foregoing, if and to the extent that
the Potential Creditors receive monies in connection with the
Subordinated Claims from a Series or the Trust (or their
respective assets), other than Series F, Series F Assets and
the Managing Owner and its assets, the Potential Creditors
shall be deemed to hold such monies in trust and shall
promptly remit such monies to the Series or the Trust that paid
such amounts for distribution by the Series or the Trust in
accordance with the terms hereof; and
e. The foregoing Consent shall apply at all times
notwithstanding that the Claims are satisfied and
notwithstanding that the agreements in respect of such Claims
are terminated, rescinded or canceled.
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<PAGE>
13. Notices. Any notices under this Agreement required to
be given shall be effective only if given or confirmed in writing,
shall be deemed given by the party providing notice when
received by the party to whom notice is being given and shall
be sent certified mail, postage prepaid, or hand delivered, to
the following address, or to such other address as a party may
specify by written notice to each of the other parties hereto:
If to Prudential Securities: If to the Trustee:
Prudential Securities Incorporated Wilmington Trust Company
One Seaport Plaza Rodney Square North
199 Water Street 1100 North Market Street
New York, New York 10292 Wilmington, Delaware 19890
Attention: Guy Scarpaci Attention: Corporate Trust
Administration
If to the Managing Owner or the Trust:
Prudential Securities Futures
Management Inc.
One New York Plaza, 13th Floor
New York, New York 10292-2013
Attention: Joseph A. Filicetti and
Eleanor L. Thomas
Facsimile: (212) 778-3694
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<PAGE>
in any case with a copy to each of:
Fred M. Santo, Esq. David Buchalter
Rosenman & Colin LLP Prudential Securities Inc.
575 Madison Avenue One Seaport Plaza, 28th Fl.
New York, New York 10022 199 Water Street
Facsimile: (212) 940-7052 New York, New York 10292
Facsimile: (212) 214-6150
If to the Advisor: with a copy to:
Beacon Management Corporation (USA) Mayer, Brown & Platt
47 Hulfish Street 190 So. LaSalle Street
Princeton, New Jersey 08542 Chicago, Illinois 60603-3441
Attention: Tom Nash Attention: Joseph E. Collins, Esq.
Facsimile: (609)921-1973 Facsimile: (312) 01-7711
14. Governing Law. This Agreement shall be deemed to be
made under the laws of the State of New York applicable to
contracts made and to be performed in that State and shall be
governed by and construed in accordance with the laws of
that State, without regard to the conflict of laws principles.
15. Arbitration, Remedies. Each party hereto agrees that any
dispute relating to the subject matter of this Agreement shall
be settled and determined by arbitration in the City of New
York pursuant to the rules of NFA or, if NFA should refuse to
accept the matter, the American Arbitration Association. The
parties also agree that the award of the arbitrators shall be
final and may be enforced in the courts of New York and in any
other courts having jurisdiction over the parties.
16. Assignment. This Agreement may not be assigned by
any party without the express prior written consent of each of
the other parties hereto.
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<PAGE>
17. Amendment or Modification or Waiver. This Agreement
may not be amended or modified except by the written
consent of each of the parties hereto.
18. Successors. Except as set forth in Section 10 of this
Agreement, this Agreement is made solely for the benefit of
and shall be binding upon the Trust, the Managing Owner,
Prudential Securities, the Advisor and the respective
successors and permitted assigns of each of them, and no
other person shall have any right or obligation under this
Agreement. The terms "successors" and "assigns" shall not
include any purchasers, as such, of Interests.
19. Survival. The provisions of this Agreement shall survive
the termination of this Agreement with respect to any matter
arising while this Agreement was in effect.
20. No Waiver. No failure or delay on the part of any party
hereto in exercising any right, power or remedy hereunder
shall operate as a waiver thereof, nor shall any single or partial
exercise of any such right, power or remedy preclude any
other or further exercise thereof or the exercise of any other
right, power or remedy. Any waiver granted hereunder must
be in writing and shall be valid only in the specific instance in
which given.
21. No Liability of Limited Owners. This Agreement has been
made and executed by and on behalf of the Trust and the
Managing Owner, and the obligations of the Trust and/or the
Managing Owner set forth in this Agreement are not binding
upon any of the Limited Owners individually, but rather, are
binding only upon the assets and property of the Trust and, to
the extent provided herein, upon the assets and property of
the Managing Owner.
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<PAGE>
22. Headings. Headings to the Sections in this Agreement
are for the convenience of the parties only and are not
intended to be or to affect the meaning or interpretation of this
Agreement.
23. Complete Agreement. Except as otherwise provided
herein, this Agreement and the Advisory Agreement constitute
the entire agreement among the parties with respect to the
matters referred to herein, and no other agreement, verbal or
otherwise, shall be binding upon the parties hereto.
24. Counterparts. This Agreement may be executed in one
or more counterparts, all of which, when taken together, shall
be deemed to constitute one original instrument.
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<PAGE>
IN WITNESS WHEREOF, this Agreement has been executed as
of the day and year first above written.
PRUDENTIAL SECURITIES INCORPORATED
By: ___________________________
Name:
Title:
PRUDENTIAL SECURITIES FUTURES
MANAGEMENT INC.
By: ___________________________
Name:
Title:
WORLD MONITOR TRUST II
By: PRUDENTIAL SECURITIES FUTURES
MANAGEMENT INC., as Managing Owner
By: ___________________________
Name:
Title:
WILMINGTON TRUST COMPANY
By: ___________________________
Name:
Title:
BEACON MANAGEMENT COMPANY (USA)
By: ___________________________
Name:
Title:
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<PAGE>
Exhibit A
Consent
The undersigned Advisor has reviewed the Prospectus dated
______________________, 1999 of World Monitor Trust II with
respect to the information contained therein relating to the
undersigned Advisor and, in accordance with the
Representation Agreement among us dated as of the _____
day of ____________, 1999 ("Representation Agreement"),
hereby consents to all provisions to which it is required to
consent pursuant to the Representation Agreement and also
consents to the distribution of such Prospectus.
BEACON MANAGEMENT COMPANY (USA)
By:______________________________
Name:
Title:
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<PAGE>
EXHIBIT 10.5
NET WORTH AGREEMENT
NET WORTH AGREEMENT made and entered into as of the ___ day
of______________, 1999 between PRUDENTIAL SECURITIES GROUP
INC. ("PSGI"), a Delaware corporation, and PRUDENTIAL
SECURITIES FUTURES MANAGEMENT INC. (the "Managing Owner"), a
Delaware corporation.
W I T N E S S E T H :
WHEREAS:
A. PSGI is the indirect parent of the Managing Owner.
B. Limited interests (the "Interests") in various series
("Series") of World Monitor Trust II (the "Trust"), a business
trust organized under Chapter 38 of Title 12 of the Delaware
Code, of which the Managing Owner is the managing owner, are
registered with the Securities and Exchange Commission pur-
suant to registration statements on Form S-1, as amended (the
"Registration Statements"), and offered pursuant to a
prospectus ("Prospectus") contained in the Registration
Statements.
C. The Managing Owner has agreed in Article I of the
First Amended and Restated Declaration of Trust and Trust
Agreement, dated as of ___________________, 1999
(the "Trust Agreement") that it will have general
liability for the liabilities of each Series of
the Trust in excess of the assets of each Series.
D. The Managing Owner also is required (i) to make
certain minimum purchases of general interests in the Trust
("General Interests") pursuant to Sections 3.1(d) and 3.2(a)(v),
(b)(v) and (c)(v) of Article III of the Trust Agreement and
(ii) to maintain a minimum "net worth" pursuant to Section 4.3(i)
of Article IV of the Trust Agreement as a precondition under
the so-called "NASAA Guidelines" (as defined in the Trust
Agreement) to permit the Trust to sell its Interests in the
various Series in several states of the U.S.
E. The parties hereto desire to make certain provisions
to permit the Managing Owner to meet its obligations to the
Trust as set forth above.
NOW, THEREFORE, the parties hereto agree, subject to the
provisions of Sections 3.1(d) and 3.2(a)(v), (b)(v) and
(c)(v) of Article III of the Trust Agreement, as follows:
1. PSGI agrees that on and after the Initial Closing
Date with respect to each Series of the Trust (the term
"Initial Closing Date" is defined in the Underwriting
Agreement by and among the Trust, the Managing Owner and
Prudential Securities Incorporated dated as of the date hereof
(the "Underwriting Agreement")), provided that at least
$5 million in Interests have been sold with respect to
each of Series D, Series E and Series F during the Initial
Offering Period (as such term is defined in the Underwriting
Agreement), and thereafter on and after each Subsequent
Closing Date with respect to the continuous offering of
Interests for such Series (the term "Subsequent
Closing Date" is defined in the Underwriting
Agreement), PSGI will provide the Managing Owner with the
necessary funds to enable the Managing Owner to purchase the
General Interests it is required to purchase pursuant to
Sections 3.2(a)(v), 3.2(b)(v) and 3.2(c)(v) of Article III
of the Trust Agreement.
2. So long as the Managing Owner is the managing owner
of the Trust, the Managing Owner agrees that it will not, and
PSGI agrees that it will not cause the Managing Owner to, (i)
declare any dividend or (ii) intentionally take any other
formal corporate action which would cause the Managing Owner's
"net worth" to fall below the level required to satisfy its
obligations under Section 4.3(i) of Article IV of
the Trust Agreement.
3. The Managing Owner and PSGI agree that PSGI shall
have the absolute right to determine the form of any
contribution(s) that may be required to meet its obligations
hereunder.
4. This Agreement, which is intended solely for the
benefit of the parties hereto and the interestholders of each
Series of the Trust, shall be binding upon and inure to the
benefit of the parties hereto and their respective successors
and permitted assigns.
5. This Agreement constitutes the entire understanding
between the parties hereto with respect to the matters referr-
ed to herein, and no waiver or modification of the terms hereof
shall be valid unless in a writing signed by the party to be
charged and only to the extent therein set forth.
6. The obligations of the Managing Owner set forth
herein are not binding upon any of the limited owners of the
Trust individually but rather are binding only upon the
assets and property of the Managing Owner, and no resort shall
be had to the limited owners' personal property for the
satisfaction of any obligation or claim hereunder.
7. This Agreement shall be governed by and construed in
accordance with the laws of the State of New York applicable
to contracts made and to be performed in that State, without
giving effect to the principles of conflict of laws thereof.
IN WITNESS WHEREOF, each of the parties hereto has
executed this Agreement as of the day and year first above
written.
PRUDENTIAL SECURITIES GROUP INC.
By: ______________________________
Name:
Title:
PRUDENTIAL SECURITIES FUTURES
MANAGEMENT INC.,
as Managing Owner
By: ______________________________
Name:
Title:
<PAGE>
EXHIBIT 23.1
Consent of PricewaterhouseCoopers LLP
<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 Form S-1 (Nos. 333-_______) under the
headings "Federal Income Tax Consequences," "Legal Matters" and
"Experts".
/s/ Rosenman & Colin LLP
- ---------------------------
Rosenman & Colin LLP
New York, New York
July 15, 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 Statement on Form S-1 (Nos. 333-_________)
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
July 15, 1999
