<PAGE>
AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON APRIL 15, 1998
Registration No. 333-_____
==============================================================================
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
-------------------
FORM S-1
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
THE MILLBURN WORLD RESOURCE TRUST
(Exact name of registrant as specified in its charter)
DELAWARE 6799 06-6415-583
--------------------- --------------------------- ---------------
(State of Organization) (Primary Standard Industrial (I.R.S. Employer
Classification Number) Identification Number)
C/O MILLBURN RIDGEFIELD CORPORATION
411 WEST PUTNAM AVENUE
GREENWICH, CONNECTICUT 06830
203/625-7554
(Address, including zip code, and telephone number, including
area code, of registrant's principal executive offices)
GEORGE E. CRAPPLE
MILLBURN RIDGEFIELD CORPORATION
411 WEST PUTNAM AVENUE
GREENWICH, CONNECTICUT 06830
203/625-7554
(Name, address, including zip code, and telephone number,
including area code, of agent for service)
-------------------
COPY TO:
JAMES B. BIERY
SIDLEY & AUSTIN
ONE FIRST NATIONAL PLAZA
CHICAGO, ILLINOIS 60603
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 (the "Securities Act") 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. / /
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.
----------------------------
CALCULATION OF REGISTRATION FEE
<TABLE>
<CAPTION>
- -------------------------------------------------------------------------------------------------------------------------
- -------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Title of Each Class of
Securities Amount Maximum Offering Maximum Aggregate Amount of
to be Registered being Registered Price Per Unit Offering Price Registration Fee*
- -------------------------------------------------------------------------------------------------------------------------
Units of Beneficial $ 63,461,000 Net Asset Value $ 63,461,000 $ 18,721
Interest
- -------------------------------------------------------------------------------------------------------------------------
- -------------------------------------------------------------------------------------------------------------------------
</TABLE>
* AS OF THE DATE HEREOF, UNDER REGISTRANT'S PREVIOUS REGISTRATION
STATEMENT ON FORM S-1 (REGISTRATION NO. 33-90756), REGISTRANT HAS $13,461,000
OF REGISTERED BUT UNSOLD UNITS AND HAS PAID $34,490 IN REGISTRATION FEES TO
THE SECURITIES AND EXCHANGE COMMISSION. THIS REGISTRATION STATEMENT CARRIES
FORWARD THE UNSOLD BALANCE OF $13,461,000 OF UNITS FROM REGISTRATION NO.
33-90756 AND REGISTERS AN ADDITIONAL $50,000,000 OF UNITS OF BENEFICIAL
INTEREST. PURSUANT TO THE PROVISIONS OF RULE 429 OF THE RULES AND REGULATIONS
OF THE SECURITIES AND EXCHANGE COMMISSION UNDER THE SECURITIES ACT OF 1933,
THE FORM OF PROSPECTUS SET FORTH HEREIN ALSO RELATES TO THE REGISTRANT'S
REGISTRATION STATEMENT ON FORM S-1 (REGISTRATION NO. 33-90756) DECLARED
EFFECTIVE JULY 12, 1995 AND CONSTITUTES POST-EFFECTIVE AMENDMENT NO. 6
THERETO.
<PAGE>
SUBJECT TO COMPLETION
THE MILLBURN WORLD RESOURCE TRUST
$63,400,000
UNITS OF BENEFICIAL INTEREST
INFORMATION CONTAINED HEREIN IS SUBJECT TO COMPLETION OR AMENDMENT.
A REGISTRATION STATEMENT RELATING TO THESE SECURITIES HAS BEEN FILED
WITH THE SECURITIES AND EXCHANGE COMMISSION. THESE SECURITIES MAY
NOT BE SOLD NOR MAY OFFERS TO BUY BE ACCEPTED PRIOR TO THE TIME THE
REGISTRATION STATEMENT BECOMES EFFECTIVE. THIS PROSPECTUS SHALL NOT
CONSTITUTE AN OFFER TO SELL OR THE SOLICITATION OF AN OFFER TO BUY
NOR SHALL THERE BE ANY SALE OF THESE SECURITIES IN ANY STATE IN
WHICH SUCH OFFER, SOLICITATION OR SALE WOULD BE UNLAWFUL PRIOR TO
REGISTRATION OR QUALIFICATION UNDER THE SECURITIES LAWS OF ANY SUCH
STATE.
THE MILLBURN WORLD RESOURCE TRUST (THE "TRUST") is a Delaware business
trust engaged in the speculative trading of futures, commodity options and
forward contracts on currencies, interest rates, energy and agricultural
products, metals and stock indices. The Trust applies systematic, technical
strategies and risk control policies to these diverse market sectors. MILLBURN
RIDGEFIELD CORPORATION (THE "MANAGING OWNER" OR "MILLBURN RIDGEFIELD") acts as
the manager and trading advisor of the Trust. Millburn Ridgefield and its
principals have been trading in the futures, futures options and forward
markets pursuant to systematic quantitative trading strategies and risk
management methods for over 25 years, and as of February 28, 1998 had
approximately $783 million of client and proprietary capital under management
in these markets; of which approximately $169 million was being managed
pursuant to the World Resource Portfolio used for the Trust. See "Millburn
Ridgefield Corporation," at page 29. The Trust places greater emphasis on the
non-financial market sectors (in particular, energy and metals) than the other
funds sponsored to date by the Managing Owner, although employing the same
trading systems used by the other Millburn Ridgefield portfolios. The Trust's
objective is substantial capital appreciation. THERE CAN BE NO ASSURANCE THAT
THE TRUST WILL ACHIEVE ITS OBJECTIVE OR AVOID SUBSTANTIAL LOSSES.
The Trust began trading September 13, 1995 with an initial capitalization
of $15,297,069. As of February 28, 1998, the Trust's capitalization was
$74,645,216 and the Net Asset Value of a unit of beneficial interest ("Unit")
in the Trust initially sold for $1,000 was $1,204.22.
Units are sold on a continuous basis as of the first day of each month at
Net Asset Value. The Net Asset Value per Unit equals the Net Assets of the
Trust divided by the number of Units outstanding. Units are sold in fractions
calculated to three decimal places. The Trust trades in highly liquid markets,
and its Net Assets are readily quantified from third-party pricing sources.
As the Trust is an operating entity, there is no minimum number of Units
which must be sold as of the beginning of a month for any Units then to be
sold. As of the date of this Prospectus, there are approximately $63.4 million
of Units registered for public offering and available for sale. Millburn
Ridgefield anticipates, however, that, if there is adequate demand, the Trust
will in the future make the necessary regulatory filings to register
additional Units for sale to the public.
The minimum initial investment is $5,000; $2,000 for trustees or
custodians of eligible employee benefit plans and individual retirement
accounts. Subscriptions in excess of these minimums may be made in $100
increments. Additional subscriptions by existing Unitholders are permitted in
$1,000 minimums, also with $100 increments.
There is no market for the Units and none will develop. Units may,
however, be redeemed at Net Asset Value, as of the end of any calendar
month upon 10 business days' notice to Millburn Ridgefield. Early redemption
charges, payable to Millburn Ridgefield, of 4% and 3% of the redemption
value of each Unit are assessed on Units redeemed on or prior to the end of
the sixth and after the end of the sixth but on or prior to the end of the
twelfth month after issuance, respectively.
--------------------------
THESE SECURITIES ARE SPECULATIVE AND INVOLVE A HIGH DEGREE OF RISK.
- - INVESTORS MAY LOSE ALL OR SUBSTANTIALLY ALL OF THEIR INVESTMENT.
PAST PERFORMANCE IS NOT NECESSARILY INDICATIVE OF FUTURE RESULTS:
AN INVESTMENT IN THE TRUST IS SPECULATIVE AND INVOLVES A HIGH DEGREE
OF RISK.
- - FUTURES AND FORWARD TRADING IS SPECULATIVE, VOLATILE AND LEVERAGED, AND
INVOLVES A HIGH DEGREE OF RISK; TRADING ON FOREIGN FUTURES AND INTERBANK
FORWARD MARKETS MAY INVOLVE ADDITIONAL RISKS.
- - THE TRUST HAS TO DATE EXHIBITED, AND IS EXPECTED TO CONTINUE TO EXHIBIT,
CONSIDERABLE PERFORMANCE VOLATILITY. THE UNITS ARE SUITABLE ONLY FOR A
LIMITED PORTION OF THE RISK SEGMENT OF AN INVESTMENT PORTFOLIO.
- - THE TRUST HAS BEEN THE FIRST MILLBURN RIDGEFIELD CLIENT ACCOUNT TO TRADE
THE "WORLD RESOURCE PORTFOLIO" OF MARKETS.
- - SINGLE-ADVISOR FUNDS SUCH AS THE TRUST ARE TYPICALLY CONSIDERED -- EVEN
AMONG SPECULATIVE MANAGED FUTURES FUNDS -- UNUSUALLY HIGH RISK. MOREOVER,
THE TRUST IS VULNERABLE TO ADVERSE CHANGES AFFECTING MILLBURN
RIDGEFIELD WHICH COULD DIRECTLY IMPACT THE TRUST'S ABILITY TO CONTINUE
TRADING.
- - THE TRUST IS SUBJECT TO SUBSTANTIAL CHARGES, PAYABLE IRRESPECTIVE OF
PROFITABILITY, AS WELL AS TO QUARTERLY PROFIT SHARES. THE MANAGING OWNER
ESTIMATES THAT THE TRUST NEEDS TO ACHIEVE TRADING PROFITS IN THE FIRST
TWELVE MONTHS AFTER A UNIT IS ISSUED OF APPROXIMATELY 5.75% TO OFFSET
EXPENSES AND OF APPROXIMATELY 8.85% TO OFFSET BOTH EXPENSES AND THE 3%
REDEMPTION CHARGES DUE ON UNITS REDEEMED AS OF THE END OF THE TWELFTH MONTH
AFTER ISSUANCE, ASSUMING THE TRUST CONTINUES TO EARN INTEREST ON ITS ASSETS
AT CURRENT RATES.
- - THE TRUST MAY BE ADVERSELY AFFECTED BY INCREASES IN THE AMOUNT OF FUNDS
MANAGED BY MILLBURN RIDGEFIELD.
- - MILLBURN RIDGEFIELD IS ALMOST EXCLUSIVELY A SYSTEMATIC, TREND-FOLLOWING
TRADER. MARKET CONDITIONS IN WHICH STRONG PRICE TRENDS DO NOT DEVELOP
TYPICALLY RESULT IN SUBSTANTIAL LOSSES FOR TREND-FOLLOWING TRADERS.
- - UNLESS THE TRUST IS SUCCESSFUL, OF WHICH THERE CAN BE NO ASSURANCE, IT
CANNOT SERVE AS A BENEFICIAL DIVERSIFICATION FOR AN INVESTOR'S PORTFOLIO.
SEE "RISK FACTORS" BEGINNING AT PAGE 11 OF THIS PROSPECTUS.
--------------------------
THE COMMODITY FUTURES TRADING COMMISSION HAS NOT PASSED UPON THE MERITS OF
PARTICIPATING IN THIS POOL NOR HAS THE COMMISSION PASSED UPON THE
ADEQUACY OR ACCURACY OF THIS DISCLOSURE DOCUMENT.
--------------------------
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE
SECURITIES AND EXCHANGE COMMISSION OR ANY STATE SECURITIES
COMMISSION PASSED UPON THE ACCURACY OR ADEQUACY OF
THIS PROSPECTUS. ANY REPRESENTATION TO THE
CONTRARY IS A CRIMINAL OFFENSE.
<TABLE>
<CAPTION>
<S> <C> <C> <C>
PRICE TO PUBLIC (1) SELLING COMMISSIONS (4)(5)(6) PROCEEDS TO TRUST (2)(3)(4)(5)
- --------------------- --------------------------- -------------------------------- -----------------------------
PER UNIT ............ NET ASSET VALUE NONE NET ASSET VALUE
- --------------------- --------------------------- -------------------------------- -----------------------------
SEE NOTES ON PAGES (I)-(II).
THE DATE OF THIS PROSPECTUS IS APRIL __, 1998
</TABLE>
<PAGE>
NOTES TO COVER PAGE
(1) The Units are sold at Net Asset Value.
The Units are offered on a "best efforts" basis without any firm
underwriting commitment through PaineWebber Incorporated ("PaineWebber" or
the "Principal Selling Agent"), as well as certain Additional Selling Agents
selected by Millburn Ridgefield with the consent of the Principal Selling
Agent (the Principal Selling Agent and the Additional Selling Agents being
hereinafter collectively referred to as the "Selling Agents"). Through April
30, 1998, Prudential Securities Incorporated ("Prudential Securities") served
as a principal Selling Agent of the Trust.
This Prospectus will first be used to solicit investors on or about
the date hereof.
Units are sold as of the first day of each month. Millburn Ridgefield
may, upon sufficient notice to subscribers, cause the Trust to sell Units at
intra-month closings as well as at the beginning of the month.
Millburn Ridgefield may suspend, limit or terminate the offering at
any time.
(2) Interest actually earned on subscriptions while held in escrow is
invested in the Trust, and investors are issued additional Units reflecting
each investor's attributable share of such interest. All subscription funds,
plus all interest earned on such funds, are promptly returned to subscribers
in the event that their subscriptions are rejected.
(3) The costs of the ongoing offering of the Units, including the
costs of updating this Prospectus, are paid by the Trust.
(4) PaineWebber and Prudential Securities are the clearing brokers and
forward dealers (the "Clearing Brokers") for the Trust, and in such capacity
receive brokerage commissions from Millburn Ridgefield (which receives the
Brokerage Fees paid by the Trust) and dealers' spreads from the Trust. The
Trust allocates its trades among the Clearing Brokers on the basis of the
amount of outstanding Units sold through each in their capacities as Selling
Agents.
The Managing Owner, with the consent of the Principal Selling Agent,
appoints certain Additional Selling Agents to distribute the Units.
See "Plan of Distribution -- Subscription Procedure" at page 66 for
information relating to certain indemnification arrangements with respect to
the Selling Agents.
PaineWebber distributes certain Units through correspondent
"introducing brokers," in which case PaineWebber shares with such
correspondents the selling commissions and ongoing compensation described in
Notes (5) and (6) below due in respect of such Units. Such correspondents
must either be registered as broker-dealers or exempt from such registration,
and must satisfy the same eligibility requirements as the Selling Agents
themselves in order to receive ongoing compensation. Units sold through such
"introducing brokers" are considered to have been sold through PaineWebber
for purposes of allocating the Trust's trading transactions between the
Clearing Brokers.
(5) No selling commissions are paid from the proceeds of
subscriptions. The Selling Agents receive, from Millburn Ridgefield, selling
commissions equal to 5% of the subscription price of all Units sold by them.
Because Millburn Ridgefield, not the Trust or the investors, pays the selling
commissions, 100% of all subscriptions is invested in the Units. The Trust is
not a "no load" fund; early redemption charges apply, and the Managing Owner
is reimbursed over time for the selling commissions advanced by it through
receipt of the Brokerage Fees paid by the Trust. However, the Trust's fees
have been structured so that all the capital invested by subscribers is
available for trading from the date of their subscription.
(6) Selling Agents, provided that they (i) are registered with the
Commodity Futures Trading Commission (the "CFTC") as "futures commission
merchants" or "introducing brokers," and (ii) sell Units through Registered
Representatives who are themselves registered with the CFTC, have passed
either the Series 3 National Commodity Futures Examination or the Series 31
Futures Managed Funds Examination and agree to provide certain ongoing
services to clients, are eligible to receive ongoing compensation in the form
of "trailing commissions." Such "trailing commissions" equal 4% per annum of
the average month-end Net Asset Value per Unit, beginning with the thirteenth
month after a particular Unit is issued and continuing for as long as such
Unit remains outstanding. These "trailing commissions" may be deemed to
constitute "underwriting compensation."
-i-
<PAGE>
Registered Representatives who are not registered with the CFTC, have
not passed the Series 3 or Series 31 Examination or do not agree to provide
ongoing services to clients in respect of their Units are not eligible to
receive "trailing commissions." Rather, such Registered Representatives and
their Selling Agents are restricted to receiving installment selling
commissions. Such installment selling commissions are paid, also by Millburn
Ridgefield, in the same manner as "trailing commissions." However,
installment selling commissions are limited, when added to the 5% initial
selling commissions, to a total of no more than 9.5% of the initial
subscription price of each Unit.
-----------------------
NO DEALER, SALESMAN OR ANY OTHER PERSON HAS BEEN AUTHORIZED TO GIVE ANY
INFORMATION OR TO MAKE ANY REPRESENTATION NOT CONTAINED IN THIS PROSPECTUS,
AND, IF GIVEN OR MADE, ANY SUCH INFORMATION OR REPRESENTATION MUST NOT BE
RELIED UPON AS HAVING BEEN AUTHORIZED BY THE TRUST, MILLBURN RIDGEFIELD, ANY
SELLING AGENT OR ANY OTHER PERSON.
SUBSCRIBERS WILL BE REQUIRED TO MAKE CERTAIN REPRESENTATIONS AND
WARRANTIES IN THE SUBSCRIPTION AGREEMENT AND POWER OF ATTORNEY.
-----------------------
THIS PROSPECTUS DOES NOT CONSTITUTE AN OFFER TO SELL OR A SOLICITATION
OF AN OFFER TO BUY THE SECURITIES OFFERED HEREBY TO ANY PERSON OR BY ANYONE
IN ANY JURISDICTION IN WHICH SUCH OFFER OR SOLICITATION MAY NOT LAWFULLY BE
MADE.
-----------------------
MILLBURN RIDGEFIELD SENDS ALL UNITHOLDERS ANNUAL AND MONTHLY REPORTS
COMPLYING WITH CFTC AND NATIONAL FUTURES ASSOCIATION ("NFA") REQUIREMENTS.
THE ANNUAL REPORTS CONTAIN CERTIFIED AND AUDITED, AND THE MONTHLY REPORTS
UNAUDITED, FINANCIAL INFORMATION.
THIS PROSPECTUS MUST BE ACCOMPANIED BY A RECENT MONTHLY REPORT OF THE
TRUST.
THE SELLING AGENTS MUST DELIVER ANY SUPPLEMENTED OR AMENDED PROSPECTUS
ISSUED BY THE TRUST.
-----------------------
THE DIVISION OF INVESTMENT MANAGEMENT OF THE SECURITIES AND EXCHANGE
COMMISSION REQUIRES THAT THE FOLLOWING STATEMENT BE SET FORTH PROMINENTLY
HEREIN: "THE MILLBURN WORLD RESOURCE 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 REGULATION THEREUNDER."
-----------------------
NO SUBSCRIBER SHOULD INVEST MORE THAN 10% OF SUCH SUBSCRIBER'S READILY
MARKETABLE ASSETS IN THE TRUST.
THE TRUST IS SUBJECT TO THE INFORMATIONAL REQUIREMENTS OF THE
SECURITIES EXCHANGE ACT OF 1934 AND IN ACCORDANCE THEREWITH FILES REPORTS AND
OTHER IN FORMATION WITH THE COMMISSION. REPORTS, PROXIES (IF ANY), INFORMATION
STATEMENTS (IF ANY), AND OTHER INFORMATION FILED BY THE TRUST, CAN BE
INSPECTED AND COPIED AT THE PUBLIC REFERENCE FACILITIES MAINTAINED BY THE
COMMISSION AT 450 FIFTH STREET, N.W., WASHINGTON, DC 20549 AND AT ITS
NORTHEAST REGIONAL OFFICE AT 7 WORLD TRADE CENTER, SUITE 1300, NEW YORK, NY
10048 AND AT ITS MIDWEST REGIONAL OFFICE AT CITICORP CENTER, 500 WEST MADISON
STREET, SUITE 1400, CHICAGO, IL 60661. COPIES OF SUCH MATERIAL
-ii-
<PAGE>
CAN BE OBTAINED FROM THE PUBLIC REFERENCE SECTION OF THE COMMISSION, 450
FIFTH STREET, N.W., WASHINGTON, DC 20549 AT PRESCRIBED RATES. THE TRUST IS AN
ELECTRONIC FILER. THE SEC MAINTAINS A WEB SITE THAT CONTAINS REPORTS, PROXY
AND INFORMATION STATEMENTS, AND OTHER INFORMATION REGARDING REGISTRANTS THAT
FILE ELECTRONICALLY WITH THE SEC, AT HTTP://WWW.SEC.GOV.
-iii-
<PAGE>
COMMODITY FUTURES TRADING COMMISSION
RISK DISCLOSURE STATEMENT
YOU SHOULD CAREFULLY CONSIDER WHETHER YOUR FINANCIAL CONDITION PERMITS
YOU TO PARTICIPATE IN A COMMODITY POOL. IN SO DOING, YOU SHOULD BE AWARE THAT
FUTURES AND OPTIONS TRADING CAN QUICKLY LEAD TO LARGE LOSSES AS WELL AS
GAINS. SUCH TRADING LOSSES CAN SHARPLY REDUCE THE NET ASSET VALUE OF THE POOL
AND CONSEQUENTLY THE VALUE OF YOUR INTEREST IN THE POOL. IN ADDITION,
RESTRICTIONS ON REDEMPTIONS MAY AFFECT YOUR ABILITY TO WITHDRAW YOUR
PARTICIPATION IN THE POOL.
FURTHER, COMMODITY POOLS MAY BE SUBJECT TO SUBSTANTIAL CHARGES FOR
MANAGEMENT, AND ADVISORY AND BROKERAGE FEES. IT MAY BE NECESSARY FOR THOSE
POOLS THAT ARE SUBJECT TO THESE CHARGES TO MAKE SUBSTANTIAL TRADING PROFITS
TO AVOID DEPLETION OR EXHAUSTION OF THEIR ASSETS. THIS DISCLOSURE DOCUMENT
CONTAINS A COMPLETE DESCRIPTION OF EACH EXPENSE TO BE CHARGED THIS POOL AT
PAGE 36 AND A STATEMENT OF THE PERCENTAGE RETURN NECESSARY TO "BREAKEVEN,"
THAT IS, TO RECOVER THE AMOUNT OF YOUR INITIAL INVESTMENT, AT PAGE 8.
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 11 TO 17.
YOU SHOULD ALSO BE AWARE THAT THIS COMMODITY POOL MAY TRADE FOREIGN
FUTURES OR OPTIONS CONTRACTS. TRANSACTIONS ON MARKETS LOCATED OUTSIDE THE
UNITED STATES, INCLUDING MARKETS FORMALLY LINKED TO A UNITED STATES MARKET,
MAY BE SUBJECT TO REGULATIONS WHICH OFFER DIFFERENT OR DIMINISHED PROTECTION
TO THE POOL AND ITS PARTICIPANTS. FURTHER, UNITED STATES REGULATORY
AUTHORITIES MAY BE UNABLE TO COMPEL THE ENFORCEMENT OF THE RULES OF
REGULATORY AUTHORITIES OR MARKETS IN NON-UNITED STATES JURISDICTIONS WHERE
TRANSACTIONS FOR THE POOL MAY BE EFFECTED.
-1-
<PAGE>
THE MILLBURN WORLD RESOURCE TRUST
TABLE OF CONTENTS
PROSPECTUS SECTION PAGE
SUMMARY................................................ 4
GENERAL........................................... 4
PERFORMANCE OF THE TRUST.......................... 4
OVERVIEW.......................................... 5
RISK FACTORS...................................... 5
CERTAIN INVESTMENT CONSIDERATIONS................. 6
REDEMPTIONS....................................... 7
CHARGES........................................... 7
"BREAKEVEN TABLE"................................. 8
FEDERAL INCOME TAX ASPECTS........................ 9
THE OFFERING...................................... 9
GENERAL........................................... 10
RISK FACTORS........................................... 11
(1) ALL OR SUBSTANTIALLY ALL OF AN
INVESTMENT COULD BE LOST; PAST
PERFORMANCE IS NOT NECESSARILY
INDICATIVE OF FUTURE RESULTS............. 11
(2) VOLATILE MARKETS; HIGHLY
LEVERAGED TRADING........................ 11
(3) HIGHLY VOLATILE PERFORMANCE................. 11
(4) RECENTLY DEVELOPED PORTFOLIO................ 12
(5) PARTICULAR RISKS ASSOCIATED WITH
A SINGLE-ADVISOR PORTFOLIO............... 12
(6) SUBSTANTIAL CHARGES PAYABLE
IRRESPECTIVE OF PROFITABILITY............ 13
(7) POSSIBLE ADVERSE EFFECTS OF
INCREASING MILLBURN RIDGEFIELD'S
ASSETS UNDER MANAGEMENT.................. 13
(8) MILLBURN RIDGEFIELD'S TECHNICAL,
TREND-FOLLOWING SYSTEMS.................. 13
(9) NON-CORRELATED AS OPPOSED TO
NEGATIVELY CORRELATED
PERFORMANCE.............................. 14
(10) POSSIBLY ILLIQUID MARKETS................... 14
(11) "ZERO-SUM" TRADING.......................... 15
(12) TRADING ON COMMODITY EXCHANGES
OUTSIDE THE UNITED STATES................ 15
(13) LIMITED ABILITY TO LIQUIDATE AN
INVESTMENT IN THE UNITS.................. 15
(14) THE TRUST IS SUBJECT TO CONFLICTS
OF INTEREST.............................. 15
(15) UNITHOLDERS HAVE NO ROLE
IN MANAGEMENT............................ 16
(16) UNITHOLDERS ARE TAXED ON TRUST
PROFITS ALTHOUGH NOT DISTRIBUTED......... 16
(17) TAXATION OF INTEREST INCOME IRRESPECTIVE
OF TRADING LOSSES ....................... 16
(18) LIMITATIONS ON THE DEDUCTIBILITY OF
"INVESTMENT ADVISORY FEES"............... 16
<PAGE>
THE MILLBURN WORLD RESOURCE TRUST
TABLE OF CONTENTS
PROSPECTUS SECTION PAGE
RISK FACTORS (CONT'D)
(19) NONDEDUCTIBILITY OF "SYNDICATION
EXPENSES"................................ 17
(20) POSSIBILITY OF TAX AUDIT OF BOTH THE
TRUST AND INDIVIDUAL UNITHOLDERS......... 17
(21) BANKRUPTCY OF CLEARING BROKERS AND
CURRENCY DEALERS ........................ 17
(22) UNREGULATED MARKETS; POSSIBLE FUTURE
REGULATORY CHANGES ...................... 17
INVESTMENT FACTORS..................................... 18
PERFORMANCE OF THE TRUST............................... 21
MONTHLY RATES OF RETURN........................... 21
SELECTED FINANCIAL INFORMATION.................... 22
MANAGING OWNER'S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS..................................... 23
THE TRUST AND ITS OBJECTIVES........................... 26
PERFORMANCE POTENTIAL ............................ 26
INVESTMENT DIVERSIFICATION........................ 26
MARKET DIVERSIFICATION............................ 26
THE MANAGING OWNER................................ 28
MILLBURN RIDGEFIELD CORPORATION........................ 29
MILLBURN RIDGEFIELD CORPORATION .................. 29
BACKGROUND AND MANAGEMENT......................... 29
TRADING STRATEGIES IN GENERAL..................... 31
MILLBURN RIDGEFIELD TRADING STRATEGY.............. 32
FIDUCIARY OBLIGATIONS OF MILLBURN RIDGEFIELD........... 34
NATURE OF FIDUCIARY OBLIGATIONS;
CONFLICTS OF INTEREST........................... 34
REMEDIES AVAILABLE TO THE UNITHOLDERS............. 34
USE OF PROCEEDS........................................ 35
PROCEEDS OF SUBSCRIPTIONS......................... 35
MAINTENANCE OF ASSETS............................. 35
STRATEGIES IMPLEMENTED............................ 36
CHARGES................................................ 36
BROKERAGE FEES.................................... 38
PROFIT SHARES..................................... 40
GENERAL........................................... 41
DISTRIBUTION COSTS................................ 41
REDEMPTION CHARGES................................ 42
-2-
<PAGE>
THE MILLBURN WORLD RESOURCE TRUST
TABLE OF CONTENTS
PROSPECTUS SECTION PAGE
REDEMPTIONS; NET ASSET VALUE .......................... 43
REDEMPTION PROCEDURE.............................. 43
NET ASSET VALUE................................... 43
THE CLEARING BROKERS .................................. 44
PAINEWEBBER INCORPORATED.......................... 44
PRUDENTIAL SECURITIES INCORPORATED................ 48
CONFLICTS OF INTEREST.................................. 51
GENERAL........................................... 51
THE MANAGING OWNER................................ 51
THE CLEARING BROKERS.............................. 52
THE SELLING AGENTS................................ 53
PROPRIETARY TRADING AND TRADING
FOR OTHER ACCOUNTS............................. 53
INDEMNIFICATION AND STANDARD
OF LIABILITY................................... 53
THE TRUST AND THE TRUSTEE.............................. 54
PRINCIPAL OFFICE; LOCATION OF RECORDS............. 54
CERTAIN ASPECTS OF THE TRUST...................... 54
THE TRUSTEE....................................... 55
MANAGEMENT OF TRUST AFFAIRS;
VOTING BY UNITHOLDERS.......................... 55
RECOGNITION OF THE TRUST IN CERTAIN STATES........ 56
POSSIBLE REPAYMENT OF DISTRIBUTIONS
RECEIVED BY UNITHOLDERS; INDEMNIFICATION
OF THE TRUST BY UNITHOLDERS.................... 56
TRANSFERS OF UNITS RESTRICTED..................... 56
REPORTS TO UNITHOLDERS............................ 56
GENERAL........................................... 57
FEDERAL INCOME TAX ASPECTS............................. 57
THE FUTURES AND FORWARD MARKETS........................ 63
FUTURES AND FORWARD CONTRACTS..................... 63
HEDGERS AND SPECULATORS........................... 63
COMMODITY EXCHANGES............................... 63
SPECULATIVE POSITION AND DAILY LIMITS............. 64
MARGIN............................................ 64
PURCHASES BY EMPLOYEE BENEFIT PLANS.................... 64
GENERAL........................................... 64
"PLAN ASSETS"..................................... 65
INELIGIBLE PURCHASERS............................. 65
PLAN OF DISTRIBUTION................................... 66
SUBSCRIPTION PROCEDURE............................ 66
THE SELLING AGENTS................................ 67
LEGAL MATTERS.......................................... 68
EXPERTS................................................ 68
REPORTS ............................................... 68
ADDITIONAL INFORMATION................................. 68
INDEX OF DEFINED TERMS................................. 69
INDEX TO FINANCIAL STATEMENTS.......................... 70
PERFORMANCE OF THE
MILLBURN RIDGEFIELD CLIENT FUNDS
AND TRADING PROGRAMS.............................. 86
ANNUAL RATES OF RETURN SINCE INCEPTION
OF THE MILLBURN RIDGEFIELD CLIENT FUNDS........... 97
APPENDIX -- "BLUE SKY"
GLOSSARY............................................APP-1
EXHIBIT A--SECOND AMENDED AND
RESTATED DECLARATION OF TRUST
AND TRUST AGREEMENT..................................TA-1
EXHIBIT B--SUBSCRIPTION REQUIREMENTS......................SR-1
EXHIBIT C--SUBSCRIPTION AGREEMENT
AND POWER OF ATTORNEY................................SA-1
--------------------
THE EXECUTION COPY OF THE SUBSCRIPTION AGREEMENT AND
POWER OF ATTORNEY ACCOMPANIES THIS PROSPECTUS.
--------------------
MILLBURN RIDGEFIELD CORPORATION
411 West Putnam Avenue
Greenwich, Connecticut 06830
(203) 625-7554
MANAGING OWNER
-3-
<PAGE>
THE MILLBURN WORLD RESOURCE TRUST
SUMMARY
GENERAL
The Millburn World Resource Trust, a Delaware business trust (the
"Trust"), engages in the speculative trading of futures, commodity options
and forward contracts on currencies, interest rates, energy and agricultural
products, metals and stock indices. Millburn Ridgefield Corporation, a
Delaware corporation (the "Managing Owner" or "Millburn Ridgefield"), acts as
the managing owner (the functional equivalent of a general partner in a
limited partnership), commodity pool operator and trading advisor of the
Trust. Units of beneficial interest ("Units") in the Trust are continuously
offered, at Net Asset Value, pursuant to the terms of this Prospectus.
PERFORMANCE OF THE TRUST
- The Trust began trading September 13, 1995 with an initial
capitalization of $15,297,069. Through February 28, 1998, the Trust's
performance has been profitable while exhibiting a high degree of
volatility -- volatility which can be expected to continue.
THE MILLBURN WORLD RESOURCE TRUST
<TABLE>
<CAPTION>
Month-end Month-end
Monthly Net Asset Month-end Monthly Net Asset Month-end
Rate of Value Net Asset Rate of Value Net Asset
1995 Return Per Unit* Value* 1996 Return Per Unit* Value*
---- -------- --------- ----------- ---- ------ --------- ---------
<S> <C> <C> <C> <C> <C> <C> <C>
Sept.(1/2 mo.) (6.62)% $ 933.80 $14,284,924 Jan. (0.36)% $1,068.44 $32,925,030
Oct. (1.92)% 915.83 $17,807,742 Feb. (12.30)% 937.05 $34,377,923
Nov. 0.92 % 924.25 $20,363,730 Mar. 2.94 % 964.56 $40,010,844
Dec. 16.02 % 1,072.34 $26,457,277 Apr. 2.55 % 989.12 $42,739,498
May (7.88)% 911.19 $40,617,824
1995 COMPOUND RATE OF RETURN (3 1/2 MONTHS): 7.23% June 6.64 % 971.65 $45,108,706
July (0.36)% 968.18 $45,980,784
Month-end Aug. 1.49 % 982.59 $46,836,993
Monthly Net Asset Month-end Sept. 4.01 % 1,022.02 $47,529,825
Rate of Value Net Asset Oct. 8.09 % 1,104.75 $51,392,603
1997 Return Per Unit* Value* Nov. 4.10 % 1,149.99 $54,724,582
---- -------- --------- ----------- Dec. 0.42 % 1,154.81 $56,365,318
Jan. 4.24 % $1,203.79 $59,451,235
Feb. 7.17 % 1,290.13 66,138,865 1996 COMPOUND RATE OF RETURN: 7.69%
Mar. (4.29)% 1,234.76 63,855,510
Apr. (4.63)% 1,177.54 65,282,050 Month-end
May 3.02 % 1,213.10 70,845,207 Monthly Net Asset Month-end
June (1.73)% 1,192.13 70,064,574 Rate of Value Net Asset
July 2.95 % 1,227.32 72,656,184
Aug. (10.22)% 1,101.91 67,398,662 1998 Return Per Unit* Value*
Sept. 0.84 % 1,111.16 69,097,586 ---- ------ --------- --------
Oct. 0.74 % 1,119.39 69,586,678
Nov. (0.77)% 1,110.78 69,056,862 Jan. 3.07 % $1,218.74 $75,621,361
Dec. 6.45 % 1,182.43 73,570,903 Feb. (1.19)% 1,204.22 74,645,216
1998 COMPOUND RATE OF RETURN (2 MONTHS): 1.84%
1997 COMPOUND RATE OF RETURN: 2.39%
COMPOUND ANNUAL RATE OF RETURN SINCE INCEPTION (29 1/2 MONTHS): 7.86%
CUMULATIVE TOTAL RETURN SINCE INCEPTION (29 1/2 MONTHS): 20.42%
</TABLE>
- ------------------------
* The Month-end Net Asset Value per Unit and Month-end Net Asset Value
figures above reflect a reduction for accrued Profit Shares, if any. GAAP
aggregate Net Asset Value figures are reduced, as of December 31, 1995 and
December 31, 1996 respectively, by $525,000 and $252,000 of unamortized
organizational and initial offering cost reimbursement payments, which
were accrued for GAAP but not for redemption purposes. The organizational
and initial offering cost reimbursement was completed as of September 30,
1997. The redemption Net Asset Values are shown above.
-4-
<PAGE>
SUMMARY (CONT'D)
OVERVIEW
- A LEVERAGED, PROFESSIONALLY MANAGED INVESTMENT, THE TRUST TRADES IN A
WIDE RANGE OF DOMESTIC AND INTERNATIONAL MARKETS WITH AN INCREASED
EMPHASIS, AS COMPARED TO MILLBURN RIDGEFIELD'S OTHER CLIENT ACCOUNTS,
ON THE TRADITIONAL COMMODITY MARKETS.
- PERFORMANCE OBJECTIVES OF SUBSTANTIAL CAPITAL APPRECIATION WITH
CONTROLLED VOLATILITY.
- A BROADLY DIVERSIFIED PORTFOLIO OF INTERNATIONAL MARKET SECTORS.
- MULTIPLE SYSTEMS ARE APPLIED IN EACH MARKET, PROVIDING "INTERNAL"
DIVERSIFICATION TO THE TRUST'S TRADING APPROACH DESPITE ITS USE OF
A SINGLE ADVISOR.
- EQUALLY LIKELY TO BE PROFITABLE OR UNPROFITABLE IN "UP" AS IN "DOWN"
MARKETS; TO DATE, THE PERFORMANCE OF THE TRUST HAS BEEN SIGNIFICANTLY
NON-CORRELATED WITH THE GENERAL UNITED STATES DEBT AND EQUITY
MARKETS.
- PERFORMANCE NOT DEPENDENT UPON ANY SINGLE NATION'S ECONOMY OR
CURRENCY.
- THE POTENTIAL, IF SUCCESSFUL, TO PROVIDE A VALUABLE COMPONENT OF
DIVERSIFICATION TO TRADITIONAL PORTFOLIOS.
- OFFERING THE ADVANTAGES OF LIMITED LIABILITY IN HIGHLY LEVERAGED
TRADING, AS WELL AS ADMINISTRATIVE CONVENIENCE IN A BUSINESS TRUST
WHICH IMPLEMENTS COMPLEX TRADING STRATEGIES IN NUMEROUS AND DIVERSE
INTERNATIONAL MARKETS.
- THE TRUST EARNS INTEREST ON APPROXIMATELY 95% OF ITS DAILY NET
ASSETS.
- PERSONS INVESTING $1,000,000 OR MORE BENEFIT FROM DISCOUNTED
BROKERAGE FEES, AT NO COST TO OTHER UNITHOLDERS. DISCOUNTED BROKERAGE
FEES APPLY TO SUCH INVESTORS' ENTIRE ACCOUNTS, NOT JUST THAT PORTION
CORRESPONDING TO CAPITAL CONTRIBUTIONS OF $1,000,000 OR MORE.
RISK FACTORS
- INVESTORS MAY LOSE ALL OR SUBSTANTIALLY ALL OF THEIR INVESTMENT.
PAST PERFORMANCE IS NOT NECESSARILY INDICATIVE OF FUTURE RESULTS:
AN INVESTMENT IN THE TRUST IS SPECULATIVE AND INVOLVES A HIGH DEGREE
OF RISK. SEE "COMMODITY FUTURES TRADING COMMISSION RISK DISCLOSURE
STATEMENT" AT PAGE 1 AND "RISK FACTOR (1)--ALL OR SUBSTANTIALLY ALL
OF AN INVESTMENT COULD BE LOST; PAST PERFORMANCE IS NOT NECESSARILY
INDICATIVE OF FUTURE RESULTS" AT PAGE 11.
- FUTURES AND FORWARD TRADING IS SPECULATIVE, VOLATILE AND LEVERAGED,
AND INVOLVES A HIGH DEGREE OF RISK; TRADING ON FOREIGN FUTURES AND
INTERBANK FORWARD MARKETS MAY INVOLVE ADDITIONAL RISKS. SEE "THE
TRUST AND ITS OBJECTIVES" AT PAGE 26 AND "RISK FACTOR (2)--VOLATILE
MARKETS; HIGHLY LEVERAGED TRADING" AT PAGE 11.
- THE TRUST HAS TO DATE EXHIBITED, AND IS EXPECTED TO CONTINUE TO
EXHIBIT, CONSIDERABLE PERFORMANCE VOLATILITY. THE UNITS ARE SUITABLE
ONLY FOR A LIMITED PORTION OF THE RISK SEGMENT OF AN INVESTMENT
PORTFOLIO. SEE "PERFORMANCE OF THE TRUST" AT PAGE 21 AND "RISK FACTOR
(3)--HIGHLY VOLATILE PERFORMANCE" AT PAGE 11.
- THE TRUST HAS BEEN THE FIRST MILLBURN RIDGEFIELD CLIENT ACCOUNT TO
TRADE THE "WORLD RESOURCE PORTFOLIO" OF MARKETS. SEE "THE TRUST AND
ITS OBJECTIVES" AT PAGE 26 AND "RISK FACTOR (4)--RECENTLY DEVELOPED
PORTFOLIO" AT PAGE 12.
- SINGLE-ADVISOR FUNDS SUCH AS THE TRUST ARE TYPICALLY CONSIDERED --
EVEN AMONG SPECULATIVE MANAGED FUTURES FUNDS -- UNUSUALLY HIGH RISK.
MOREOVER, THE TRUST IS VULNERABLE TO ADVERSE CHANGES AFFECTING
MILLBURN RIDGEFIELD WHICH COULD DIRECTLY IMPACT THE TRUST'S ABILITY
TO CONTINUE TRADING. SEE "RISK FACTOR (5)--PARTICULAR RISKS
ASSOCIATED WITH A SINGLE-ADVISOR PORTFOLIO" AT PAGE 12.
- THE TRUST IS SUBJECT TO SUBSTANTIAL CHARGES, PAYABLE IRRESPECTIVE
OF PROFITABILITY, AS WELL AS TO QUARTERLY PROFIT SHARES. THE
MANAGING OWNER ESTIMATES THAT THE TRUST NEEDS TO ACHIEVE TRADING
PROFITS IN THE FIRST
-5-
<PAGE>
SUMMARY (CONT'D)
TWELVE MONTHS AFTER A UNIT IS ISSUED OF APPROXIMATELY 5.75% TO OFFSET
EXPENSES, AND OF APPROXIMATELY 8.85% TO OFFSET BOTH EXPENSES AND THE
3% REDEMPTION CHARGE DUE ON UNITS REDEEMED AS OF THE END OF THE
TWELFTH MONTH AFTER ISSUANCE, ASSUMING THE TRUST CONTINUES TO EARN
INTEREST ON ITS ASSETS AT CURRENT RATES. SEE "BREAKEVEN TABLE" BELOW
AT PAGE 8, "CHARGES" AT PAGE 36 AND "RISK FACTOR (6)--SUBSTANTIAL
CHARGES PAYABLE IRRESPECTIVE OF PROFITABILITY" AT PAGE 13.
- THE TRUST MAY BE ADVERSELY AFFECTED BY INCREASES IN THE AMOUNT OF
FUNDS MANAGED BY MILLBURN RIDGEFIELD. SEE "RISK FACTOR (7)--POSSIBLE
ADVERSE EFFECTS OF INCREASING MILLBURN RIDGEFIELD'S ASSETS UNDER
MANAGEMENT" AT PAGE 13.
- MILLBURN RIDGEFIELD IS ALMOST EXCLUSIVELY A SYSTEMATIC, TREND-
FOLLOWING TRADER. MARKET CONDITIONS IN WHICH STRONG PRICE TRENDS DO
NOT DEVELOP TYPICALLY RESULT IN SUBSTANTIAL LOSSES FOR TREND-
FOLLOWING TRADERS. THE NUMBER OF SYSTEMATIC TRADERS HAS INCREASED
SIGNIFICANTLY IN RECENT YEARS, INCREASING COMPETITION. SEE
"MILLBURN RIDGEFIELD CORPORATION" AT PAGE 29 AND "RISK FACTOR
(8)--MILLBURN RIDGEFIELD'S TECHNICAL, TREND-FOLLOWING SYSTEMS" AT
PAGE 13.
- UNLESS THE TRUST IS SUCCESSFUL, OF WHICH THERE CAN BE NO ASSURANCE,
IT CANNOT SERVE AS A BENEFICIAL DIVERSIFICATION FOR AN INVESTOR'S
PORTFOLIO. SEE "RISK FACTOR (9)--NON-CORRELATED AS OPPOSED TO
NEGATIVELY CORRELATED PERFORMANCE" AT PAGE 14.
--------------------
CERTAIN INVESTMENT CONSIDERATIONS
- As of February 28, 1998, the Managing Owner was directing the trading
of approximately $754 million of client and proprietary capital,
approximately $75.5 million of which was being managed pursuant to
the World Resource Portfolio used by the Trust. The Trust is the
largest account managed pursuant to this Portfolio. Millburn
Ridgefield has been continuously managing client funds in the futures
and forward markets for over 25 years.
- Millburn Ridgefield employs a highly systematic, trend-following
approach relying primarily on technical, price-based information. The
objective is to identify and profit from sustained market trends
while limiting losses in trendless markets.
- Although Millburn Ridgefield applies the same systems in managing the
Trust as Millburn Ridgefield does in managing its other accounts, the
allocation of the Trust's trading commitments -- referred to by
Millburn Ridge field as the "World Resource Portfolio" -- among the
various markets places greater emphasis on the non-financial markets
(particularly energy and metals) than do other Millburn Ridgefield
accounts.
- The Managing Owner implements multiple trading systems (generally, at
least three) in each market traded. Each system is operated
independently in an attempt to identify price trends through
different analytical techniques, and only when all systems indicate
that a major price trend is in progress will the Managing Owner
acquire the maximum position allowed by its risk control parameters.
The use of multiple systems gives Millburn Ridgefield's strategy a
potentially valuable dimension of internal diversification.
- Millburn Ridgefield imposes a risk control overlay which limits
exposure to any single market based on volatility analysis.
- The Managing Owner believes that there is a potential during the
closing years of the 1990s for a number of major price trends to
occur in the energy, agricultural and metal markets. The Managing
Owner's trend-following trading systems typically are most profitable
when major price movements occur.
- The Managing Owner has the ability to shift capital readily among
different international economies and markets.
- The Trust has to date been and is expected to continue to be largely
non-correlated with traditional portfolio components such as stocks
and bonds.
-6-
<PAGE>
SUMMARY (CONT'D)
- An investment in the Trust can, BUT ONLY IF THE TRUST ITSELF IS
SUCCESSFUL, improve the reward/risk profile of an overall portfolio.
- The Trust should be considered a medium- to long-term investment
(2 to 3 years).
REDEMPTIONS
No market exists for the Units. Units may be redeemed as of the
end of any calendar month, upon 10 business days' prior written notice to the
Managing Owner, subject to redemption charges of 4% and 3% of redemption date
Net Asset Value, respectively, through the end of the sixth and from the end
of the sixth through the end of the twelfth full calendar months after Units
are sold. In the case of subscriptions of $1,000,000 or more, redemption
charges are reduced to 3% and 2%, respectively. All such charges are paid to
the Managing Owner. (Units are considered sold, for purposes of determining
whether redemption charges apply, on the day -- the first day of the month --
that their subscription proceeds are invested in the Trust, not the day
subscriptions are accepted or subscription funds deposited into escrow.)
CHARGES
The Trust pays substantial charges. Annual Brokerage Fees, Profit
Shares (potentially even in "breakeven" or losing years) and administrative
expenses together are estimated to total approximately 10.75% of the Trust's
average month-end Net Assets; and 4% (for the first six months) and 3% (for
the second six months) redemption charges are in effect through the end of
the first twelve months after a Unit is sold. At current interest rates, the
charges to which the Trust is subject substantially exceed the interest it
earns on its assets.
During 1997 the Trust paid the following fees and Profit Shares
(average month-end Net Assets during this period equaled approximately $68
million):
<TABLE>
<CAPTION>
JANUARY 1, 1997 -- DECEMBER 31, 1997
AMOUNT AS %
OF AVERAGE
FEE OR PROFIT SHARE $ AMOUNT MONTH-END NET ASSETS
------------------- -------- --------------------
<S> <C> <C>
Brokerage Fees $6,057,327 8.91%
Administrative Expenses 345,473 0.51
Reimbursement of Organizational
and Initial Offering Costs* $252,000 0.37
Profit Shares 695,667 1.02
---------- -----
TOTAL $7,350,467 10.81%
---------- -----
---------- -----
</TABLE>
*The reimbursement of organizational and initial offering costs
was completed as of September 30, 1997.
During 1997, total interest income of $3,467,544 or 5.10% of
average month-end Net Assets was earned by the Trust. As of February 28,
1998, the Net Asset Value of a Unit initially issued as of September 13, 1995
for $1,000 and which had a Net Asset Value as of December 31, 1997 of
$1,182.43 was $1,204.22.
The only variables, as a percentage of average month-end Net
Assets, in the Trust's ongoing expenses are the amounts of the Profit Share
and ongoing administrative expenses. The latter are, in any event, DE MINIMIS
as a percentage of the Trust's capitalization. Organizational and initial
offering cost reimbursements were fixed at $25,000 per month through
September 30, 1997, but varied as a percentage of the Trust's month-end Net
Assets. Brokerage Fees are fixed at 9.0% of the Trust's average month-end Net
Assets (7.0% in the case of Unitholders who invest $1,000,000 or more).
The amount of interest income earned by the Trust varies
materially over time with prevailing interest rates.
-7-
<PAGE>
SUMMARY (CONT'D)
"BREAKEVEN TABLE"
ONE OF THE PRINCIPAL RISKS OF MANY PUBLICLY-OFFERED FUTURES FUNDS
SUCH AS THE TRUST IS THE MAGNITUDE OF THE COSTS WHICH THEY MUST DEFRAY TO
AVOID NET ASSET VALUE DEPLETION SOLELY AS A RESULT OF THEIR EXPENSES.
THE FOLLOWING "BREAKEVEN TABLE" INDICATES THE APPROXIMATE
PERCENTAGE AND DOLLAR RETURNS REQUIRED FOR THE REDEMPTION VALUE OF AN INITIAL
$5,000 INVESTMENT IN THE UNITS TO EQUAL, TWELVE MONTHS AFTER ISSUANCE, THE
AMOUNT ORIGINALLY INVESTED.
MILLBURN RIDGEFIELD BELIEVES THAT THE PROFIT SHARES,
ADMINISTRATIVE EXPENSES AND INTEREST INCOME INCLUDED IN THE "BREAKEVEN TABLE"
ARE REASONABLE ESTIMATES, AND THE ACTUAL FEES PAID BY THE TRUST TO DATE HAVE
BEEN GENERALLY CONSISTENT WITH THE FOLLOWING ESTIMATES. HOWEVER, BASED ON THE
TRUST'S EXPERIENCE TO DATE, DURING CERTAIN LOSING OR "BREAKEVEN" PERIODS
PROFIT SHARES HAVE EXCEEDED (BY APPROXIMATELY 1% OF AVERAGE MONTH-END NET
ASSETS ON AN ANNUALIZED BASIS) THE ESTIMATE SET FORTH BELOW.
<TABLE>
<CAPTION>
COLUMN I COLUMN II
PERCENTAGE RETURN DOLLAR RETURN REQUIRED
ROUTINE EXPENSES (1) REQUIRED ($5,000 INITIAL INVESTMENT)
FIRST TWELVE MONTHS OF FIRST TWELVE MONTHS OF
INVESTMENT INVESTMENT
<S> <C> <C>
Brokerage Fees 9.00 % $ 450.00
Administrative Expenses(2) 0.75 % $ 37.50
Profit Share(3) 1.00 % $ 50.00
Redemption Charge(4) 3.10 % $ 155.00
Less Interest Income(5) (5.00)% $(250.00)
TRADING PROFIT REQUIRED
FOR AN INITIAL $5,000 8.85 % $ 442.50
INVESTMENT TO
"BREAKEVEN"
</TABLE>
- ------------------
(1) See the foregoing detail of the actual charges to the Trust for 1997
and "Charges" at page 36 for an explanation of the expenses
and Profit Share included in the "Breakeven Table."
(2) Administrative Expenses are estimated at no more than 0.75 of 1% of
average month-end Net Assets annually. Actual Administrative Expenses
incurred during 1997 were $345,473 or 0.51% of average month-end Net
Assets.
(3) The Profit Share is calculated on the basis of the overall profits of
the Trust, not the investment experience of any particular
Unit. Furthermore, the Profit Share is calculated quarterly, not
annually, on the basis of the overall profits of the Trust.
The 1% Profit Share assumed during a "breakeven" year is intended,
in part, to reflect possible timing differences between quarterly
Profit Shares and annual performance, as well as Profit Share
misallocations which result from charging all Units the same Profit
Share, regardless of the time of purchase. Substantial quarterly
Profit Shares may be allocated to the Managing Owner in respect of
interim quarters even during a "breakeven" (as well as an unprofitable)
year. Furthermore, certain Units may pay an allocable Profit Share
even though such Units have only "broken even" (or declined) in Net
Asset Value from their original purchase price. The 1% Profit Share
charge is also included as a reflection of the approximately 0.7% Profit
Share which would accrue on the approximately 4% New Trading Profit
which would be necessary to offset the 3% redemption charge applied to
Units redeemed as of the end of the twelfth month after their issuance.
Redemption charges do not reduce New Trading Profit for purposes of
calculating Profit Shares.
(4) Redemption charges would equal 3.1% of the initial $5,000 investment
because these charges would equal 3% of the $5,155 Net Asset Value
required so that, after subtraction of the 3% redemption charge, the
investor would receive net redemption proceeds of $5,000.
(5) Interest income is estimated based on the yields on 91-day Treasury
bills as of the date of this Prospectus, approximately 5%. Interest
income at the annual rate of approximately 5% is consistent with the
Trust's experience to date.
-8-
<PAGE>
SUMMARY (CONT'D)
FEDERAL INCOME TAX ASPECTS
The Trust is treated as a partnership for federal income tax purposes
and not as a "publicly-traded partnership." As a result, the Trust itself is
not subject to federal income tax; instead, investors report on their
individual tax returns their allocable share of the Trust's income, gain,
loss or deduction, whether or not they redeem any of their Units and whether
or not any distributions are made.
The Trust's interest income is taxable to Unitholders irrespective of
trading losses, which generally constitute capital losses whereas interest
income is taxed as ordinary income. Non-corporate Unitholders' capital losses
may only be used to offset interest income to a very limited extent.
Non-corporate Unitholders may be required to treat the Trust's
expenses as "investment advisory fees" which are subject to substantial
restrictions on deductibility for federal income tax purposes. In addition,
the Internal Revenue Service could contend that the Profit Share should be
characterized as an "investment advisory fee." Absent statutory or
administrative clarification to the contrary, Millburn Ridgefield is not
treating either the Trust's expenses or the Profit Share as "investment
advisory fees" but rather as ordinary and necessary business expenses and, in
the case of the Profit Share, as an allocation of capital gain to Millburn
Ridgefield.
THE OFFERING
- Units are sold at Net Asset Value as of the first business day of each
calendar month (Millburn Ridgefield may, from time to time, also permit
certain intra-month closings).
- $5,000 minimum investment; $2,000 for trustees or custodians of eligible
employee benefit plans and individual retirement accounts. Incremental
investments are permitted in multiples of $100. Existing investors
subscribing for additional Units may do so in $1,000 minimums, also with
$100 increments. Units are sold in fractions calculated to three decimal
places.
- AN INVESTMENT IN THE TRUST IS SPECULATIVE AND INVOLVES A HIGH DEGREE OF
RISK. INVESTORS MUST BE PREPARED TO LOSE ALL OR SUBSTANTIALLY ALL OF
THEIR SUBSCRIPTIONS. NO ONE MAY INVEST MORE THAN 10% OF HIS OR HER
"LIQUID" NET WORTH (EXCLUSIVE OF HOME, FURNISHINGS AND AUTOMOBILES IN
THE CASE OF INDIVIDUALS; READILY MARKETABLE SECURITIES IN THE CASE OF
ENTITIES) IN THE TRUST.
- Subscribers must complete, execute and deliver to their Selling Agent
the Subscription Agreement and Power of Attorney Signature Page which
accompanies this Prospectus. THE SUBSCRIPTION AGREEMENT AND POWER OF
ATTORNEY REQUIRES INVESTORS TO MAKE CERTAIN SPECIFIED REPRESENTATIONS
AND WARRANTIES. SUBSCRIBERS SHOULD CAREFULLY READ (I) EXHIBIT B --
SUBSCRIPTION REQUIREMENTS, (II) EXHIBIT C -- SUBSCRIPTION AGREEMENT AND
POWER OF ATTORNEY AND (III) THE SUBSCRIPTION AGREEMENT AND POWER OF
ATTORNEY SIGNATURE PAGE WHICH ACCOMPANIES THIS PROSPECTUS IN ADDITION TO
REVIEWING THIS ENTIRE PROSPECTUS CAREFULLY BEFORE THEY DECIDE WHETHER TO
INVEST IN THE UNITS. See "Plan of Distribution -- Subscription
Procedure" at page 66.
--------------------
-9-
<PAGE>
SUMMARY (CONT'D)
GENERAL
FUTURES AND FORWARD TRADING INVOLVES A HIGH DEGREE OF RISK. AN
INVESTMENT IN THE TRUST IS SPECULATIVE, AND SUITABLE ONLY FOR A LIMITED
PORTION OF THE RISK SEGMENT OF AN INVESTOR'S PORTFOLIO. THERE CAN BE NO
ASSURANCE THAT THE TRUST WILL ACHIEVE ITS OBJECTIVES OR AVOID SUBSTANTIAL
LOSSES.
NO ONE SHOULD INVEST MORE IN THE TRUST THAN HE OR SHE CAN AFFORD TO
LOSE, AND IN NO EVENT MORE THAN 10% OF HIS OR HER READILY MARKETABLE ASSETS.
AN INVESTMENT IN THE TRUST IS SUITABLE ONLY FOR A LIMITED PORTION OF THE RISK
SEGMENT OF A PORTFOLIO.
PROSPECTIVE SUBSCRIBERS SHOULD CONSIDER THE HIGHLY LEVERAGED AND
SPECULATIVE NATURE OF AN INVESTMENT IN THE TRUST BEFORE DETERMINING WHETHER
SUCH AN INVESTMENT IS CONSISTENT WITH THEIR OVERALL PORTFOLIO OBJECTIVES.
THE TRUST WAS THE FIRST, AND REMAINS THE LARGEST, MILLBURN RIDGEFIELD
CLIENT ACCOUNT TO TRADE THE WORLD RESOURCE PORTFOLIO OF MARKET ALLOCATIONS.
THE PERFORMANCE OF THE TRUST THROUGH THE DATE OF THIS PROSPECTUS HAS
DEMONSTRATED A SIGNIFICANT DEGREE OF VOLATILITY, ONE WIDELY-ACCEPTED MEASURE
OF RISK.
THESE ARE SPECULATIVE SECURITIES. INVESTORS MAY LOSE ALL
OR SUBSTANTIALLY ALL OF THEIR INVESTMENT IN THE TRUST.
-10-
<PAGE>
RISK FACTORS
AN INVESTMENT IN THE UNITS IS SPECULATIVE AND INVOLVES A HIGH DEGREE OF
RISK. A PURCHASER MAY LOSE ALL OR SUBSTANTIALLY ALL OF HIS OR HER INVESTMENT
IN THE TRUST. THE PROFITABILITY OF THE TRUST DEPENDS ON MILLBURN RIDGEFIELD
TRADING SUCCESSFULLY. THERE CAN BE NO ASSURANCE WHATSOEVER THAT MILLBURN
RIDGEFIELD WILL DO SO, AND IF IT DOES NOT, THE TRUST CANNOT BE SUCCESSFUL
EITHER AS A STAND-ALONE INVESTMENT OR AS AN ELEMENT OF DIVERSIFICATION FOR AN
OVERALL PORTFOLIO.
PROSPECTIVE INVESTORS SHOULD CONSIDER THE FOLLOWING RISK FACTORS BEFORE
DECIDING WHETHER TO SUBSCRIBE FOR UNITS.
(1) All or Substantially All of an Investment Could Be Lost;
PAST PERFORMANCE IS NOT NECESSARILY INDICATIVE OF FUTURE RESULTS
The success of the Trust is entirely speculative. There can be no
assurance that the Trust will achieve any of its risk control or rate of
return objectives. Investors may lose all or substantially all of their
investment.
Through February 28, 1998, the Trust has been profitable, but has
exhibited significant volatility -- one widely-accepted measure of risk. For
example, in December 1995, a gain of 16.02% was recognized by the Trust,
whereas the Trust incurred a (12.30)% loss in February 1996 and a (6.62)%
loss in its first two weeks of trading in September 1995. The deviation
between these high and low returns is very high, and over only a brief period
of trading. During twenty-nine and one-half months of trading, the Trust has
had 18 months in which it has been profitable. See "Performance of the Trust"
at page 21.
In speculative trading such as that in which the Trust engages, past
performance is not necessarily indicative of future results. The evolving
character of the markets in which the Trust participates increases the
uncertainty of its future performance.
Not only is the World Resource Portfolio a recently developed weighting
of the markets to which Millburn Ridgefield's systems are applied, but also
these systems are themselves continually evolving, so that the systems used
to date for the Trust may not be representative of those which will be used
in the future.
BECAUSE PAST PERFORMANCE IS NOT NECESSARILY INDICATIVE OF FUTURE
RESULTS, INVESTORS SHOULD NOT INVEST IN THE TRUST IN RELIANCE ON MILLBURN
RIDGEFIELD'S PERFORMANCE TO DATE. INVESTORS MUST BE PREPARED TO LOSE ALL OR
SUBSTANTIALLY ALL OF THEIR INVESTMENT IN THE TRUST.
(2) VOLATILE MARKETS; HIGHLY LEVERAGED TRADING
The Trust trades in volatile markets. Such volatility, combined with
the high degree of leverage employed in these markets, results in a high
degree of risk.
An extraordinarily high degree of leverage is available in the markets
in which the Trust trades. The Trust generally holds positions with a face
value as much as six, and possibly as much as ten or more, times its Net
Asset Value. Consequently, even a slight adverse movement in the prices of
the Trust's open positions could result in significant losses.
THE COMBINATION OF MARKET VOLATILITY AND HIGHER LEVERAGE MEANS THAT THE
TRUST COULD INCUR SUBSTANTIAL LOSSES IN SHORT PERIODS OF TIME, IMPAIRING ITS
EQUITY BASE AND ABILITY TO ACHIEVE ITS LONG-TERM PROFIT OBJECTIVES.
(3) HIGHLY VOLATILE PERFORMANCE
A multi-advisor approach is frequently employed by managed futures
funds in an effort to protect against major drawdowns and limit performance
volatility through diversification. The performance of a single-advisor
futures fund would typically be expected to be more volatile than that of a
multi-advisor pool. IN FACT, THE PERFORMANCE OF THE TRUST TO DATE HAS
EXHIBITED A HIGH DEGREE OF VOLATILITY AND CAN BE EXPECTED TO CONTINUE TO DO
SO IN THE FUTURE.
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VOLATILE PERFORMANCE INDICATES THAT SUDDEN AND SUBSTANTIAL LOSSES ARE
LIKELY FROM TIME TO TIME TO BE INCURRED BY THE TRUST AS WELL AS THAT THE
DAY-TO-DAY VALUE OF THE UNITS IS VARIABLE AND UNCERTAIN. THE NET ASSET VALUE
PER UNIT MAY CHANGE MATERIALLY BETWEEN THE DATE A REDEMPTION IS REQUESTED AND
THE MONTH-END OF REDEMPTION.
(4) RECENTLY DEVELOPED PORTFOLIO
THE TRUST HAS BEEN TRADING SINCE SEPTEMBER 13, 1995. NO MILLBURN
RIDGEFIELD ACCOUNT TRADED THE WORLD RESOURCE PORTFOLIO PRIOR TO JANUARY 1995.
AS OF FEBRUARY 28, 1998, THE ASSETS OF THE TRUST REPRESENTED APPROXIMATELY
45% OF THE TOTAL CLIENT ASSETS BEING MANAGED PURSUANT TO THE WORLD RESOURCE
PORTFOLIO.
THERE CAN BE NO ASSURANCE THAT THE NON-FINANCIAL COMMODITY MARKETS WILL
EXPERIENCE MORE FAVORABLE TRENDS OVER THE MEDIUM- TO LONG-TERM THAN WILL THE
CURRENCY AND FINANCIAL MARKETS. THE MARKET EMPHASIS OF THE TRUST MAY CAUSE IT
TO MISS PROFIT OPPORTUNITIES ON WHICH IT WOULD OTHERWISE HAVE CAPITALIZED, AS
WELL AS TO INCUR LOSSES WHICH IT OTHERWISE WOULD HAVE AVOIDED. IF THERE IS,
IN FACT, LITTLE INFLATION IN THE CLOSING YEARS OF THE 1990S, THE PROFIT
POTENTIAL OF THE WORLD RESOURCE PORTFOLIO COULD BE SIGNIFICANTLY DIMINISHED.
CURRENTLY, THE LEADING MARKET INDICATORS APPEAR TO SUGGEST THAT IT IS
DOUBTFUL THAT THE UNITED STATES ECONOMY (ONE OF THE MAJOR MARKETS IN WHICH
THE TRUST TRADES AND ONE WHICH MATERIALLY AFFECTS OTHER INTERNATIONAL
MARKETS) WILL EXPERIENCE ANY SIGNIFICANT INFLATION IN THE NEAR FUTURE.
THE TRUST ITSELF HAS A LIMITED PERFORMANCE HISTORY, AND MILLBURN
RIDGEFIELD HAS LIMITED EXPERIENCE TRADING THE WORLD RESOURCE PORTFOLIO.
CONSEQUENTLY, INVESTORS HAVE ONLY LIMITED INFORMATION ON WHICH TO MAKE AN
INVESTMENT DECISION REGARDING THE UNITS.
(5) PARTICULAR RISKS ASSOCIATED WITH A SINGLE-ADVISOR PORTFOLIO
Even in the speculative field of managed futures, single-advisor funds
are considered to be unusually high risk investments. The application of
single strategies to the highly leveraged and volatile futures and forward
markets inherently involves greater risk of loss than the diversified,
multi-advisor approach implemented by many "commodity pools" (and often
specifically for the purpose of controlling the risk of loss). In addition to
being managed by a single advisor, the Millburn Ridgefield trading systems
may have a tendency, even in Millburn Ridgefield's diversified portfolios
such as the World Resource Portfolio, to concentrate positions in a limited
group of markets. Portfolio concentration increases the risk of loss. Despite
its generally diversified approach, the World Resource Portfolio nevertheless
concentrates approximately 50% of its market exposure in the currency and
financial instrument sectors -- both of which are materially impacted by
interest-rate movements.
An important risk of a single-advisor structure -- unrelated to market
or trading risk -- is that were the management services of Millburn
Ridgefield to become unavailable for any reason, the Trust would terminate.
Furthermore, were the services of certain principals of Millburn Ridgefield
to become unavailable for any reason, the effect on Millburn Ridgefield could
be material and adverse. Were Millburn Ridgefield to lose the services of any
of its principals, Millburn Ridgefield would either continue to manage the
Trust (in doing which Millburn Ridgefield could be subject to material
conflicts of interest) or dissolve it (perhaps at a disadvantageous period in
the markets or before Millburn Ridgefield's strategies had a realistic
opportunity to achieve their objectives). In a single-advisor fund such as
the Trust, there is no recourse or "fall back" on which investors can rely in
the event of a material, adverse change in such advisor. The Trust, in fact,
is in a potentially more vulnerable position in this respect than many
single-advisor funds in which there is an independent general partner or
managing owner which operates the fund. An independent general partner or
managing owner can provide not only a valuable source of ongoing supervision
and monitoring of the single-advisor's trading, but also a source of
continuity and stability in the event of adverse events affecting such
advisor. In the case of the Trust, there is no party other than Millburn
Ridgefield to monitor or manage the Trust or to protect and continue it in
the case of adverse developments at Millburn Ridgefield.
NOT ONLY DOES THE TRUST'S SINGLE-ADVISOR STRUCTURE INHERENTLY PROVIDE
LESS DIVERSIFICATION AND RISK CONTROL THAN WOULD A MULTI-ADVISOR FUND, BUT
ALSO THE VIABILITY OF AN INVESTMENT IN THE TRUST WILL DEPEND UPON THE
CONTINUED AVAILABILITY OF CERTAIN "KEY" MILLBURN RIDGEFIELD PRINCIPALS. THERE
CAN BE NO ASSURANCE OF SUCH CONTINUED AVAILABILITY.
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(6) SUBSTANTIAL CHARGES PAYABLE IRRESPECTIVE OF PROFITABILITY
The Trust pays annual Brokerage Fees equal to 9.0% of its average
month-end Net Assets, prior to reduction for any accrued but unpaid fees.
Trading profits and interest income sufficient to defray these Brokerage
Fees, as well as ongoing administrative costs, must be recognized in order to
avoid depletion of the Trust's assets. The cumulative effect of these costs
results in the Trust having to achieve trading profits estimated at 5.75% and
interest income estimated at approximately 5% of average month-end Net Assets
in order for the Net Asset Value per Unit to equal the initial subscription
price as of the end of the first twelve months after a Unit is issued. This
5.75% trading profits estimate would be increased to approximately 8.85% in
order for the redemption value per Unit, after the 3% redemption charge (on
subscriptions of less than $1,000,000), to equal the initial subscription
price twelve months after issuance. See "Summary -- Breakeven Table" at page 8.
Trading profits (if any) recognized by the Trust are subject to the
Managing Owner's 17.5% quarterly Profit Share. Moreover, New Trading Profit
is calculated on the basis of the overall profits of the Trust, not increases
in the Net Asset Value per Unit. Certain Units have been and could in the
future be allocated substantial Profit Share expense despite having declined
substantially in Net Asset Value from their purchase price. Conversely,
accrued Profit Shares which reduce the Net Asset Value per Unit at the time
of purchase, if reversed due to subsequent losses, are misallocated -- I.E.,
allocated equally to all outstanding Units rather than only to those
outstanding during the period when such Profit Share accrued. See "Charges --
Profit Shares" at pages 40-41.
During 1997, the Trust paid Brokerage Fees of $6,057,327 or 8.91% of
average month-end Net Assets, and Profit Shares of $695,667 or 1.02% of
average month-end Net Assets.
THE TRUST IS SUBJECT TO SUBSTANTIAL COSTS AND MUST RECOGNIZE EQUALLY
SUBSTANTIAL PROFITS IN ORDER TO OFFSET THESE COSTS. MILLBURN RIDGEFIELD,
WHICH IS THE RECIPIENT OF THE BULK OF THE TRUST'S FEES, COULD RECOGNIZE
SIGNIFICANT PROFITS FROM ITS ASSOCIATION WITH THE TRUST, WHILE THE TRUST
ITSELF INCURS LOSSES.
(7) POSSIBLE ADVERSE EFFECTS OF INCREASING MILLBURN RIDGEFIELD'S ASSETS
UNDER MANAGEMENT
Millburn Ridgefield has not agreed to limit the amount of additional
equity which it may manage. The rates of return achieved by trading advisors
often tend to degrade as assets under management increase. There can be no
assurance that Millburn Ridgefield's strategies will not be adversely
affected by the additional equity, including the Trust's account, accepted by
Millburn Ridgefield. Millburn Ridgefield may be more limited in the amount of
assets which it can trade in the non-financial commodities markets than it is
in the currency and financial markets, due to the generally greater
illiquidity of the former. Historically, managed futures advisors' returns
have tended to diminish as the amount of assets managed by them have
increased, and Millburn Ridgefield itself generally achieved higher rates of
return prior to 1993 (the five-year CFTC "cut-off" date for required
performance presentation) when it was managing fewer assets than it has
recently. See "Annual Rates of Return Since Inception of the Millburn
Ridgefield Client Funds" at page 97.
The World Resource Portfolio incorporates agricultural markets to a
greater extent than do Millburn Ridgefield's other programs. The agricultural
markets tend to be less liquid than the financial markets, and daily
speculative position limits remain applicable to the former ("position
accountability" having replaced speculative position limits in the latter).
Consequently, the adverse effects of accepting additional equity under
management may be more pronounced in the World Resource Portfolio than in
other Millburn Ridgefield programs.
MILLBURN RIDGEFIELD ACTIVELY MARKETS ITS MANAGEMENT SERVICES TO
PROSPECTIVE INVESTORS AND THE ASSETS UNDER ITS MANAGEMENT MAY, AT ANY TIME,
INCREASE SUBSTANTIALLY. THERE CAN BE NO ASSURANCE THAT INCREASED EQUITY UNDER
MILLBURN RIDGEFIELD'S MANAGEMENT WILL NOT IMPAIR THE TRUST'S PROFIT POTENTIAL.
(8) MILLBURN RIDGEFIELD'S TECHNICAL, TREND-FOLLOWING SYSTEMS
The profitability of any trading system based on technical
trend-following analysis, such as that used by Millburn Ridgefield, depends
upon the future occurrence of significant sustained price movements in at
least some of the markets traded. In the past there have been sustained
periods without such price movements occurring, and Millburn Ridgefield
expects such periods to recur.
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There has been, in recent years, a major proliferation in the use of
technical trading systems, particularly trend-following systems. Millburn
Ridgefield's systems are based on the mathematical analysis of historical
price data. As the capital under the management of trading systems based on
the same general principles increases, an increasing number of traders may
attempt to initiate or liquidate substantial positions at or about the same
time as the Trust, or otherwise alter historical trading patterns or affect
the execution of trades, to the significant detriment of the Trust.
Although the Trust is as likely to be profitable as unprofitable in up
or down markets (it has had significant gains as well as losses during the
sustained bull market since it began trading), there is some tendency for
managed futures products -- particularly those managed by systematic,
trend-following advisors -- to perform similarly during the same or
approximately the same periods. Prospective investors must recognize that the
success of the Trust is substantially dependent on general market conditions
over which Millburn Ridgefield has no control.
Although Millburn Ridgefield applies highly systematic strategies, these
strategies retain certain discretionary aspects. Decisions, for example,
regarding which contracts to trade, method of order entry, the number of
contracts to be traded relative to the equity in an account and whether to
modify or simply not implement trading signals generated by the Millburn
Ridgefield systems require judgmental input from individual principals.
Discretionary decision-making may result in Millburn Ridgefield failing to
capitalize on certain price trends or making unprofitable trades in
situations in which a more wholly systematic approach would have capitalized
on the former and avoided the latter.
THE ALMOST EXCLUSIVELY TECHNICAL, SYSTEMATIC CHARACTER OF THE MILLBURN
RIDGEFIELD TRADING STRATEGY MEANS THAT THE TRUST COULD INCUR SIGNIFICANT
LOSSES UNDER CERTAIN MARKET CONDITIONS IN WHICH DISCRETIONARY OR OTHER
TRADING APPROACHES PROSPER.
IF THE TYPE OF TRENDING MARKET CONDITIONS WHICH THE MILLBURN RIDGEFIELD
TRADING STRATEGY IS DESIGNED TO EXPLOIT DO NOT OCCUR WITH SOME FREQUENCY,
INVESTORS MUST EXPECT TO INCUR SUBSTANTIAL LOSSES. MILLBURN RIDGEFIELD'S
DISCRETIONARY DECISIONS REGARDING THE IMPLEMENTATION OF ITS TRADING SYSTEMS
MAY CAUSE THESE SYSTEMS TO PERFORM POORLY EVEN IN FAVORABLE MARKET CONDITIONS.
(9) NON-CORRELATED AS OPPOSED TO NEGATIVELY CORRELATED PERFORMANCE
The Trust anticipates that over time its performance will be
non-correlated with the general equity and debt markets, as it has been in
the Trust's trading history to date. NON-CORRELATION, however, is not
NEGATIVE CORRELATION. The Trust will by no means necessarily be profitable
during downward cycles in stock and bond prices. Non-correlation means only
that the performance of the Trust may or may not be similar to that of the
general financial markets; not that there should be an inverse relationship
between them -- stock indices may rise while Unit values fall as well as
while Unit values rise. During certain periods, the Trust has performed and
may continue to perform in a manner very similar to more traditional
portfolio holdings, providing little, if any, diversification benefits.
IF THE TRUST DOES NOT PERFORM IN A MANNER NON-CORRELATED WITH THE
GENERAL FINANCIAL MARKETS, INVESTORS WILL OBTAIN NO DIVERSIFICATION BENEFITS
BY INVESTING IN THE UNITS. FURTHERMORE, BECAUSE THE TRUST'S PERFORMANCE IS
EXPECTED TO BE NON-CORRELATED, NOT NEGATIVELY CORRELATED, WITH THE GENERAL
STOCK AND BOND MARKETS, IT IS POSSIBLE THAT THE TRUST COULD INCUR SUBSTANTIAL
LOSSES DURING THE SAME PERIOD THAT AN INVESTOR'S TRADITIONAL PORTFOLIO
COMPONENTS ARE ALSO DECLINING IN VALUE.
DURING ITS PERFORMANCE HISTORY TO DATE, THE VOLATILITY OF THE TRUST'S
PERFORMANCE HAS SUBSTANTIALLY EXCEEDED THAT OF THE EQUITY OR DEBT MARKETS.
(10) POSSIBLY ILLIQUID MARKETS
Although generally highly liquid, the markets in which the Trust trades
can experience periods of illiquidity, sometimes of significant duration. The
non-financial commodities markets, to which the Trust gives greater emphasis
than do other Millburn Ridgefield accounts, tend to be less liquid than the
financial and currency markets. Government intervention, weather and numerous
other factors may disrupt even ordinarily liquid markets. Market illiquidity
or disruptions could result in major losses to the Trust.
ILLIQUID MARKETS COULD CAUSE THE TRUST TO INCUR SIGNIFICANT LOSSES WHICH
MILLBURN RIDGEFIELD COULD BE UNABLE TO PREVENT BECAUSE IT IS UNABLE TO CLOSE
OUT POSITIONS AGAINST WHICH THE MARKET IS MOVING.
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(11) "ZERO-SUM" TRADING
Futures and forward trading is a "zero-sum" economic activity in which
for every gain there is an equal and offsetting loss (without considering
transaction costs). An investment in the Trust is in this respect very
different from a typical securities investment in which there is an
expectation of consistent yields (in the case of debt) or participation over
time in general economic growth (in the case of equity).
OVERALL STOCK AND BOND PRICES COULD RISE SIGNIFICANTLY AND THE ECONOMY
AS A WHOLE PROSPER, WHILE THE TRUST INCURS MAJOR LOSSES. THE RESULTS OF
MILLBURN RIDGEFIELD'S TRADING ARE SPECULATIVE AND UNCERTAIN.
(12) TRADING ON COMMODITY EXCHANGES OUTSIDE THE UNITED STATES
Millburn Ridgefield trades on commodity exchanges outside the United
States on behalf of the Trust. Trading on such exchanges is not regulated by
any United States governmental agency and may involve certain risks not
applicable to trading on United States exchanges, such as currency controls
and expropriation. In trading on foreign exchanges, the Trust is also subject
to the risk of changes in the exchange rates between the United States dollar
and the currencies in which contracts traded on such exchanges are settled
and in which the related margin deposits must be maintained.
INVESTORS COULD INCUR SUBSTANTIAL LOSSES FROM THE TRUST'S TRADING ON
FOREIGN EXCHANGES TO WHICH THEY WOULD NOT HAVE BEEN SUBJECT HAD MILLBURN
RIDGEFIELD LIMITED ITS TRADING ON BEHALF OF THE TRUST TO U.S. MARKETS.
(13) LIMITED ABILITY TO LIQUIDATE AN INVESTMENT IN THE UNITS
Units may be redeemed at Net Asset Value only as of the close of
business on the last day of a calendar month upon at least 10 business days'
notice. Units are subject to early redemption charges, payable to the
Managing Owner, of 4% and 3%, respectively (3% and 2%, respectively, in the
case of subscriptions of $1,000,000 more), of the Net Asset Value per Unit as
of the date of redemption, through the end of the sixth and from the end of
the sixth through the end of the twelfth month after such Units are issued.
THE LIMITED ABILITY TO REDEEM UNITS MEANS THAT INVESTORS COULD BE UNABLE
TO LIMIT THEIR LOSSES IN THE TRUST, AND THAT THEY MAY BE UNABLE TO WITHDRAW
THE CAPITAL THEY HAVE COMMITTED TO THE TRUST IN ORDER TO TAKE ADVANTAGE OF
OTHER, MORE FAVORABLE INVESTMENT OPPORTUNITIES.
(14) THE TRUST IS SUBJECT TO CONFLICTS OF INTEREST
The Trust is subject to numerous actual and potential conflicts of
interest. Such conflicts include, among other things, that: (i) the Brokerage
Fee and Profit Share have not been negotiated at arm's-length; (ii) the
Managing Owner has agreed to utilize the Principal Selling Agent as a
Clearing Broker for the Trust, because it is marketing the Units; (iii) the
initial selling commissions, ongoing compensation and installment selling
commissions which the Selling Agents receive give them an incentive to
promote the sale of Units as well as to discourage redemptions; (iv) the
brokerage commissions which the Principal Selling Agent receives as a
Clearing Broker for the Trust give it an additional incentive to promote the
sale of Units as well as to discourage redemptions; (v) the Managing Owner
has significant financial incentives both to promote the sale of the Units
and to discourage their redemption; and (vi) the Managing Owner of the Trust
will not select any other advisor even if doing so would be in the best
interests of the Trust.
Millburn Ridgefield, the Clearing Brokers and their respective
principals and affiliates may trade in the futures and forward markets for
their own accounts and for the accounts of their clients, and in doing so may
take positions opposite to, or ahead of, those held by the Trust, or may be
competing with the Trust for positions in the marketplace. Records of this
trading are not available for inspection by investors. Such trading may
create conflicts of interest on behalf of one or more of such persons in
respect of their obligations to the Trust.
NONE OF THE PARTIES AFFECTED BY SUCH CONFLICTS OF INTEREST HAVE ADOPTED
ANY PROCEDURES OR SAFEGUARDS FOR RESOLVING THE FOREGOING CONFLICTS OF
INTEREST. INVESTORS MUST RELY ENTIRELY ON SUCH PARTIES' GOOD FAITH IN SUCH
MATTERS.
THESE CONFLICTS OF INTEREST RAISE THE POSSIBILITY THAT THE INVESTORS
WILL BE FINANCIALLY DISFAVORED TO THE BENEFIT OF MILLBURN RIDGEFIELD, THE
CLEARING BROKERS, THE SELLING AGENTS OR THEIR RESPECTIVE PRINCIPALS AND
AFFILIATES.
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(15) UNITHOLDERS HAVE NO ROLE IN MANAGEMENT
In investing in the Trust, Unitholders are placing their reliance on
Millburn Ridgefield. No Unitholder has any input into the management of the
Trust, and no management elections or other investor votes are regularly
held. Subject to its fiduciary obligations, Millburn Ridgefield has
essentially plenary authority over the operation of the Trust.
PROSPECTIVE INVESTORS MUST NOT ANTICIPATE THAT ANY ENTITY OTHER THAN
MILLBURN RIDGEFIELD WILL HAVE ANY CONTROL OR INFLUENCE OVER THE MANAGEMENT OF
THE TRUST, OR THAT UNITHOLDERS WILL HAVE ANY INPUT INTO ITS OPERATIONS.
(16) UNITHOLDERS ARE TAXED ON TRUST PROFITS ALTHOUGH NOT DISTRIBUTED
If the Trust recognizes income or gain in a fiscal year, such income or
gain will be taxable to Unitholders in accordance with their allocable shares
of the Trust's profits. The tax liability of Unitholders in respect of the
profits, if any, of the Trust will exceed any distributions received from it.
See "Federal Income Tax Aspects" at page 57.
In comparing the Trust's profit objectives with familiar financial
benchmarks such as the S&P 500 Stock Index, prospective investors must
recognize that if an investor purchased common stock, there would be no tax
due on the appreciation in such stock until it was sold. In the case of the
Trust, on the other hand, Unitholders must pay taxes for each year that a
Unit is held based on any appreciation in the Net Asset Value per Unit during
such year, with a significant compounding effect over time. Furthermore,
because a substantial portion of the Trust's open positions are
"marked-to-market" at the end of each year, Unitholders are taxed on
unrealized as well as realized gains.
BECAUSE UNITHOLDERS ARE TAXED CURRENTLY ON THEIR ALLOCABLE SHARE OF THE
TRUST'S INCOME OR GAINS, THE TRUST MAY TRADE SUCCESSFULLY, WHILE INVESTORS
WOULD HAVE RECOGNIZED SIGNIFICANTLY GREATER GAINS ON AN AFTER-TAX BASIS HAD
THEY INVESTED IN CONVENTIONAL STOCKS AND BONDS WITH COMPARABLE PERFORMANCE.
(17) TAXATION OF INTEREST INCOME IRRESPECTIVE OF TRADING LOSSES
Losses on the Trust's trading are almost exclusively capital losses, and
capital losses are deductible against ordinary income only to the extent of
$3,000 per year for non-corporate investors. If a non-corporate investor had,
for example, an allocable trading (I.E., capital) loss of $10,000 in a given
fiscal year and allocable interest income (after reduction for allocable
ordinary Trust business expenses) of $5,000, the investor would incur a net
loss in the Net Asset Value of his or her Units equal to $5,000, but would
nevertheless recognize taxable income of $2,000.
THE LIMITED DEDUCTIBILITY OF CAPITAL LOSSES FOR NON-CORPORATE
UNITHOLDERS COULD RESULT IN SUCH UNITHOLDERS OWING TAXES IN RESPECT OF THEIR
INVESTMENT IN THE UNITS DESPITE INCURRING OVERALL LOSSES ON SUCH INVESTMENT.
(18) LIMITATIONS ON THE DEDUCTIBILITY OF "INVESTMENT ADVISORY FEES"
The Managing Owner is -- in the absence of further clarification by
legislation, the promulgation of regulations or judicial or administrative
interpretation -- not treating any ordinary expenses of the Trust as
"investment advisory fees" for federal income tax purposes. The Managing
Owner believes that this is the position adopted by virtually all United
States futures fund sponsors. However, were the ordinary expenses of the
Trust characterized as "investment advisory fees," they would be subject to
substantial restrictions on deductibility for non-corporate taxpayers,
materially increasing the amount of tax payable by Unitholders in respect of
their investment in the Trust. In fact, were the ordinary expenses of the
Trust to be so recharacterized, Unitholders could actually recognize taxable
income despite having incurred a financial loss.
The Internal Revenue Service (the "IRS") might challenge the status of
the Profit Shares as an allocation of capital gain for federal income tax
purposes.
NON-CORPORATE UNITHOLDERS' AFTER-TAX RETURNS WOULD BE SIGNIFICANTLY
DECREASED IF THE TRUST'S EXPENSES AND MILLBURN RIDGEFIELD'S PROFIT SHARE WERE
TREATED AS "INVESTMENT ADVISORY FEES."
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(19) NONDEDUCTIBILITY OF "SYNDICATION EXPENSES"
Neither the Trust nor any Unitholder will be entitled to any deduction
for "syndication expenses." The IRS could contend that the selling
commissions and ongoing compensation paid by the Managing Owner constitute
non-deductible "syndication expenses" in respect of the Unitholders.
UNITHOLDERS' AFTER-TAX RETURNS WOULD BE SIGNIFICANTLY DECREASED IF THE
SELLING COMMISSIONS AND ONGOING COMPENSATION WERE TREATED AS "SYNDICATION
EXPENSES."
(20) POSSIBILITY OF TAX AUDIT OF BOTH THE TRUST AND INDIVIDUAL UNITHOLDERS
There can be no assurance that the Trust's tax returns will not be
audited by the IRS or that adjustments to such returns will not be made as a
result of such an audit.
IF AN AUDIT RESULTS IN AN ADJUSTMENT, UNITHOLDERS COULD THEMSELVES BE
AUDITED AND REQUIRED TO PAY ADDITIONAL TAXES, PLUS INTEREST AND PENALTIES.
PROSPECTIVE INVESTORS ARE STRONGLY URGED TO CONSULT THEIR OWN TAX
ADVISERS AND COUNSEL WITH RESPECT TO THE POSSIBLE TAX CONSEQUENCES TO THEM OF
AN INVESTMENT IN THE TRUST; SUCH TAX CONSEQUENCES MAY DIFFER IN RESPECT OF
DIFFERENT INVESTORS AND MAY HAVE A MATERIAL EFFECT ON THE NET ECONOMIC
CONSEQUENCES OF OWNING UNITS. SEE "FEDERAL INCOME TAX ASPECTS" AT PAGE 57.
(21) BANKRUPTCY OF CLEARING BROKERS AND CURRENCY DEALERS
Were one of the Trust's Clearing Brokers (Prudential Securities or
PaineWebber) or counterparties to become bankrupt, the Trust would be limited
to recovering only its PRO RATA share of all available customer funds
segregated by such Clearing Broker or counterparty, even though property (for
example, Treasury bills) specifically traceable to the Trust was held by such
Clearing Broker or counterparty.
THE BANKRUPTCY OF A CLEARING BROKER OR COUNTERPARTY COULD LEAD TO
SUBSTANTIAL LOSSES FOR THE TRUST.
(22) UNREGULATED MARKETS; POSSIBLE FUTURE REGULATORY CHANGES
A substantial portion of the Trust's trading -- primarily its currency
options and forward strategies -- takes place in unregulated markets. There
is no way to determine fair pricing, prevent abuses such as "front-running"
or impose other effective forms of control over such markets. In certain
situations, the absence of regulation could expose the Trust to significant
losses which it might otherwise have avoided.
Significant international governmental concern has been expressed
regarding, for example: (i) the disruptive effects of speculative pools of
capital trading in the currency markets on central banks' attempts to
influence the exchange rates of their own countries' currencies; and (ii) the
need to regulate the "derivatives" markets in general. In the current
environment, perhaps more than in prior periods, prospective investors must
recognize the possibility of future regulatory change altering, perhaps to a
material extent, the nature of an investment in the Trust.
TRADING IN UNREGULATED MARKETS CAN INVOLVE SIGNIFICANT RISKS, ESPECIALLY
DURING PERIODS OF MARKET DISRUPTIONS.
INVESTORS COULD MAKE A GOOD INVESTMENT DECISION IN SUBSCRIBING FOR THE
UNITS ONLY TO HAVE THAT DECISION RESULT IN SUBSTANTIAL LOSSES DUE TO
SUBSEQUENT REGULATORY CHANGES.
--------------------
THE FOREGOING LIST OF RISK FACTORS DOES NOT PURPORT TO BE A COMPLETE
EXPLANATION OF THE NUMEROUS RISKS INVOLVED IN INVESTING IN THE TRUST.
POTENTIAL INVESTORS SHOULD READ THIS ENTIRE PROSPECTUS AND ATTEMPT TO
FAMILIARIZE THEMSELVES WITH THE RISKS OF SPECULATIVE, HIGHLY LEVERAGED
FUTURES AND FORWARD TRADING BEFORE DETERMINING WHETHER TO INVEST IN THE TRUST.
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INVESTMENT FACTORS
AN INVESTMENT IN THE TRUST IS SPECULATIVE AND INVOLVES A HIGH DEGREE OF
RISK. THERE CAN BE NO ASSURANCE THAT MILLBURN RIDGEFIELD WILL TRADE
SUCCESSFULLY ON BEHALF OF THE TRUST OR THAT THE TRUST WILL AVOID SUBSTANTIAL
LOSSES, WHICH COULD INCLUDE THE COMPLETE LOSS OF ONE'S INVESTMENT. THE TRUST
CANNOT SERVE AS A SUCCESSFUL MEANS OF DIVERSIFYING A PORTION OF THE RISK
SEGMENT OF A PORTFOLIO UNLESS THE TRUST ITSELF TRADES PROFITABLY. HOWEVER, IF
SUCCESSFUL, THE TRUST OFFERS INVESTORS THE FOLLOWING POTENTIAL ADVANTAGES.
THE MANAGING OWNER
Millburn Ridgefield and its principals have extensive experience in
designing, promoting, marketing and administering futures funds. Certain of
these principals have been associated with the United States futures fund
industry virtually since its inception in the mid-1970s. Millburn Ridgefield
(and its predecessors) is one of the longest operating of all futures money
managers and has been a leader in developing systematic trading technologies.
The Millburn Ridgefield track record spans over 25 years. In investing in the
Trust, investors have the opportunity to place capital under the management
of a trading advisor with one of the longest continuous trading records of
any active manager.
PAST PERFORMANCE IS NOT NECESSARILY INDICATIVE OF FUTURE RESULTS.
INVESTMENT DIVERSIFICATION
An investor who is not prepared to spend substantial time trading in the
futures and forward markets may nevertheless participate in the commodities
and financial markets through investing in the Trust, thereby obtaining
diversification from traditional investments such as a diversified portfolio
of stocks, bonds and real estate. The Managing Owner believes that the profit
potential of the Trust does not depend upon favorable general economic
conditions and that the Trust is as likely to be profitable (or unprofitable)
during periods of declining stock, bond and real estate markets as at any
other time.
Volatility in interest rates, the possibility of significant
fluctuations in the value of commodities and of the U.S. dollar, fragility in
world banking and credit mechanisms and the growing globalization of national
economies create high risks but also substantial opportunities for profit.
These factors may make a diversification into an investment vehicle such as
the Trust particularly timely. The Trust's flexibility to take either long or
short positions -- whereas traditional portfolios are typically heavily
weighted towards the former -- can be an important advantage in times of
economic uncertainty. ALLOCATING A LIMITED PORTION OF THE RISK SEGMENT OF A
PORTFOLIO TO A MANAGED FUTURES INVESTMENT, SUCH AS THE TRUST, CAN ADD A
POTENTIALLY VALUABLE ELEMENT OF DIVERSIFICATION TO A TRADITIONALLY-STRUCTURED
PORTFOLIO. DIVERSIFYING ASSETS AMONG INVESTMENTS WHICH GENERATE POSITIVE BUT
NON-CORRELATED RETURNS HAS THE POTENTIAL TO DECREASE RISK WITHOUT A
CORRESPONDING DECREASE IN RETURNS -- ENHANCING THE REWARD/RISK PROFILE OF AN
OVERALL PORTFOLIO.
The expected, and in its trading to date actual, non-correlation of the
performance of the Trust and the performance of the general equity and debt
markets suggests that if the Trust is successful (of which there can be no
assurance), allocating a portion of one's overall portfolio to the Trust can
actually increase overall returns while decreasing volatility. However,
prospective investors must recognize that unless the Trust is profitable,
while an investment in the Units may serve to reduce overall portfolio
volatility, the Units cannot be a successful investment. The only benefit of
non-correlation to the general debt and equity markets without profitable
performance would be that the Units could serve as a potential source of
capital, available even after sharp declines in the stock and debt markets,
to reallocate to a performing investment. Any such reallocation would, in any
event, require an investment decision entirely independent of a decision to
invest in the Trust, and, furthermore, there are numerous less expensive and
virtually riskless investments through which investors can create a source of
"market insulated" assets available to invest at appropriate times. The Trust
is subject to the risk of substantial losses; it is not a good "pocketbook"
in this respect, regardless of the expected non-correlation of its
performance to that of the general stock and bond markets. To be a successful
investment, the Trust must trade profitably; and there can be no assurance
whatsoever that it will be able to do so.
-18-
<PAGE>
IF THE TRUST DOES NOT TRADE SUCCESSFULLY, IT CANNOT SERVE AS A
BENEFICIAL DIVERSIFICATION FOR A TRADITIONAL PORTFOLIO. THE PERFORMANCE OF
THE TRUST IS EXPECTED TO BE NON-CORRELATED, NOT NEGATIVELY CORRELATED, WITH
GENERAL STOCK AND BOND PRICE LEVELS. THE NON-CORRELATED PERFORMANCE OF THE
TRUST TO DATE MAY NOT, IN FACT, BE INDICATIVE OF THE LIKELY DEGREE OF FUTURE
CORRELATION BETWEEN THE TRUST AND GENERAL SECURITIES MARKET INDICES.
FURTHERMORE, THE TRUST'S PERFORMANCE HAS EXHIBITED A MATERIALLY HIGHER DEGREE
OF VOLATILITY THAN EITHER THE DEBT OR THE EQUITY MARKETS.
OPPORTUNITY TO PROFIT IN RISING AS WELL AS IN DECLINING MARKETS
The futures markets offer the ability to trade either side of any
market. Unlike short selling in the securities markets, selling short in
futures in anticipation of a drop in price can be accomplished without
additional restrictions or special margin requirements. Selling short is no
more difficult than establishing a long position.
The profit and loss potential of futures trading is not dependent upon
economic prosperity or interest rate or currency stability. Positive and
negative returns may be realized in both rising and declining markets. IT IS
POTENTIALLY ADVANTAGEOUS FOR INVESTORS TO OWN ASSETS WHICH CAN APPRECIATE
DURING A PERIOD OF GENERALLY DECLINING PRICES, FINANCIAL DISRUPTION OR
ECONOMIC INSTABILITY.
THE TRUST IS AS LIKELY TO BE UNPROFITABLE IN FAVORABLE MARKETS AS IT IS
TO BE PROFITABLE IN UNFAVORABLE ONES.
THERE CAN BE NO ASSURANCE THAT THE TRUST'S PERFORMANCE WILL, IN FACT, BE
NON-CORRELATED WITH THE GENERAL DEBT AND EQUITY MARKETS.
THE WORLD RESOURCE PORTFOLIO
There can be no assurance whatsoever as to how the Trust will perform.
However, Millburn Ridgefield believes that the World Resource Portfolio
should be well positioned to achieve its objectives in the event that price
trends of the type that Millburn Ridgefield's systems are designed to follow
develop in the non-financial commodities markets. Millburn Ridgefield
believes that there are indications that underlying economic conditions may
be favorable to the development of such trends during the closing years of
the 1990s, particularly as the "emerging" economies increasingly compete for
tangible and capital resources. The Trust also maintains approximately 50% of
its market commitment in the financial instrument and currency markets and
could recognize significant profits in these sectors if favorable trends
develop. THE DIVERSIFICATION OF THE TRUST PERMITS INVESTORS TO PARTICIPATE IN
MARKETS WHICH WOULD OTHERWISE NOT BE INCLUDED IN THEIR PORTFOLIOS, THEREBY
BOTH POTENTIALLY DIVERSIFYING RISK AND INCREASING PROFIT OPPORTUNITIES.
THERE CAN BE NO ASSURANCE THAT THE TRUST WILL ACHIEVE ITS OBJECTIVES OR
AVOID SUBSTANTIAL LOSSES.
THERE ALSO CAN BE NO ASSURANCE THAT THE WORLD RESOURCE PORTFOLIO MARKET
ALLOCATIONS WILL NOT UNDERPERFORM THOSE OF MILLBURN RIDGEFIELD'S OTHER
ACCOUNTS. IF INFLATIONARY PATTERNS DO NOT DEVELOP IN THE CLOSING YEARS OF THE
1990S, THE WORLD RESOURCE PORTFOLIO MAY SUBSTANTIALLY UNDERPERFORM OTHER
MILLBURN RIDGEFIELD PROGRAMS. THERE ARE INDICATIONS, AT LEAST IN THE UNITED
STATES, THAT SUBSTANTIAL INFLATION IS UNLIKELY TO DEVELOP IN THE NEAR FUTURE.
INTEREST ON TRUST ASSETS
The Trust receives all of the income earned on its assets. Substantially
all (approximately 95%) of the Trust's available assets are invested in
deposit accounts, United States Treasury bills or notes or in similar
securities issued by foreign governments to meet margin requirements on
non-U.S. exchanges. THE INTEREST EARNED ON THE TRUST'S ASSETS CAN OFFSET A
SUBSTANTIAL PORTION OF ITS ROUTINE COSTS. THE TRUST'S INTEREST INCOME
REPRESENTS A SOURCE OF REVENUE ENTIRELY INDEPENDENT OF THE SUCCESS OR FAILURE
OF ITS SPECULATIVE FUTURES AND FORWARD TRADING.
THE TRUST'S INTEREST INCOME IS SUBJECT TO THE RISK OF TRADING LOSSES AND
IS NOT, IN ANY EVENT, SUFFICIENT TO OFFSET THE TRUST'S BROKERAGE FEES.
SMALL MINIMUM INVESTMENT; SMALLER MINIMUM ADDITIONAL INVESTMENT
Millburn Ridgefield is typically available to manage individual accounts
only of substantial size -- $1,000,000 or more. Investors in the Trust are
able to gain access to Millburn Ridgefield for a minimum investment of only
$5,000;
-19-
<PAGE>
$2,000 in the case of trustees or custodians of eligible employee benefit
plans and individual retirement accounts; and in increments of only $100.
Existing Unitholders making additional investments may do so in minimums of
only $1,000; again with $100 increments. A SMALL MINIMUM INVESTMENT
REQUIREMENT MAKES THE TRUST ACCESSIBLE TO A WIDE RANGE OF INVESTORS AND ALSO
MEANS THAT NO INVESTOR MUST COMMIT A SIGNIFICANT AMOUNT OF ASSETS IN ORDER TO
PARTICIPATE IN THE TRUST.
NO INVESTOR SHOULD INVEST MORE IN THE TRUST THAN SUCH INVESTOR CAN
COMFORTABLY AFFORD TO LOSE. A COROLLARY OF THE SMALL MINIMUM INVESTMENT IN
THE TRUST IS THAT EXISTING AND PROSPECTIVE INVESTORS HAVE NOT BEEN
REPRESENTED IN NEGOTIATING THE TERMS OF THE TRUST.
LIMITED LIABILITY
An investor who opens an individual futures account is generally liable
for all losses incurred in such account, and may lose substantially more than
such investor committed to the account. However, a subscriber to the Trust
cannot lose more than his or her investment plus undistributed profits.
Without limited liability, it could be imprudent for an investor to
participate in such highly leveraged strategies as those applied by Millburn
Ridgefield.
ALTHOUGH UNITHOLDERS CANNOT LOSE MORE THAN THEIR INVESTMENT IN THE TRUST
PLUS UNDISTRIBUTED PROFITS, THEY MUST BE PREPARED TO LOSE ALL OR
SUBSTANTIALLY ALL OF THEIR INVESTMENT. FURTHERMORE, UNDER CERTAIN
CIRCUMSTANCES UNITHOLDERS MAY BE REQUIRED TO DISGORGE DISTRIBUTIONS AND
REDEMPTION PROCEEDS RECEIVED FROM THE TRUST AS WELL AS TO INDEMNIFY THE TRUST
FOR VARIOUS TAX LIABILITIES AND OTHER CLAIMS.
ADMINISTRATIVE CONVENIENCE
The Trust is structured so as to substantially eliminate the
administrative burden which would otherwise be involved in Unitholders
engaging directly in futures and forward trading. Unitholders receive monthly
unaudited and annual certified financial reports as well as all tax
information relating to the Trust necessary for Unitholders to complete their
federal income tax returns. The approximate daily Net Asset Value per Unit is
available by calling representatives of the Managing Owner at (847) 332-1111.
THE DIVERSITY AND RANGE OF MARKETS IN WHICH MILLBURN RIDGEFIELD TRADES, ON A
24-HOUR BASIS, MAKE THE ADMINISTRATIVE CONVENIENCE OF AN INVESTMENT IN THE
TRUST A HIGHLY ATTRACTIVE FEATURE FOR PROSPECTIVE INVESTORS.
ALTHOUGH AN INVESTMENT IN THE TRUST IS ADMINISTRATIVELY CONVENIENT,
UNITHOLDERS HAVE ACCESS TO SUBSTANTIALLY LESS INFORMATION THAN THEY WOULD
TRADING IN AN INDIVIDUAL ACCOUNT. THE ADMINISTRATIVE CONVENIENCE OF THE TRUST
DERIVES FROM INVESTORS' COMPLETE RELIANCE ON MILLBURN RIDGEFIELD IN INVESTING
IN THE TRUST. AN INVESTMENT IN THE FUND IS CONVENIENT BECAUSE MILLBURN
RIDGEFIELD IS RESPONSIBLE FOR ALL ASPECTS OF THE TRUST'S OPERATION.
-20-
<PAGE>
PERFORMANCE OF THE TRUST
THE MILLBURN WORLD RESOURCE TRUST
(SEPTEMBER 13, 1995 - FEBRUARY 28, 1998)
TYPE OF POOL: Single-Advisor/Publicly-Offered/No Principal Protection
INCEPTION OF TRADING: September 13, 1995
AGGREGATE SUBSCRIPTIONS: $83,202,157 million
CURRENT CAPITALIZATION: $74,645,216 million
WORST MONTHLY DRAWDOWN (MONTH/YEAR): (12.30)% (2/96)
WORST PEAK-TO-VALLEY DRAWDOWN (MONTH/YEAR): (15.03)% (12/95-5/96)
FEBRUARY 28, 1998 NET ASSET VALUE PER UNIT: $1,204.22
<TABLE>
<CAPTION>
MONTHLY RATES OF RETURN
MONTH 1998 1997 1996 1995
<S> <C> <C> <C> <C>
January 3.07 % 4.24 % (0.36)% --
February (1.19)% 7.17 % (12.30)% --
March -- (4.29)% 2.94 % --
April -- (4.63)% 2.55 % --
May -- 3.02 % (7.88)% --
June -- (1.73)% 6.64 % --
July -- 2.95 % (0.36)% --
August -- (10.22)% 1.49 % --
September -- 0.84 % 4.01 % (6.62)%
October -- 0.74 % 8.09 % (1.92)%
November -- (0.77)% 4.10 % 0.92 %
December -- 6.45 % 0.42 % 16.02 %
Compound 1.84 % 7.23 %
Rate of Return (2 months) 2.39 % 7.69 % (3 1/2 months)
</TABLE>
-------------
<TABLE>
<CAPTION>
MONTH-END NET ASSET VALUE PER UNIT
JAN. FEB. MAR. APR. MAY JUNE JULY AUG. SEPT. OCT. NOV. DEC.
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
1995 -- -- -- -- -- -- -- -- $ 933.80 $ 915.83 $ 924.25 $1,072.34
1996 $1,068.44 $ 937.05 $ 964.56 $ 989.12 $ 911.19 $ 971.65 $ 968.18 $ 982.59 $1,022.02 $1,104.75 $1,149.99 $1,154.81
1997 $1,203.79 $1,290.13 $1,234.76 $1,177.54 $1,213.10 $1,192.13 $1,227.32 $1,101.91 $1,111.16 $1,119.39 $1,110.78 $1,182.43
1998 $1,218.74 $1,204.22 -- -- -- -- -- -- -- -- -- --
</TABLE>
PAST PERFORMANCE IS NOT NECESSARILY INDICATIVE OF FUTURE RESULTS.
"WORST MONTHLY DRAWDOWN" MEANS THE LARGEST NEGATIVE MONTHLY RATE OF
RETURN EXPERIENCED BY THE TRUST. A "DRAWDOWN" IS MEASURED ON THE BASIS OF
MONTH-END NET ASSET VALUE PER UNIT ONLY, AND DOES NOT REFLECT INTRA-MONTH
FIGURES.
"WORST PEAK-TO-VALLEY DRAWDOWN" REPRESENTS THE GREATEST PERCENTAGE
DECLINE INCURRED BY THE TRUST FROM A MONTH-END NET ASSET VALUE, WITHOUT SUCH
MONTH-END NET ASSET VALUE PER UNIT BEING EQUALED OR EXCEEDED AS OF A
SUBSEQUENT MONTH-END. FOR EXAMPLE, IF THE NET ASSET VALUE PER UNIT DECLINED
BY $1 IN EACH OF JANUARY AND FEBRUARY, INCREASED BY $1 IN MARCH AND DECLINED
AGAIN BY $2 IN APRIL, A "PEAK-TO-VALLEY DRAWDOWN" ANALYSIS CONDUCTED AS OF
THE END OF APRIL WOULD CONSIDER THE "DRAWDOWN" TO BE STILL CONTINUING AND TO
BE $3 IN AMOUNT, WHEREAS IF THE NET ASSET VALUE PER UNIT HAD INCREASED BY $2
IN MARCH, THE JANUARY-FEBRUARY DRAWDOWN WOULD HAVE ENDED AS OF THE END OF
FEBRUARY AT THE $2 LEVEL.
MONTHLY RATE OF RETURN IS CALCULATED ON THE BASIS OF THE ACTUAL RATE OF
RETURN RECOGNIZED BY AN INITIAL $1,000 INVESTMENT IN THE TRUST.
PERFORMANCE INFORMATION IS CALCULATED ON AN ACCRUAL BASIS IN ACCORDANCE
WITH GENERALLY ACCEPTED ACCOUNTING PRINCIPLES.
THE PERFORMANCE OF OTHER MILLBURN RIDGEFIELD COMMODITY POOLS AND TRADING
PROGRAMS IS INCLUDED UNDER THE "PERFORMANCE OF THE MILLBURN RIDGEFIELD CLIENT
FUNDS AND TRADING PROGRAMS" ON PAGE 86 AND "ANNUAL RATES OF RETURN SINCE
INCEPTION OF THE MILLBURN RIDGEFIELD CLIENT FUNDS" ON PAGE 97.
-21-
<PAGE>
SELECTED FINANCIAL INFORMATION
THE FOLLOWING SELECTED FINANCIAL INFORMATION FOR THE PERIOD ENDED
DECEMBER 31, 1995 AND THE YEARS ENDED DECEMBER 31, 1996 AND 1997 IS DERIVED
FROM THE FINANCIAL STATEMENTS OF THE TRUST FOR THE PERIOD FROM SEPTEMBER 13,
1995 (COMMENCEMENT OF TRADING OPERATIONS) TO DECEMBER 31, 1995 AND FOR THE
YEARS ENDED DECEMBER 31, 1996 AND 1997 WHICH HAVE BEEN AUDITED BY COOPERS &
LYBRAND L.L.P., INDEPENDENT ACCOUNTANTS, AS STATED IN THEIR REPORT INCLUDED
IN THIS PROSPECTUS (SEE "INDEX TO FINANCIAL STATEMENTS" AT PAGE 70).
-------------------------
<TABLE>
<CAPTION>
SEPTEMBER 13, 1995
JANUARY 1, 1997 JANUARY 1, 1996 (COMMENCEMENT OF
TO TO TRADING OPERATIONS) TO
INCOME STATEMENT DATA DECEMBER 31, 1997 DECEMBER 31, 1996 DECEMBER 31, 1995
<S> <C> <C> <C>
Realized gains (losses)
Futures and forwards $ 4,123,599 $ 7,778,511 $ 551,797
Options (486,783) 750,368 (98,084)
------------ ----------- -------------
Total realized gain (loss) 3,636,816 8,528,879 453,713
Increase (decrease) in unrealized
appreciation Futures and forwards 1,548,085 489,201 2,716,040
Options (73,486) 123,713 112,827
------------ ----------- -------------
Total increase (decrease) in 1,474,599 612,914 2,828,867
unrealized appreciation
------------ ----------- -------------
Gross trading results 5,111,415 9,141,793 3,282,580
Less, Brokerage Fees 6,057,327 3,998,675 548,790
------------ ----------- -------------
Total trading results (945,912) 5,143,118 2,733,790
Interest income 3,467,544 2,115,972 303,229
Foreign exchange gain (loss) 62,685 (72,910) (9,539)
------------ ----------- -------------
Total income (loss) 2,584,317 7,186,180 3,027,480
------------ ----------- -------------
Expenses:
Profit Share 695,667 829,081 460,840
Administrative expenses 345,473 519,753 59,492
------------ ----------- -------------
Total expenses 1,041,140 1,348,834 20,332
------------ ----------- -------------
Net income (loss) $ 1,543,177 $ 5,837,346 $ 2,507,148
------------ ----------- -------------
------------ ----------- -------------
</TABLE>
<TABLE>
<CAPTION>
DECEMBER 31, 1997 DECEMBER 31, 1996 DECEMBER 31, 1995
----------------- ----------------- -----------------
NET NET NET
BALANCE SHEET DATA ASSET VALUE ASSET VALUE ASSET VALUE
GAAP REDEMPTION GAAP REDEMPTION GAAP REDEMPTION
<S> <C> <C> <C> <C> <C> <C>
Aggregate Net
Asset Value $73,570,903 $73,570,903 $56,140,318 $56,392,582 $25,932,277 $26,457,277
Net Asset Value
per Unit $ 1,182.43 $ 1,182.43 $ 1,150.14 $ 1,154.81 $ 1,050.69 $ 1,072.34
</TABLE>
-------------------------
IN ACCORDANCE WITH GENERALLY ACCEPTED ACCOUNTING PRINCIPLES ("GAAP"),
THE FULL AMOUNT OF THE ORGANIZATIONAL AND INITIAL OFFERING COSTS BEING
REIMBURSED TO THE MANAGING OWNER BY THE TRUST IN EQUAL MONTHLY INSTALLMENTS
OF $25,000 THROUGH SEPTEMBER 30, 1997 HAS BEEN DEDUCTED FROM UNITHOLDERS'
CAPITAL FROM INCEPTION AND, ACCORDINGLY, IS NOT REFLECTED IN OPERATING
RESULTS. THE TRUST, HOWEVER, REDUCED NET ASSET VALUE FOR SUCH REIMBURSEMENT
PAYMENTS AS SUCH PAYMENTS WERE ACTUALLY MADE AS OF THE END OF EACH MONTH.
THIS DIFFERENCE IN ACCOUNTING CONVENTIONS IS THE CAUSE OF THE DIFFERENCES
($525,000 AND $252,000, RESPECTIVELY) BETWEEN AGGREGATE NET ASSET VALUE FOR
REDEMPTION AND FOR GAAP PURPOSES AS OF DECEMBER 31, 1995 AND DECEMBER 31,
1996.
-22-
<PAGE>
MANAGING OWNER'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
RESULTS OF OPERATIONS
PERFORMANCE SUMMARY
The Trust's success depends on the Managing Owner's ability to recognize
and capitalize on trends and other profit opportunities in different sectors
of the world economy. The Managing Owner's trading methods are confidential,
so that substantially the only information that can be furnished regarding
the Trust's results of operations is its performance record, as set forth
above. Unlike most operating businesses, general economic or seasonal
conditions have no direct effect on the profit potential of the Trust, while,
at the same time, its past performance is not necessarily indicative of
future results. Because of the speculative nature of its trading, operational
or economic trends have little relevance to the Trust's results. The Managing
Owner believes, however, that there are certain market conditions -- for
example, markets with strong price trends -- in which the Trust has a better
opportunity of being profitable than in others.
1997
During 1997, the Trust's average month-end Net Assets equaled
approximately $68,000,000, and it achieved gross trading gains of $5,111,415
or 7.52% of average month-end Net Assets. Brokerage fees of $6,057,327 or
8.91% of average month-end Net Assets and Profit Shares of $695,667 or 1.02%
of average month-end Net Assets were paid or accrued. Interest income of
$3,467,544 or 5.10% of average month-end Net Assets, resulted in net income
(after deduction for administrative expenses, but without reduction for
organizational and initial offering cost reimbursement payments) of
$1,543,177 or 2.27% of average month-end Net Assets, and a 2.81% increase in
the Net Asset Value per Unit.
During 1997, the Trust was profitable. For the year, financial markets'
trading (interest rates, currencies, and stock indices) was profitable.
However, substantial losses resulted from trading the non-financial sectors,
especially metals. The majority of currency trading profits occurred in
dollar trading versus the Japanese yen and European community currency bloc.
In the interest rate sector, trading of the Japanese government bond future
was profitable, and gains were also produced in trading futures for the
Euro-yen, U.S. treasury note, Spanish government bond, Italian bond, and
Australian bond. Trading of the German bond and Pibor futures produced
notable losses. Stock index futures trading was profitable for Japan's Topix
and Nikkei, Korea's Hang Seng, and Australia's All Ordinaries. In the
non-financial component of the Trust's portfolio, metal futures trading was
negative, particularly due to losses from London aluminum and nickel. Trading
in softs also was generally negative as sizable losses were produced in
sugar, orange juice and cocoa. However, gains from coffee positions countered
these losses to a large extent. In the energy sector, gains in natural gas
served to counterbalance losses in crude oil, heating oil, unleaded gas, and
London gas oil. Trading of grain futures was slightly negative for the year.
As of December 31, 1997 the Net Asset Value per Unit was $1,182.43 with a
1997 Compound Annual Rate of Return of 2.39%.
1996
During 1996, the Trust's average month-end Net Assets equaled
approximately $45,000,000, and it achieved gross trading gains of $9,141,793
or 20.40% of average month-end Net Assets. Brokerage Fees of $3,998,675 or
8.92% of average month-end Net Assets and Profit Shares of $829,081 or 1.85%
of average month-end Net Assets were paid or accrued. Interest income (at an
average rate on invested assets of approximately 5.0% per annum) of
$2,115,972 or 4.72% of average month-end Net Assets, resulted in net income
(after deduction for administrative expenses, but without reduction for
organizational and initial offering cost reimbursement payments) of
$5,837,346 or 13.03% of average month-end Net Assets, and a 7.69% increase in
the Net Asset Value per Unit (for redemption purposes).
January 1996 began with major gains continuing in the energy sector, but
the upward price trends in these markets reversed sharply later in the month
and resulted in a small loss. February saw the Trust incur its worst monthly
drawdown as all six sectors traded by World Resource Portfolio sustained
losses -- an unusual result. In the next two months, the Trust managed
comparatively minor gains and then in May a loss of (7.88)% was sustained, as
all sectors except energy were unprofitable. In June, a soaring energy market
produced gains which almost offset May's losses. In July, the Trust incurred
slight losses as energy trading was unprofitable. The following five months,
August through December, produced profits in each month as major trends
occurred in the interest rate and currency markets. As of December 31, 1996,
the Net Asset Value per Unit reached an all-time month-end high of $1,154.81
with a 1996 Compound Annual Rate of Return of 7.69%.
-23-
<PAGE>
1995
From the commencement of trading on September 13, 1995 through December
31, 1995, the Trust's average month-end Net Assets equaled approximately
$19,728,000, and it recognized gross trading gains of $3,282,580 or 16.64%
of average month-end Net Assets. Brokerage Fees of $548,790 or 2.78% of
average month-end Net Assets and Profit Shares of $460,840 or 2.34% of
average month-end Net Assets were paid or accrued. Interest income (at an
average rate on invested assets of approximately 5.1% per annum) of $303,229
or 1.54% of average month-end Net Assets, resulted in net income (after
deduction for administrative expenses, but without reduction for
organizational and initial offering cost reimbursement payments) of
$2,507,148 or 12.71% of average month-end Net Assets, and a 7.23% increase in
the Net Asset Value per Unit (for redemption purposes).
The Trust began operations in mid-September 1995 and quickly incurred
significant losses as it became fully invested in the markets just as
sustained trends in two of its six portfolio sectors -- currencies and energy
- -- reversed. Losses continued in October with a small gain in November during
generally trendless markets, causing a cumulative loss in the first two and
one-half months of trading of approximately (7.5)%. In December 1995,
however, the Trust was able to achieve major profits in the energy sector as
a combination of cold weather, depleted inventories and pipeline capacity
constraints resulted in soaring natural gas prices. Also profitable were
stock index, interest rate and agricultural trading. The total gain in
December was 16.02%, resulting in a 1995 (3 1/2 month) Compound Rate of
Return of 7.23% and a December 31, 1995 Net Asset Value per Unit of $1,072.34.
The performance of the Trust to date has demonstrated significant
volatility as well as the dependence of the Trust for its profitability on
general market conditions over which the Managing Owner has no control.
The extreme swings in the Trust's monthly rates of return in its trading
to date have been symptomatic of the erratic, "whipsaw" character of the
markets in which it has been trading. Although Millburn Ridgefield did not
anticipate -- particularly given the more broadly diversified portfolio
traded by the Trust -- that its performance would be so volatile, there can
be no assurance whatsoever that it will not continue to be so. Millburn
Ridgefield has not made and has no present intention of attempting to make
any adjustments to its trading systems or the World Resource Portfolio in
response to recent market activity and performance. Although there can be no
assurance that the Trust will ultimately be profitable or avoid substantial
losses, its performance to date clearly demonstrates why the Managing Owner
believes that the Units are only suitable as a medium- to long-term
investment (at least 2-3 years).
Market conditions can make it virtually impossible for the Trust to
avoid losses over certain, occasionally sustained, periods of time or avoid
major and sudden declines in Net Asset Value.
PAST PERFORMANCE IS NOT NECESSARILY INDICATIVE OF FUTURE RESULTS.
LIQUIDITY
The Trust's assets are generally held as cash or cash equivalents which
are used to margin the Trust's futures and forward positions and withdrawn,
as necessary, to pay redemptions and expenses. Other than potential
market-imposed limitations on liquidity, due, for example, to daily price
fluctuation limits (see "Risk Factors -- (10) Possibly Illiquid Markets" at
page 14), which are inherent in the Trust's futures and forward trading, the
Trust's assets are highly liquid and are expected to remain so. During its
operations to date, the Trust experienced no meaningful periods of
illiquidity in any of the numerous markets traded by the Managing Owner.
Although Units may be redeemed at any month-end (redemption penalties
apply through the end of the first twelve months after a Unit is issued), no
one who cannot afford to commit funds to a comparatively illiquid investment
should subscribe to the Trust. The Managing Owner believes that investors who
are not prepared to regard the Trust as a medium- to long-term investment
should not purchase Units.
The Managing Owner may consider making distributions to investors under
certain circumstances (for example, if substantial profits are recognized);
however, the Managing Owner has not done so to date and does not presently
intend to do so.
CAPITAL RESOURCES
Units are offered for sale as of the beginning, and may be redeemed as
of the end, of each month. (The Managing Owner has discretion from time to
time to accept intra-month Unit sales.)
-24-
<PAGE>
The amount of capital raised for the Trust should not have a significant
impact on its operations, as the Trust has no significant capital expenditure
or working capital requirements other than for monies to pay trading losses,
brokerage commissions and charges. Within broad ranges of capitalization, the
Managing Owner's trading positions should increase or decrease in approximate
proportion to the size of the Trust.
The Trust raises additional capital only through the sale of Units and
trading profits (if any) and does not engage in borrowing.
The Trust trades futures, options and forward contracts on currencies,
interest rates, energy and agricultural products, metals and stock indices.
Risk arises from changes in the value of these contracts (market risk) and
the potential inability of counterparties or brokers to perform under the
terms of their contracts (credit risk). Market risk is generally to be
measured by the face amount of the positions acquired and the volatility of
the markets traded. The credit risk from counterparty non-performance
associated with these instruments is the net unrealized gain, if any, on
these positions. The risks associated with exchange-traded contracts are
generally perceived to be less than those associated with over-the-counter
transactions, because exchanges typically (but not universally) provide
clearinghouse arrangements in which the collective credit (in some cases
limited in amount, in some cases not) of the members of the exchange is
pledged to support the financial integrity of the exchange. In
over-the-counter transactions, on the other hand, traders must rely solely on
the credit of their respective individual counterparties. Margins, which may
be subject to loss in the event of a default, are generally required in
exchange trading, and counterparties may require margin in the
over-the-counter markets.
Due to the nature of the Trust's business, substantially all its assets
are represented by cash, United States government obligations and short-term
foreign sovereign debt obligations, while the Trust maintains its market
exposure through open futures, options and forward contract positions.
Inflation may be a significant factor in the Trust's profitability,
particularly in light of the Trust's trading in energy, agricultural and
metals markets. However, inflationary cycles can give rise either to the type
of major price movements which can have a materially favorable impact on the
Trust's profitability or to the "whipsaw markets" which can have a materially
adverse impact on the Trust's profitability. Furthermore, as the Trust does
not sell products, but rather only trades, its income by no means correlates
with inflation. Consequently, in periods of high inflation, the profit
potential of the Trust may be reduced in terms of real dollars.
IMPORTANCE OF MARKET CONDITIONS TO PROSPECTS FOR PROFITABILITY
The Managing Owner expects that the Trust is most likely to trade
successfully in markets which exhibit strong and sustained price trends. The
trading strategy employed by the Managing Owner is technical, systematic and
trend-following. Consequently, one would expect that in trendless, "choppy"
markets the Trust would likely be unprofitable, while in markets in which
major price movements occur, the Trust would have its best profit potential
(although there could be no assurance that the Trust would, in fact, trade
profitably). The performance history of the Trust to date appears to have
borne out this expectation, while demonstrating the high degree of
performance volatility to which the Trust is subject.
The Managing Owner believes that the profit potential of a managed
futures product such as the Trust can be increased in markets in which major
price movements occur. There have, however, been prolonged periods in the
futures markets without significant price movements, as well as "whipsaw"
markets, in which prices appear to be moving in one direction but then
quickly reverse. Such periods may recur with considerable frequency, and
Millburn Ridgefield would expect it to be very difficult to achieve
profitability in such markets. There can be, in any event, no assurance that
the Managing Owner will trade profitably or that major market movements will
occur.
The Trust's results are determined by the performance of the Managing
Owner, price trends and movements and prevailing interest rates. None of
these factors can be predicted with any degree of accuracy, and the past
performance of the Trust, the Managing Owner or its trading strategy may have
very little relevance to how the Trust will perform in the future.
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<PAGE>
THE YEAR 2000 COMPUTER ISSUE
Many computer applications currently in use were designed and
developed using two digits to identify the year. These programs were
implemented without considering the impact of the change in the century.
Consequently, these computer applications could fail or create erroneous
results if not corrected.
The Managing Owner is currently in the process of ensuring that
its computer systems are Year 2000 compliant and anticipates Year 2000
compliance by early 1999. The cost of addressing the Year 2000 issue will be
borne by the Managing Owner, not the Trust, and is expected to have no
material impact on the Managing Owner's ability to conduct its affairs or
those of the Trust. However, failure of exchanges, clearing organizations,
banks, brokers, regulators or other third parties to resolve their processing
issues could result in a material financial risk.
THE TRUST AND ITS OBJECTIVES
PERFORMANCE POTENTIAL
The Trust offers investors a portfolio which places a greater
emphasis on non-financial markets than Millburn Ridgefield's other accounts.
Millburn Ridgefield believes that there may be substantially greater profit
opportunities over the medium- to long-term in these markets than there have
been during the past five to ten years of low inflation. The Trust also
maintains a significant market commitment to currencies and financial
instruments, in which Millburn Ridgefield accounts have achieved substantial
profits in the past. PAST PERFORMANCE IS NOT NECESSARILY INDICATIVE OF FUTURE
RESULTS, PARTICULARLY IN THE SPECULATIVE MARKETS IN WHICH THE TRUST TRADES.
THE TRUST IN ITS PERFORMANCE TO DATE HAS DEMONSTRATED SIGNIFICANT VOLATILITY.
THERE CAN BE NO ASSURANCE THAT MILLBURN RIDGEFIELD WILL TRADE PROFITABLY IN
THE FUTURE OR THAT THE WORLD RESOURCE PORTFOLIO WILL NOT SUBSTANTIALLY
UNDERPERFORM MILLBURN RIDGEFIELD'S OTHER MARKET PORTFOLIOS. IT IS IMPOSSIBLE
TO PREDICT WHETHER INFLATIONARY PERIODS WILL DEVELOP DURING THE CLOSING YEARS
OF THE 1990S, AND IF SUCH PERIODS DO NOT DO SO, THE EFFECT ON THE PERFORMANCE
OF THE WORLD RESOURCE PORTFOLIO COULD BE MATERIALLY ADVERSE.
INVESTMENT DIVERSIFICATION
Through an investment in the Trust, investors have the opportunity
to participate in markets not typically represented in an individual's
portfolio, and the potential to profit from rising as well as falling prices.
Many "buy and hold" strategies in "alternative asset classes," E.G., real
estate, fine art or precious metals, are dependent on rising prices. The
Trust's profitability is not. The success of Millburn Ridgefield's trading is
not dependent upon favorable economic conditions, national or international.
Indeed, periods of economic uncertainty can augment the profit potential of
the Trust by increasing the likelihood of significant movements in commodity
prices, the exchange rates between various countries, world stock prices and
interest rates.
MARKET DIVERSIFICATION
The Trust trades, from time to time, in over 50 markets (although
Millburn Ridgefield by no means necessarily maintains positions in all of the
markets included in the World Resource Portfolio at all times). Portfolio
allocations are under continuous review, on the basis of both systematic and
discretionary analysis, and are adjusted from time to time.
Futures contracts on non-financial/traditional commodities have
not been a primary area of interest for many market participants in recent
years. The underlying commodities themselves are today, in many cases, at
historically low price levels (certainly on a constant dollar basis). "Just
in time" inventory management is changing the way commodities are handled and
has been a factor in reducing inventories. While these fundamentals are
transforming the supply side of the equation, political and economic reforms
in many emerging economies are pointing to an era of sustained growth in the
global economy. While it is impossible to know how this scenario will unfold,
Millburn Ridgefield believes that many of these markets warrant a larger
allocation than they have enjoyed in the 1980s and 1990s. Increased demand
for both financial and hard resources (commodities) is already apparent in
some markets. While Millburn Ridgefield will continue to trade markets from
both the long and the short side consistent with its systematic approach and
the prevailing market trends, it should be recognized that the Managing
Owner's decision to increase the portfolio weightings in traditional
commodity markets, at this time, was a response to the Managing Owner's
interpretation of these global changes and the potential opportunities that
could result.
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While the Trust maintains significant currency and financial
instrument commitments, it has an increased (as compared to Millburn
Ridgefield's other accounts) emphasis on the non-financial markets. Unlike
many other investments, the success of the Trust does not require a favorable
economic climate or rising stock and bond markets. Indeed, periods of
economic uncertainty can augment the profit potential of the Trust by
increasing the likelihood of significant movements in commodity prices, the
exchange rates between various countries, world stock prices and interest
rates. THE MARKET SECTOR ALLOCATIONS OF THE TRUST ARE SUBJECT TO PERIODIC
REVIEW AND POSSIBLE ALTERATIONS FROM TIME TO TIME. The following depicts the
market allocations as of February 28, 1998 of the World Resource Portfolio.
[PIE CHART]
ALTHOUGH THE MARKET SECTOR WEIGHTINGS OF THE WORLD RESOURCE
PORTFOLIO HAVE REMAINED RELATIVELY CONSISTENT IN THE TRUST'S TRADING TO DATE,
THEY MAY VARY MATERIALLY OVER TIME; HOWEVER, THE MANAGING OWNER INTENDS FOR
THE TRUST AT ALL TIMES TO TRADE A DIVERSIFIED RANGE OF MARKETS WITH A
SIGNIFICANT PORTFOLIO ALLOCATION TO NON-FINANCIAL COMMODITIES. ALTHOUGH THE
WORLD RESOURCE PORTFOLIO PLACES GREATER EMPHASIS ON THESE NON-FINANCIAL
MARKET SECTORS, CONSIDERED COLLECTIVELY, THAN DO MILLBURN RIDGEFIELD'S OTHER
ACCOUNTS, THE PORTFOLIO RETAINS AN APPROXIMATELY 50% ALLOCATION TO THE
CURRENCY AND FINANCIAL MARKETS.
WORLD RESOURCE PORTFOLIO MARKETS
World Resource Portfolio markets currently include:
<TABLE>
<CAPTION>
AGRICULTURAL COMMODITIES METALS ENERGY
<S> <C> <C> <C>
Cocoa Soybeans Aluminum Crude Oil
Coffee Soy Meal Copper Gas Oil
Corn Soy Oil Gold Heating Oil
Cotton Sugar Nickel Natural Gas
Orange Juice Palladium Unleaded Gas
Silver
</TABLE>
-27-
<PAGE>
<TABLE>
<CAPTION>
CURRENCIES
MAJOR SECONDARY CROSSES
<S> <C> <C>
British Pound Belgian Franc Canadian Dollar - Japanese Yen
Deutsche Mark Danish Krone Deutsche Mark - Italian Lira
French Franc Dollar Index Deutsche Mark - Japanese Yen
Japanese Yen Dutch Guilder Deutsche Mark - Swiss Franc
Swiss Franc European Currency Unit Dutch Guilder - Japanese Yen
Italian Lira
Norwegian Krone
Portuguese Escudo
Spanish Peseta
</TABLE>
<TABLE>
<CAPTION>
INTEREST RATES STOCK INDICES
<S> <C> <C>
Australian Bonds Italian Bond Australian All Ordinaries
Eurodollars London Short Rates Hong Kong Hang Seng
Euro Yen Tokyo Yen Bond London FT-SE
French Bond U.S. Treasury Bonds Nikkei Dow
French Pibor U.S. Treasury Notes S&P 500
German Bunds Topix Index
</TABLE>
THE TRUST HAS NOT, IN ITS OPERATIONS TO DATE, TRADED IN ALL OF THE
FOREGOING MARKETS. THERE CAN BE NO ASSURANCE AS TO WHICH MARKETS THE TRUST
WILL TRADE IN THE FUTURE OR AS TO WHICH MARKETS WILL BE INCLUDED IN THE WORLD
RESOURCE PORTFOLIO OVER TIME. SUCH MARKETS MAY BE CHANGED WITHOUT NOTICE, IN
THE DISCRETION OF MILLBURN RIDGEFIELD. MOREOVER, MILLBURN RIDGEFIELD DOES NOT
MAINTAIN OPEN POSITIONS IN ALL WORLD RESOURCE PORTFOLIO MARKETS AT ALL TIMES.
AT CERTAIN TIMES, MILLBURN RIDGEFIELD MAY ENTIRELY WITHDRAW FROM ONE OR MORE
SUCH MARKETS.
THE WORLD RESOURCE PORTFOLIO IS NOT A DISTINCT TRADING SYSTEM OR
PROGRAM, BUT SIMPLY THE APPLICATION OF MILLBURN RIDGEFIELD'S GENERAL TRADING
SYSTEMS TO A GROUP OF MARKETS MORE WEIGHTED TOWARDS NON-FINANCIAL COMMODITIES
THAN ARE MILLBURN RIDGEFIELD'S OTHER ACCOUNTS.
The World Resource Portfolio was developed by Millburn Ridgefield
as a combination of markets potentially better positioned to capitalize on
what Millburn Ridgefield believes may be a number of major price movements in
the non-financial market sectors which could occur during the remainder of
the 1990s. The Managing Owner believes that profit opportunities will remain
over the medium- to long-term in the financial and currency markets (and the
World Resource Portfolio maintains a significant commitment to these
markets), but that there is also good profit potential in increasing exposure
to other market sectors at this time. THERE CAN BE NO ASSURANCE THAT THE
PROFIT POTENTIAL WHICH MILLBURN RIDGEFIELD BELIEVES WILL DEVELOP IN THE
NON-FINANCIAL MARKET SECTORS WILL, IN FACT, MATERIALIZE, OR THAT THE TRUST
WILL BE ABLE TO REALIZE SUCH POTENTIAL EVEN IF IT DOES SO.
THE MANAGING OWNER
Millburn Ridgefield is one of the longest operating of all active
managed futures advisors. Principals of Millburn Ridgefield have been
managing client assets in the futures and forward markets since 1972, and as
of February 28, 1998 Millburn Ridgefield was managing approximately $783
million of client and proprietary capital in these markets. As of such date,
Millburn Ridgefield and its affiliates were also managing over $629 million
in other disciplines.
Millburn Ridgefield uses a highly systematic trend-following
approach which relies primarily on technical, market-related information.
Millburn Ridgefield regards its strategies as long-term in nature, and gives
substantial emphasis to risk management -- through, for example, analysis of
leverage, implementation of "stop-loss" liquidation points on all open
positions and ongoing rebalancing of portfolio commitments based on
volatility risk assessments of the different markets traded.
Millburn Ridgefield implements multiple systems (generally, at
least three) in analyzing each market which it trades. Only if all systems
implemented in a market generate a positive trading signal will a "full
position" be taken.
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<PAGE>
A "full position" represents the maximum exposure that the risk control
overlay in the trading system will allow in a given market based on account
equity, market volatility and other factors. Because Millburn Ridgefield
utilizes multiple trading systems, a negative signal in one system may be
offset by positive signals in the other systems. Partial positions may be
taken if one or more trading systems generate a neutral or negative trading
signal while the other systems generate positive signals. This multi-system
approach helps to filter out the "whipsaw" effect which short-term "noise"
price fluctuations and reversals can otherwise have on trend-following
systems -- resulting in the dissipation of account equity through the
frequent acquisition and liquidation of positions. The use of multiple
evaluative models gives Millburn Ridgefield's strategy a degree of internal
diversification which has the potential to increase its risk control
capabilities.
As is the case with most trend-following systems, Millburn
Ridgefield seeks to achieve cumulative profitability through capturing
sustained price trends of significant duration and magnitude. Such trends
tend to be relatively infrequent (often occurring only 2 to 3 times or less
during a year in any given market). The early determination of the beginning
and end of such major trends is an important feature of successful trading.
Millburn Ridgefield's technical trading systems are designed with the
objective that they will generate a trading signal when market conditions
indicate a trend is likely to occur. If the trend is not subsequently
confirmed or quickly reverses itself, positions are closed out in an attempt
to limit capital losses. Positions which are profitable are maintained until
the trading systems indicate that the trend has ended.
MILLBURN RIDGEFIELD CORPORATION
MILLBURN RIDGEFIELD CORPORATION
Millburn Ridgefield Corporation, the Managing Owner, is a Delaware
corporation organized in May 1982 to manage discretionary accounts in futures
and forward markets. It is the corporate successor to a futures trading and
advisory organization which has been continuously managing assets in the
currency and futures markets using quantitative, systematic techniques since
1971. As of February 28, 1998, Millburn Ridgefield, together with its
affiliate ShareInVest Research L.P., was managing approximately $1.4 billion
in currencies, currency overlays, financial and commodity futures, equities
and funds of funds.
Millburn Ridgefield has been registered with the CFTC as a
"commodity pool operator" since September 13, 1984 and as a "commodity
trading advisor" since July 1, 1982 and is also registered as a "futures
commission merchant." The Millburn Corporation, an affiliate of Millburn
Ridgefield, performs certain administrative and operating functions for
Millburn Ridgefield. ShareInVest Research L.P., an affiliate of Millburn
Ridgefield, manages portfolios of U.S. small capitalization growth stocks.
THE REGISTRATION OF MILLBURN RIDGEFIELD WITH THE CFTC MUST NOT BE TAKEN AS AN
INDICATION THAT SUCH AGENCY HAS RECOMMENDED OR APPROVED EITHER MILLBURN
RIDGEFIELD OR THE TRUST.
BACKGROUND AND MANAGEMENT
Millburn Ridgefield is organized into four main departments:
research, trading, operations and investor services. Millburn Ridgefield
provides its personnel with a computerized infrastructure that supports
Millburn Ridgefield's research efforts and allows departments to coordinate
and communicate effectively. Millburn Ridgefield was among the first
systematic money managers to begin building a comprehensive in-house
computerized database, and this database has been updated continuously since
its introduction in 1975. Millburn Ridgefield's currency database contains
the last twenty years of market activity, and the interest-rate futures
database covers the period since 1975, the first year that Treasury bill
futures contracts were traded.
The systems implemented by the research staff generate signals
which the trading department executes and monitors in more than sixty
currency and futures markets on a 24-hour global basis. The face value of the
trades executed by the trading department is in excess of $10 billion per
year. The trade implementation process is facilitated by the computerization
of the related support functions. These functions include (1) position
accounting, (2) profit and loss statements, (3) trading system signal sheets
and (4) portfolio adjustments. A system of checks and balances is in place to
guard against errors. Examples are multiple confirmations of executed trades
and continuous review of positions by both the trading staff and the senior
officers of the firm. Millburn Ridgefield has also invested substantial time
and money in acquiring sophisticated communications, news and quotation
capabilities.
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<PAGE>
The background of each of the principals and senior officers of
Millburn Ridgefield and its affiliates who perform services on Millburn
Ridgefield's behalf is set forth below.
HARVEY BEKER, AGE 44. Mr. Beker is President, Co-Chief Executive
Officer and a Director of Millburn Ridgefield and The Millburn Corporation,
and a partner of ShareInVest Research L.P. He received a Bachelor of Arts
degree in economics from New York University in 1974 and a Master of Business
Administration degree in finance from NYU in 1975. From June 1975 to July
1977, Mr. Beker was employed by Loeb Rhoades, Inc. where he developed and
traded silver arbitrage strategies. From July 1977 to June 1978, Mr. Beker
was a futures trader at Clayton Brokerage Co. of St. Louis. Mr. Beker has
been employed by The Millburn Corporation since June 1978. During his tenure
at Millburn, he has been instrumental in the development of the research,
trading and operations areas. Mr. Beker became a principal of the firm in
1982.
GEORGE E. CRAPPLE, AGE 53. Mr. Crapple is Co-Chief Executive
Officer, Vice-Chairman and a Director of Millburn Ridgefield, Vice-Chairman
and a Director of The Millburn Corporation and a partner of ShareInVest
Research L.P. In 1966 he graduated with honors from the University of
Wisconsin where his field of concentration was economics and he was elected
to Phi Beta Kappa. In 1969 he graduated from Harvard Law School, MAGNA CUM
LAUDE, where he was a member of the Harvard Law Review. He was a lawyer with
Sidley & Austin, Chicago, Illinois, from 1969 until April 1, 1983, as a
partner since 1975, specializing in commodities, securities, corporate and
tax law. He was first associated with Millburn Ridgefield in 1976 and joined
Millburn Ridgefield Corporation on April 1, 1983 on a full-time basis. Mr.
Crapple is a member of the Board of Directors and a former Chairman of the
Eastern Regional Business Conduct Committee of the NFA, Vice-Chairman of the
Board of Directors and a member of the Executive Committee of the Managed
Funds Association, a member of the Financial Products Advisory Committee of
the CFTC and a former member of the Board of Directors and Nominating
Committee of the Futures Industry Association.
MARK B. FITZSIMMONS, AGE 50. Mr. Fitzsimmons is a Senior
Vice-President of Millburn Ridgefield and The Millburn Corporation and a
partner of ShareInVest Research L.P. His responsibilities include both
marketing and investment strategy. He graduated SUMMA CUM LAUDE from the
University of Bridgeport, Connecticut in 1970 with a B.S. in economics. His
graduate work was done at the University of Virginia, where he received a
certificate of candidacy for a Ph.D. in economics in 1973. He joined Millburn
Ridgefield in January 1990 from Morgan Stanley & Co. Incorporated where he
was a Principal and Manager of institutional foreign exchange sales and was
involved in strategic trading for the firm. From 1977 to 1987 he was with
Chemical Bank New York Corporation, first as a Senior Economist in Chemical's
Foreign Exchange Advisory Service and later as a Vice-President and Manager
of Chemical's Corporate Trading Group. While at Chemical he also traded both
foreign exchange and fixed income products. From 1973 to 1977 Mr. Fitzsimmons
was employed by the Federal Reserve Bank of New York, dividing his time
between the International Research Department and the Foreign Exchange
Department.
BARRY GOODMAN, AGE 40. Mr. Goodman is Executive Vice-President,
Director of Trading and Co-Director of Research of Millburn Ridgefield and
The Millburn Corporation and a partner of ShareInVest Research L.P. His
responsibilities include overseeing the firm's trading operation and managing
its trading relationships, as well as the design and implementation of
trading systems. He graduated MAGNA CUM LAUDE from Harpur College of the
State University of New York in 1979 with a B.A. in economics. From 1980
through late 1982 he was a commodity trader for E. F. Hutton & Co., Inc. At
Hutton he also designed and maintained various technical indicators and
coordinated research projects pertaining to the futures markets. He joined
Millburn Ridgefield in 1982 as Assistant Director of Trading.
DENNIS B. NEWTON, AGE 46. Mr. Newton is a Senior Vice-President
of Millburn Ridgefield. His primary responsibilities are in administration
and marketing. Prior to joining Millburn Ridgefield in September 1991, Mr.
Newton was President of Phoenix Asset Management, Inc., a registered
commodity pool operator from April 1990 to August 1991. Prior to his
employment with Phoenix, Mr. Newton was a Director of Managed Futures with
Prudential-Bache Securities Inc. from September 1987 to March 1990. Mr.
Newton joined Prudential-Bache from Heinold Asset Management, Inc. where he
was a member of the senior management team. Heinold was a pioneer and one of
the largest sponsors of funds utilizing futures and currency forward trading.
GRANT N. SMITH, AGE 46. Mr. Smith is Executive Vice-President and
Co-Director of Research of Millburn Ridgefield and The Millburn Corporation
and a partner of ShareInVest Research L.P. He is responsible for the design,
testing and implementation of quantitative trading strategies, as well as for
planning and overseeing the computerized decision-support systems of the
firm. He received a B.S. degree from the Massachusetts Institute of
Technology in
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<PAGE>
1974 and an M.S. degree from M.I.T. in 1975. While at M.I.T. he held several
teaching and research positions in the computer science field and
participated in various projects relating to database management. He joined
Millburn Ridgefield in 1975.
MALCOLM H. WIENER, AGE 62. Mr. Wiener is the founder and
non-executive Chairman of Millburn Ridgefield, The Millburn Corporation and
ShareInVest Research L.P., serves as an adviser to these entities and is a
major investor in funds managed by Millburn Ridgefield and ShareInVest
Research L.P. He does not, however, have investment or operational authority
or responsibility for any of these entities or supervisory authority over
their officers or employees. Mr. Wiener is also a Director of Millburn
Ridgefield and The Millburn Corporation. Mr. Wiener graduated MAGNA CUM LAUDE
from Harvard College in 1957, where his field of concentration was Economics
and he was elected to Phi Beta Kappa. From 1957 to 1960 he served as an
officer in the United States Navy. Mr. Wiener graduated from the Harvard Law
School in 1963 and practiced law in New York City specializing in corporate
law and financial transac tions until 1973. Mr. Wiener began research on and
the trading of futures contracts pursuant to systematic trading methods and
money management principles in 1971 and the management on a full time basis
of private funds in this area in 1973. He is the author of numerous papers on
the history of trade and is a member of the Council on Foreign Relations. He
serves on the boards or visiting committees of various non-profit
institutions including the Kennedy School of Government and the Wiener Center
for Social Policy at Harvard University, the Harvard Art Museums, the
Metropolitan Museum in New York, the Museum of Fine Arts in Boston, the
American School of Classical Studies in Athens and the Council on Economic
Priorities in New York.
Millburn Ridgefield shares with its affiliates a staff of over 50,
including the above-named individuals. The past performance of Millburn
Ridgefield is set forth on page 21 and in "Performance of the Millburn
Ridgefield Client Funds and Trading Programs" at page 86 and "Annual Rates of
Return Since Inception of the Millburn Ridgefield Client Funds" at page 97.
As of December 31, 1997, Millburn Ridgefield's interest in the
Trust was valued at $776,209.
TRADING STRATEGIES IN GENERAL
Forward and futures traders may generally be classified as either
systematic or discretionary. A systematic trader will generally rely to some
degree on judgmental decisions concerning, for example, which markets to
follow and trade, when to liquidate a position in a contract which is about
to expire and how heavy a weighting a particular market should have in a
portfolio. However, although these judgmental decisions may have a
substantial effect on a systematic trading advisor's performance, the
trader's primary reliance is on trading programs or models which generate
trading signals. The systems utilized to generate trading signals are changed
from time to time (although generally infrequently), but the trading
instructions generated by the then-current systems are followed without
significant additional analysis or interpretation. Discretionary traders on
the other hand -- while they may utilize market charts, computer programs and
compilations of quantifiable information to assist them in making trading
decisions -- make trading decisions on the basis of their own judgment and
"trading instinct," not on the basis of trading signals generated by any
program or model. Millburn Ridgefield is a systematic trader.
In addition to being distinguished from one another by the
criterion of whether they trade systematically or on the basis of their
discretionary evaluations of the markets, commodity trading advisors are also
distinguished as relying on either "technical" or "fundamental" analysis, or
on a combination of the two.
Technical analysis is not based on the anticipated supply and
demand of a particular cash (actual) commodity, currency or financial
instrument; instead, it is based on the theory that the study of the markets
themselves will provide a means of anticipating the external factors that
affect the supply and demand for a particular commodity, currency or
financial instrument in order to predict future prices. Technical analysis
operates on the theory that market prices at any given point in time reflect
all known factors affecting supply and demand for a particular commodity,
currency or financial instrument. Fundamental analysis, in contrast, is based
on the study of factors external to the trading markets that affect the
supply and demand of a particular commodity, currency or financial instrument
in an attempt to predict future prices. Such factors might include the
economy of a particular country, government policies, domestic and foreign
political and economic events, and changing trade prospects. Fundamental
analysis theorizes that by monitoring relevant supply and demand factors for
a particular commodity, currency or financial instrument, a state of current
or potential disequilibrium of market conditions may be identified that has
yet to be reflected in the price level of that instrument. Fundamental
analysis assumes that the markets are imperfect, that information is not
instantaneously
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<PAGE>
assimilated or disseminated and that econometric models can be constructed
that generate equilibrium prices that may indicate that current prices are
inconsistent with underlying economic conditions and will, accordingly,
change in the future. Millburn Ridgefield is predominantly a technical trader.
"Trend-following" advisors, such as Millburn Ridgefield, gear
their trading approaches towards positioning themselves to identify and
follow major price movements, as opposed to, for example, "market
forecasters" who attempt to predict future price levels without relying on
such trends to point the way, "scalpers" who attempt to make numerous small
profits on short-term trades, or arbitrage traders who attempt to capture
temporary price disequilibriums between inter-related markets.
Trend-following traders assume that a majority of their trades will be
unprofitable. Their objective is to make a few large profits, more than
offsetting their numerous but smaller losses, by capitalizing on major
trends. Consequently, during periods in which no major price trends develop
in a market, a "trend-following" advisor is likely to incur substantial
losses.
MILLBURN RIDGEFIELD TRADING STRATEGY
MULTIPLE TRADING SYSTEMS
The objective of Millburn Ridgefield's trading method is to
participate in all major sustained price moves in the markets traded.
Millburn Ridgefield regards its approach as long-term in nature. Millburn
Ridgefield makes trading decisions pursuant to its trading method, which
includes technical trend analysis (and certain non-trend-following technical
systems) and the money management principles described below, which may be
revised from time to time. Given trends in price of sufficient duration and
magnitude, these trading systems may be profitable even though more than half
of all individual trades are unprofitable. A period of time without such
trends, however, may result in substantial losses.
Millburn Ridgefield is engaged in a substantial ongoing research
effort to improve its trading methods and to apply its quantitative analytic
expertise to new financial products.
Trading is limited to markets which Millburn Ridgefield believes
are sufficiently liquid in respect of the amount of trading contemplated.
The first step in the trading methodology is developing
intermediate-to long-term trading systems which generate long or short (buy
or sell) decisions in a particular market based on the direction of the price
trend in the market. Millburn Ridgefield has developed hundreds of trading
systems using classes of quantitative models and classes of data such as
price, volume and interest rates. The full range of systems are tested in
each market against five, ten or fifteen years of historical data to simulate
the results the system would have achieved in the markets had the system been
used to make trading decisions during the simulation period. Profits are
calculated plus a number of statistics designed to identify high quality
profits such as trade reliability (percentage of profitable trades),
drawdowns (worst losses experienced), average giveback of maximum profits on
profitable trades and Sharpe ratio (risk adjusted returns).
The performance of all systems in the market are ranked, and three
or four systems are selected which make decisions in different ways at
different times. This multi-system approach ensures that the total risk
intended to be taken in a market is spread over several different strategies.
If four systems are used to trade crude oil, the maximum position would be
traded if all four were long or short. If two were long and two short, they
would cancel each other out and a flat position in crude oil would be
signaled. The effect of the multi-system approach is that in periods during
which the technical picture is unclear, the systems disagree and positions
will be light or flat, but when all systems agree on the trend, maximum
positions will be traded. In certain markets, Millburn Ridgefield also uses
short-term systems based on intra-day price "tick" data. Minute-by-minute
prices are used to identify "quiet" as opposed to "noisy" periods, and trades
may be implemented with or counter to the short-term trend depending on
conditions.
In certain markets, Millburn Ridgefield uses a strategy which
focuses on calculating options volatility. When volatility is low, the
probability of directional signals being profitable increases, and trades are
implemented by buying at-the-money or slightly out-of-the-money options. The
nature of options results in an increase in leverage as a position becomes
profitable and a decrease in leverage as a position becomes unprofitable.
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<PAGE>
RISK MANAGEMENT
Risk is a function of both price level and price volatility. For
example, a 100,000 barrel crude oil position is worth more and is, therefore,
more risky with oil at $30 per barrel than with oil at $10 per barrel.
Similarly, if prices are moving in a 5% daily range, oil is more risky than
if prices are moving in a 1% daily range. In attempting to assess market
volatility as a means of monitoring and evaluating risk, Millburn Ridgefield
utilizes its volatility overlay which is also a part of individual market
risk management. This system measures the risk in the portfolio's position in
a market and signals a decrease in position size when risk increases and an
increase in position size when risk decreases. Millburn Ridgefield's
volatility overlay maintains overall portfolio risk and distribution of risk
across markets within designated ranges. It is applied to all three
systematic strategies described above. A secondary benefit of the volatility
overlay can be the timely taking of profits since markets tend to become more
volatile after a profitable trend has been long underway, and the volatility
overlay often signals position reductions before trend reversals.
In addition to the volatility overlay, Millburn Ridgefield's risk
management focuses on money management principles applicable to the portfolio
as a whole rather than to individual markets. The first principle is
portfolio diversification which attempts further to improve the quality of
profits by reducing volatility. In establishing a futures portfolio, Millburn
Ridgefield will select markets and assign them relevant weightings with the
objective of achieving broad diversification. Factors considered include
profitability, liquidity, market depth, correlation of losing periods and
Millburn Ridgefield's trading experience. Millburn Ridgefield seeks a
portfolio in which returns from trading in different markets are not highly
correlated; returns are not all positive or negative at the same time.
Additional money management principles applicable to the portfolio
as a whole include: limiting the assets committed as margin, generally within
a range of 15% to 30% of an account's net assets at exchange minimum margins
(including imputed margins on forward positions), although the amount
committed to margin at any time may be substantially higher; prohibiting
pyramiding (that is, using unrealized profits in a particular market as
margin for additional positions in the same market); and changing the equity
utilized for trading by an account solely on a controlled periodic basis
rather than as an automatic consequence of an increase in equity resulting
from trading profits.
Another important risk management function is the careful control
of leverage or portfolio size. Leverage levels are determined by simulating
the entire portfolio -- all markets, all systems, all risk control overlays,
the exact weightings of the markets in the portfolio and the proposed level
of leverage -- over the past five or ten years to determine the worst case
experienced by the portfolio in the simulation period. The worst case is
measured from a daily high in portfolio assets to the subsequent daily low
whether that occurs days, weeks or months after the daily high (a
peak-to-trough drawdown). If the drawdown is considered too severe, the
leverage or portfolio size is reduced.
Decisions whether to trade a particular market are based upon
various factors, including the liquidity of the market, its significance in
terms of the desired degrees of concentration and diversification, and its
profit potential (both historically and at a given time). These decisions
will require the exercise of judgment. The decision not to trade certain
markets for certain periods, or to reduce the size of a position in a
particular market, may result at times in missing significant profit
opportunities.
The money management principles, computer assisted research into
historical trading data, and experience of the principals of Millburn
Ridgefield are factors upon which decisions concerning the percentage of
assets to be used for each market traded and the size of positions taken or
maintained are based. From time to time decisions to increase or decrease the
size of a position, long or short, may be made. Such decisions also require
the exercise of judgment and may include consideration of the volatility of
the particular market; the pattern of price movements, both inter-day and
intra-day; open interest; volume of trading; changes in spread relationships
between various forward contracts; and overall portfolio balance and risk
exposure.
With respect to the execution of trades, Millburn Ridgefield may
rely to an extent upon the judgment of others, including dealers, bank
traders and floor brokers. No assurance is given that it will be possible to
execute trades regularly at or near the desired buy or sell point.
The trading method, systems and money management principles
utilized by Millburn Ridgefield are proprietary and confidential. The
foregoing description is general and is not intended to be complete.
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<PAGE>
FIDUCIARY OBLIGATIONS OF MILLBURN RIDGEFIELD
NATURE OF FIDUCIARY OBLIGATIONS; CONFLICTS OF INTEREST
As Managing Owner of the Trust, Millburn Ridgefield is subject,
under both statutory and common law, to restrictions comparable to those
imposed on a general partner of a limited partnership. Millburn Ridgefield
has a fiduciary responsibility to the Unitholders to exercise good faith,
fairness and loyalty in all dealings affecting the Trust, consistent with the
terms of the Trust's Second Amended and Restated Declaration of Trust and
Trust Agreement ("Declaration of Trust"). The scope of Millburn Ridgefield's
fiduciary obligations are defined and established, in large part, by the
consent of each Unitholder, in subscribing to the Units, to the business
terms of the Trust, as embodied in the Declaration of Trust and described in
this Prospectus. Certain of the conflicts of interest involved in the
operation of the Trust -- for example, the Trust's trading currency forward
contracts with an affiliate of Millburn Ridgefield -- may be impermissible
under the fiduciary principles applied in certain other investment contexts
- -- for example, the rules governing "investment advisers" trading securities
with their clients on a principal-to-principal basis. In the case of the
Trust, such activities are authorized by disclosure and the informed consent
of subscribers.
Millburn Ridgefield has selected itself as the sole advisor for
the Trust, and is required to clear (although not to execute) the Trust's
futures trades through the Clearing Brokers, and the brokerage commissions
paid by the Trust are assessed on a flat-rate, not a per-trade, basis.
Nevertheless, prospective investors must recognize that by subscribing to the
Trust they have consented to its basic structure, in which affiliates of
Millburn Ridgefield, and Millburn Ridgefield itself, receive substantial
revenues from the Trust and do not negotiate on behalf of the Trust to
achieve lower rates, either from Millburn Ridgefield entities or third
parties.
There are substantial and inherent conflicts of interest in the
structure of the Trust. One of the purposes underlying the disclosures set
forth in this Prospectus is to disclose to all prospective Unitholders these
conflicts of interest so that Millburn Ridgefield may have the opportunity to
obtain their informed consent to such conflicts. Prospective investors who
are not willing to consent to the various conflicts of interest described
under "Conflicts of Interest" are ineligible to invest in the Trust. See
"Conflicts of Interest" at page 51.
The Trust, as a publicly-offered "commodity pool," is subject to
the Statement of Policy of the North American Securities Administrators
Association, Inc. relating to the registration, for public offering, of
commodity pool interests (the "Blue Sky Guidelines"). The Blue Sky Guidelines
explicitly prohibit a general partner of a commodity pool from "contracting
away the fiduciary obligation owed to [the investors] under the common law."
Consequently, once the terms of a given commodity pool, such as the Trust,
are established, it is virtually impossible for the Managing Owner to change
such terms in a manner which disproportionately benefits the Managing Owner,
as any such change could constitute self-dealing under common law fiduciary
standards.
The Declaration of Trust provides that Millburn Ridgefield and its
affiliates shall have no liability to the Trust or to any Unitholder for any
loss suffered by the Trust which arises out of any action or inaction of
Millburn Ridgefield or its affiliates if Millburn Ridgefield or its
affiliates, in good faith, determined that such course of conduct was in the
best interests of the Trust, and such course of conduct did not constitute
negligence or misconduct by Millburn Ridgefield or its affiliates. The Trust
has agreed to indemnify Millburn Ridgefield and certain of its affiliates
against claims, losses or liabilities based on their conduct relating to the
Trust, provided that the conduct resulting in the claims, losses or
liabilities for which indemnity is sought did not constitute negligence or
misconduct and was done in good faith and in a manner reasonably believed to
be in the best interests of the Trust. The Blue Sky Guidelines prescribe the
maximum permissible extent to which the Trust can indemnify Millburn
Ridgefield and its affiliates and prohibit the Trust purchasing insurance to
cover indemnification which the Trust could not give directly.
REMEDIES AVAILABLE TO THE UNITHOLDERS
Under Delaware law, a beneficial owner of a business trust may,
under certain circumstances, institute legal action on behalf of himself or
herself and all other similarly situated beneficial owners (a "class action")
to recover damages from a managing owner of such business trust for
violations of fiduciary duties, or on behalf of a beneficial trust (a
"derivative action") to recover damages from a third party where a managing
owner has failed or refused to institute proceedings to recover such damages.
In addition, beneficial owners may have the right, subject to applicable
procedural, jurisdictional and substantive requirements, to bring class
actions in federal court to enforce their rights under the federal securities
laws and the rules and regulations promulgated thereunder by the SEC. For
example, beneficial owners who have suffered losses in connection with the
purchase or sale of their beneficial interests in a trust
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<PAGE>
may be able to recover such losses from a managing owner where the losses
result from a violation by the managing owner of the anti-fraud provisions of
the federal securities laws.
In certain circumstances, Unitholders also have the right to
institute a reparations proceeding before the CFTC against Millburn
Ridgefield (a registered commodity pool operator and commodity trading
advisor) and the Clearing Brokers (registered futures commission merchants),
as well as those of their respective employees who are required to be
registered under the Commodity Exchange Act, as amended, and the rules and
regulations promulgated thereunder. There is a private right of action under
the Commodity Exchange Act. Investors in commodities and in commodity pools
may, therefore, invoke the protections provided by such legislation.
In the case of most public companies, the management is required
to make numerous decisions in the course of the day-to-day operations of the
company and is protected in doing so by the so-called "business judgment
rule." This rule protects management from liability for decisions made in the
course of operating a business if the decisions are made on an informed basis
and with the honest belief that the decision is in the best interests of the
corporation. Millburn Ridgefield believes that similar principles apply to
Millburn Ridgefield in its management of the Trust.
THE FOREGOING SUMMARY DESCRIBING IN GENERAL TERMS THE REMEDIES
AVAILABLE TO UNITHOLDERS UNDER FEDERAL AND STATE LAW IS BASED ON STATUTES,
RULES AND DECISIONS AS OF THE DATE OF THIS PROSPECTUS. THIS IS A RAPIDLY
DEVELOPING AND CHANGING AREA OF THE LAW. THEREFORE, UNITHOLDERS SHOULD
CONSULT THEIR OWN COUNSEL AS TO THEIR EVALUATION OF THE STATUS OF THE
APPLICABLE LAW SHOULD ANY ISSUES ARISE.
USE OF PROCEEDS
PROCEEDS OF SUBSCRIPTIONS
The proceeds of the continuous offering of the Units are utilized
by the Trust to engage in speculative trading of futures, forward and option
contracts as described under "Millburn Ridgefield Corporation -- Millburn
Ridgefield Trading Strategy," at page 32. The Trust trades, pursuant to the
Managing Owner's World Resource Portfolio, in approximately 50 markets in the
six following sectors: currencies, interest rates, stock indices, energy,
metals and agriculture. As Millburn Ridgefield itself pays all selling
commissions in respect of the Units, 100% of the net proceeds of
subscriptions are available for trading. The Trust is not a "no-load"
investment, and redemption charges are applicable for twelve months after
Units are sold. However, the Trust's fees have been structured so as to
allocate 100% of the proceeds of subscriptions to the Trust's trading account.
MAINTENANCE OF ASSETS
Except as described in the following paragraph, the Trust deposits
its assets in cash either: (i) as margin with Prudential Securities or
PaineWebber, the Trust's Clearing Brokers; or (ii) in trust accounts
established in the name of the Trust at major money-center United States
banks. The assets deposited as margin with the Clearing Brokers are held in
"customer segregated funds accounts" or "foreign futures and foreign options
secured amount accounts" (in the case of futures and options traded on
non-U.S. exchanges), as prescribed by the Commodity Exchange Act and
applicable CFTC regulations. In general, approximately 7% to 13% of the
Trust's assets are held in customer segregated funds and approximately 5% to
11% in foreign futures and options secured amount accounts. Assets held in
"customer segregated funds accounts" are held in cash or invested in United
States Treasury bills or notes. Assets held in foreign futures and options
secured amount accounts are held in cash or invested in U.S. Treasury bills
or notes or short-term sovereign debt instruments of the relevant
jurisdictions. In general, approximately 70% to 85% of the Trust's assets are
held in bank accounts opened in the Trust's name, although the actual level
may vary from time to time. Assets held in bank accounts are either held as
interest-bearing bank deposits or invested in U.S. Treasury bills or notes.
To the extent that the Trust participates in markets other than
regulated United States or foreign futures exchanges -- for example, the
forward currency markets -- the Trust maintains such funds only in
instruments (generally, U.S. government securities) authorized by the CFTC
for the investment of "customer segregated funds." Assets which cannot be
held in CFTC-authorized instruments are held in cash, on which interest is
credited at short-term rates. (The Clearing Brokers obtain a benefit as a
result of the deposit of such cash to reduce their outstanding overnight
borrowings, despite such cash belonging to the Trust, not the Clearing
Brokers.) Approximately 3% to 6%
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<PAGE>
of the Trust's assets are held in unregulated accounts in the United States,
with the Clearing Brokers as well as with other counterparties.
<TABLE>
<CAPTION>
USE OF PROCEEDS
(January 1, 1997-December 31, 1997)
MINIMUM* MAXIMUM*
<S> <C> <C>
CFTC-Segregated Funds 7% 13%
Foreign Secured Amount Accounts 5% 11%
Unregulated Accounts 3% 6%
Bank Accounts 70% 85%
</TABLE>
- ----------------------
* Actual percentage allocations of the Trust's assets to the foregoing types of
accounts varies with the markets traded.
During 1997, the Trust earned $3,467,544 in interest income and
related payments, 5.10% of its average month-end Net Assets. On an ongoing
basis, Millburn Ridgefield anticipates that the Trust will be able to earn
interest on approximately 95% of its daily Net Assets. The Trust's Clearing
Brokers receive the additional economic benefit derived from possession of
the Trust's assets.
Under current margin requirements, the Trust's average margin to
equity ratio (including imputed margin on forward currency contracts) is
approximately 15% to 30% of the Trust's assets. However, margin requirements
vary from time to time.
The Declaration of Trust strictly prohibits the Trust from lending
any of its assets to any person or entity (other than through permitted
securities investments). The Managing Owner will not commingle the property
of the Trust with the property of any other person or entity (deposit of
Trust assets with the Clearing Brokers or trading counterparties does not
constitute commingling for these purposes).
STRATEGIES IMPLEMENTED
The strategies implemented by Millburn Ridgefield (providing
assets to support such strategies constituting the most important use of the
proceeds of subscriptions) are described in general terms (these strategies
are proprietary and confidential and, accordingly, cannot be described in
detail) under "Millburn Ridgefield Corporation -- Millburn Ridgefield Trading
Strategy" at page 32. Millburn Ridgefield has the flexibility to alter, in
its discretion, its trading method (including technical trading systems, risk
control overlays and money management principles), as well as to change the
futures and forward markets traded for the Trust. Millburn Ridgefield may
modify the method used for the Trust so as to include new methods of analysis
and may utilize non-trend-following systems or market-forecasting strategies.
Unitholders will not be notified of changes in the markets traded or
modifications, additions or deletions to Millburn Ridgefield's methods unless
such changes are considered by Millburn Ridgefield to be material.
CHARGES
Millburn Ridgefield believes that the substantial costs to which
the Trust is subject are a material consideration in determining whether to
purchase Units.
Trading results and interest income cannot be predicted, and the
Profit Shares paid by the Trust may have no relationship to the annual change
in the Net Asset Value per Unit because the Profit Shares are calculated
quarterly rather than annually. Furthermore, Profit Shares are calculated on
the basis of the aggregate gain or loss recognized by the Trust, irrespective
of the investment experience of any particular Unit or Unitholder.
Prospective investors should also recognize that the "bid-ask" spreads, which
the Trust pays on its forward contracts, may represent a significant portion
of its transaction costs, although such charges cannot be readily quantified.
The following reflects the routine charges payable by the Trust.
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<PAGE>
CHARGES PAID BY THE TRUST
THE FOLLOWING SUBSTANTIAL CHARGES ARE PAID BY THE TRUST.
<TABLE>
<CAPTION>
RECIPIENT NATURE OF PAYMENT AMOUNT OF PAYMENT
<S> <C> <C>
Managing Brokerage Fee A flat-rate monthly fee of 0.75 of 1% of the Trust's month-end
Owner Net Assets after reduction for expenses but prior to reduction
for any accrued but unpaid Brokerage Fees or Profit Shares (a
9.0% annual rate).
Persons who invest $1,000,000 or more in the Trust pay annual
Brokerage Fees at the reduced rate of 7.0% per annum. Such
reduction has no effect on other investors.
Counterparties "Bid-ask" spreads Unquantifiable, but could represent a substantial expense.
Managing Quarterly Profit Share 17.5% of any New Trading Profit, excluding interest income and
Owner after reduction for Brokerage Fees and administrative costs,
calculated as of the end of each calendar quarter and upon
redemption of Units. NEW TRADING PROFIT IS CALCULATED ON THE
BASIS OF THE OVERALL PERFORMANCE OF THE TRUST, NOT ON THE BASIS
OF ANY INDIVIDUAL INVESTOR'S GAINS OR LOSSES.
Others Trustee fees, legal, As incurred; estimated at no more than 0.75 of 1% of average
accounting, printing, month-end Net Assets annually.
postage and administrative
cost
Others Reimbursement of delivery, Actual payments to third parties; expected to be negligible;
insurance, storage and any none paid to date.
other extraordinary charges
</TABLE>
CHARGES PAID BY THE MANAGING OWNER
THE FOLLOWING COSTS ARE PAID BY THE MANAGING OWNER, WITHOUT DIRECT
REIMBURSEMENT FROM EITHER THE PROCEEDS OF SUBSCRIPTIONS OR FROM THE TRUST
ITSELF. THE MANAGING OWNER DOES, HOWEVER, RECEIVE SUBSTANTIAL COMPENSATION FROM
THE TRUST, AS DESCRIBED ABOVE.
<TABLE>
<CAPTION>
RECIPIENT NATURE OF PAYMENT AMOUNT OF PAYMENT
<S> <C> <C>
Selling Agents Selling commissions 5% of the subscription price of each Unit sold by each of them,
respectively (3% in the case of subscriptions of $1,000,000 or
more).
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<PAGE>
RECIPIENT NATURE OF PAYMENT AMOUNT OF PAYMENT
<S> <C> <C>
Selling Agents Ongoing compensation Ongoing compensation in the amount of 4% of the average month-end
Net Asset Value (2% in the case of subscriptions of $1,000,000 or
more) of each outstanding Unit sold by them, respectively,
commencing with the thirteenth full month after such Unit is sold
and continuing for as long as such Unit is outstanding.
Selling Agents Installment selling Payable at the same rate as ongoing compensation but limited to
commissions 4.5% of the subscription price of each Unit.
Clearing Brokers and Actual execution and clearing An average rate of approximately $10.00 per round-turn trade.
NFA costs; transaction fees Estimated at approximately 2% of the Trust's average month-end
Net Assets per year.
</TABLE>
BROKERAGE FEES
FLAT-RATE BROKERAGE FEES
The Trust pays the Managing Owner a flat-rate annual Brokerage Fee
equal to 9.0% of the Trust's average month-end Net Assets after reduction for
expenses but prior to reduction for any accrued but unpaid Brokerage Fees or
Profit Shares.
The Managing Owner, not the Trust, pays all routine costs of
executing and clearing the Trust's futures trades, including commodity
brokerage commissions payable to the Clearing Brokers. These costs include
NFA transaction fees assessed on the Trust's futures trading on United States
exchanges. Such fees are currently assessed at the rate of $0.20 per
round-turn trade (the purchase and sale or sale and purchase) of a futures
contract and $0.10 for each trade of a commodity option. The Trust's
Brokerage Fee is unaffected by the number of transactions actually executed
by Millburn Ridgefield on behalf of the Trust. See "Conflicts of Interest" at
page 51. The Trust will pay any extraordinary costs associated with its
trading (E.G., insurance or delivery expenses).
The Managing Owner has negotiated brokerage rates with the
Clearing Brokers (including the Principal Selling Agent) ranging from
approximately $7.75 to approximately $15.00 per round-turn trade, including
all related exchange and regulatory fees (although commissions on certain
foreign exchanges are somewhat higher). At these rates (which result in an
average round-turn rate of approximately $10.00), Millburn Ridgefield
estimates the Trust's aggregate execution and clearing costs at approximately
2% of average month-end Net Assets per year. During 1997, execution and
clearing costs equaled approximately 1.60% of average month-end Net Assets. The
Clearing Brokers also retain the economic benefit derived from possession of
the approximately 5% of the Fund's Net Assets which are maintained in cash
rather than invested in Treasury Bills. The Managing Owner pays these costs
from the Brokerage Fees which it receives. The balance of the Brokerage Fees,
after payment of ongoing compensation to the Selling Agents, is retained by
the Managing Owner. The amount of the Brokerage Fee retained per Unit by the
Managing Owner is estimated to equal approximately 2% of the average
month-end Net Asset Value per Unit during the first year that a Unit is
outstanding, I.E., the 9.0% Brokerage Fee received less (i) the 5% selling
commission paid and (ii) the estimated 2% per annum paid out in execution
costs. In the second year that a Unit is outstanding, the amount retained by
Millburn Ridgefield is estimated to increase to approximately 3% of the
Unit's average month-end Net Asset Value, as the ongoing compensation paid by
Millburn Ridgefield will equal 4% of a Unit's average month-end Net Asset
Value rather than the 5% initial selling commission paid on each Unit.
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<PAGE>
The savings recognized by Millburn Ridgefield's reduction of
selling commissions and ongoing compensation in the case of persons
subscribing for $1,000,000 or more are passed on to these investors in the
form of lower Brokerage Fees.
It is typical of managed futures advisors to receive management
fees of 1% to 4% of an account's average month-end Net Assets annually. The
Managing Owner does not receive any management fee in addition to the Broker-
age Fee.
The Managing Owner allocates the Trust's commodity futures,
options and forward trades between Prudential Securities and PaineWebber
approximately in such proportion that PaineWebber clears the percentage of
the Trust's transactions corresponding to the percentage of the outstanding
Units sold by PaineWebber and its correspondents, and Prudential Securities
clears the remaining transactions.
During 1997, the Trust paid Brokerage Fees of $6,057,327, or
approximately 8.91% of its average month-end Net Asset Value. These Brokerage
Fees represented the approximate equivalent of a $44 per round-turn trade
(purchase and sale or sale and purchase) rate not including, for purposes of
calculating such per-trade rate, the Trust's forward currency transactions on
a futures-equivalent basis; the Trust pays "bid-ask" spreads on such
transactions, not brokerage commissions.
"BID-ASK" SPREADS
Many of the Trust's currency trades are executed in the forward
markets, in which no brokerage commissions are charged. Instead, participants
trade with a spread between the prices at which they are prepared to buy and
sell a particular currency. The "bid-ask" spreads charged by the forward
counterparties with which the Trust trades cannot be quantified, but could be
substantial. The Trust, not Millburn Ridgefield, pays such spreads, as they
are incorporated into the prices at which currencies are bought and sold for
the Trust.
The Principal Selling Agent and other currency dealers will
receive competitive "bid-ask" spreads on the Trust's forward trades for which
they act as counterparties. The Managing Owner does not receive any portion
of such "bid-ask" spreads.
BROKERAGE FEE DIFFERENTIALS
In order to maintain a uniform Net Asset Value per Unit although
certain Units (those held by investors with subscriptions of $1,000,000 or
more) may pay different Brokerage Fees (and, accordingly, different Profit
Shares), the Trust determines the Net Asset Value of each investor's capital
account as of the end of each month based on such investor's allocable share
of the Trust's overall Net Asset Value, and then divides that Net Asset Value
by the Net Asset Value per Unit of the Units which pay the 9.0% Brokerage
Fee. This result, calculated to three decimal places, is the number of Units
held by each Unitholder during the following month. Due to this accounting
approach, Unitholders whose Units are subject to a 7.0% Brokerage Fee are
issued additional Units as of the end of each month so that the Net Asset
Value of their investment in the Trust reflects (i) a 7.0% rather than a 9.0%
Brokerage Fee and (ii) a somewhat higher Profit Share as a result of the
lower Brokerage Fee. Units issued as adjustments reflecting the differential
Brokerage Fees and Profit Shares are treated for purposes of redemptions and
redemption charges as if they were issued, for a cost basis of $0, as of the
first date on which the recipient Unitholder acquired Units.
The level of the Brokerage Fees paid by different investors is
established by taking into account the net capital invested by Unitholders,
irrespective of profits or losses. Accordingly, an investor who initially
invested $500,000 in the Units and subsequently invested another $500,000
would qualify for the reduced Brokerage Fees, even if the Net Asset Value of
his or her initial Units had declined to $400,000 at the time of the second
investment. Conversely, if such investor's initial Units had increased in Net
Asset Value to $600,000, an additional $500,000, not $400,000, investment
would be required in order to qualify for reduced Brokerage Fees.
If an investor redeems Units, he or she ceases to be qualified for
reduced Brokerage Fees if the aggregate Net Asset Value of all Units held by
such investor equals less than $1,000,000 immediately following such
redemption. If such investor makes a subsequent investment after having lost
his or her eligibility for reduced Brokerage Fees, such eligibility is
restored if the amount of such additional investment, plus the amount of such
investor's remaining net
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<PAGE>
capital contributions (subscriptions less redemptions, but assuming
redemptions to be made first from accumulated net profits, not capital
contributions), equals or exceeds $1,000,000.
Investors which qualify for reduced Brokerage Fees also qualify
for reduced redemption charges of 3% and 2% through the end of the twelfth
month after each issuance of Units to them, as opposed to the "standard" 4%
and 3%. See "Redemptions; Net Asset Value" at page 43.
As of the date of this Prospectus, three subscribers had invested
sufficient funds to qualify for discounted Brokerage Fees and reduced
redemption charges.
PROFIT SHARES
17.5% PROFIT SHARE BASED ON "HIGH WATER MARK" NEW TRADING PROFIT
Millburn Ridgefield receives a Profit Share equal to 17.5% of any
cumulative New Trading Profit recognized by the Trust as of the end of each
calendar quarter (whether or not a full calendar quarter). New Trading Profit
includes (i) realized trading profit (loss) plus or minus (ii) the change in
unrealized trading profit (loss) on open positions and is calculated after
payment of the monthly Brokerage Fee and ongoing administrative expenses. New
Trading Profit does not include interest earned on the Trust's assets. New
Trading Profit is generated only to the extent previous quarter-end highs in
New Trading Profit are exceeded; however, Profit Shares previously paid do
not reduce New Trading Profit (I.E., Millburn Ridgefield does not have to
"earn back" its Profit Shares in order to produce New Trading Profit from
which Profit Shares may be allocated).
For example, assume that at the end of the first full calendar
quarter of trading the Trust had, after monthly Brokerage Fees and
administrative costs, a realized profit of $50,000 on its closed positions
and an unrealized profit of $150,000 on open positions. New Trading Profit
would equal $200,000. The entire amount would represent an increase in
cumulative New Trading Profit and 17.5%, or $35,000, would be allocated as a
Profit Share. Assume that during the second calendar quarter, again after
monthly Brokerage Fees and administrative costs, the Trust had realized
profits of $60,000 and a decrease in the unrealized profits on its open
positions of $50,000, cumulative New Trading Profit would have increased to
$210,000, and 17.5% of $10,000, or $1,750, would be allocated as a Profit
Share. If the Trust were subsequently to sustain losses, Millburn Ridgefield
would not be required to refund any of the Profit Shares previously
allocated, but it would not be until Millburn Ridgefield's cumulative New
Trading Profit, after deducting all losses and adjusting for redemptions or
distributions as described below, exceeded $210,000 as of a calendar
quarter-end that there would be any New Trading Profit resulting in
additional Profit Share payments. Assume that during the third quarter, again
after monthly Brokerage Fees and administrative costs, the Trust incurred
realized losses of $150,000 and a decrease in the unrealized profit on its
open positions of $100,000. Cumulative New Trading Profit would have
decreased as of the end of such quarter to $(40,000), and no Profit Share
would be paid. Millburn Ridgefield would retain the $36,750 paid as Profit
Shares at the end of the first and second quarters even though the Trust had
a year-to-date trading loss of $(40,000). Millburn Ridgefield would not,
however, receive additional Profit Shares until cumulative New Trading Profit
exceeded $210,000 as of a quarter-end.
Redemption of Units will result in a proportional decrease in any
cumulative trading loss accrued -- since the last calendar quarter-end as of
which a Profit Share was paid -- as of the date of redemption. Redemption of
Units at a time when there is accrued New Trading Profit will result in a
proportional Profit Share allocation to Millburn Ridgefield.
Because the Profit Shares are calculated on a quarterly basis, it
is possible that the Trust will allocate substantial Profit Shares to
Millburn Ridgefield during a year when the Trust incurs substantial losses.
Persons who invest $1,000,000 or more in the Trust will pay
Brokerage Fees of 7.0% rather than 9.0% per annum. The Profit Shares payable
on such investors' Units will reflect the lower Brokerage Fees deducted from
(and, accordingly, higher New Trading Profit, if any, achieved by) their
investments.
During 1997, the Trust paid aggregate Profit Shares of $695,667
(approximately 1.02% of average month-end Net Assets), while the Net Asset
Value per Unit rose by 2.81%.
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PROFIT SHARES ALLOCATED EQUALLY AMONG UNITS SOLD AT DIFFERENT TIMES
Investors purchase Units at different times and, accordingly,
recognize different amounts of profit and loss on their investments. However,
any Profit Shares allocated to the Managing Owner are calculated on the basis
of the cumulative trading profits recognized by the Trust as a whole and
reduce the Net Asset Value of all Units equally, irrespective of the
investment performance of an individual investor's Units. Consequently,
certain Units have their Net Asset Value reduced by an allocable Profit Share
despite having actually declined in value, perhaps significantly, since their
date of purchase. Other Units incur losses generating a loss carryforward,
for purposes of calculating subsequent Profit Shares, only to have such loss
carryforward diluted by the admission of new Unitholders. Similarly, Units
purchased during a calendar quarter at a Net Asset Value reduced by accrued
Profit Shares benefit from any subsequent reversal of such accruals, even
though such reversals should be allocated entirely to the Units already
outstanding at the time of such intra-quarter purchases (as the full amount
of the accrued Profit Shares subsequently being reversed had already
benefited the holders of the newly purchased Units by reducing the purchase
price of such Units).
GENERAL
ORGANIZATIONAL AND INITIAL OFFERING COSTS
Organizational and initial offering costs (not including selling
commissions) of approximately $600,000 were incurred. The Managing Owner
advanced all these costs and has been fully reimbursed, without interest, by
the Trust.
ADMINISTRATIVE EXPENSES
The Trust pays all routine legal, accounting, administrative,
printing and similar costs associated with its operations, including the
Trustee's fees and the costs of the ongoing offering of the Units. The
payment of such costs does not include the reimbursement to the Managing
Owner of any of its indirect expenses (such as overhead or employee salaries)
and is not paid to the Managing Owner but rather to third parties. Such costs
are not expected to exceed 0.75 of 1% of the Trust's average month-end Net
Assets in any given year.
In 1997 the Trust incurred administrative expenses of $345,473 or
approximately 0.51 of 1% of its average month-end Net Assets.
EXTRAORDINARY EXPENSES
The Trust is responsible for the taxes, if any, imposed on it as
an entity (as opposed to those imposed on the Unitholders in respect of their
investment in the Trust). No taxes have been imposed on the Trust to date.
The Managing Owner is not currently aware of any such taxes and will use its
best efforts to avoid the Trust becoming subject to any such taxes in the
future. The Trust is required to pay any extraordinary charges incidental to
its trading. The Trust has incurred no extraordinary charges to date, and in
the Managing Owner's experience sponsoring and managing futures funds, such
charges have always been negligible and, in most cases, non-existent.
DISTRIBUTION COSTS
SELLING COMMISSIONS AND ONGOING COMPENSATION
The Managing Owner pays, from its own funds, selling commissions
of 5% on all Units (other than Units acquired by persons subscribing for
$1,000,000 or more, on which the Managing Owner pays selling commissions of
3%); in the case of persons subscribing at more than one time, it is only in
respect of the subscription which causes their net investment in the Trust to
equal or exceed $1,000,000, as well as any subsequent subscriptions, that
selling commissions are reduced.
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In the case of Selling Agents (such as the Principal Selling
Agent) which are registered with the CFTC as "futures commission merchants"
or "introducing brokers," the Managing Owner pays annual ongoing compensation
to each such Selling Agent in an amount equal to 4.0% of the average
month-end Net Asset Value (0.33 of 1% of month-end Net Assets each month) of
the Units sold by such Selling Agents through Registered Representatives
which (i) are registered with the CFTC, (ii) have passed either the Series 3
or Series 31 Examination, and (iii) have agreed to provide ongoing services
to clients in respect of their investments in the Units, including: (a)
inquiring of the Managing Owner, from time to time, at the request of their
clients, as to the Net Asset Value per Unit; (b) inquiring of the Managing
Owner, from time to time, at the request of their clients, regarding the
commodities markets and the Trust; (c) assisting, at the request of the
Managing Owner, in the redemption of Units; and (d) providing such other
services to owners of the Units as the Managing Owner may, from time to time,
reasonably request. Ongoing compensation begins to be paid on Units once they
have been outstanding for over twelve full months and continues to be paid
for as long as they remain outstanding.
In the event that either a Selling Agent or a Registered
Representative is not duly registered with the CFTC, or does not provide
ongoing services of the type specified above, ongoing compensation cannot,
pursuant to applicable rules of the National Association of Securities
Dealers, Inc. (the "NASD"), be paid to such Selling Agent or passed on to
such Registered Representative. Installment selling commissions are paid, in
the same manner as the selling commissions and ongoing compensation described
above, on Units sold by such persons; however, the total initial and
installment selling commissions which may be paid in respect of any such Unit
shall not exceed 9.5% of the initial purchase price of such Unit (however
long such Unit remains outstanding).
In the case of subscribers who invest $1,000,000 or more in the
Trust, the Brokerage Fee to which their Units are subject is reduced from
9.0% to 7.0% of the average month-end Net Assets of their Units per year. As
a result, the initial selling commissions and ongoing compensation or
installment selling commissions payable in respect of such Units is reduced,
respectively, from 5.0% to 3.0% of the subscription amount and from 4.0% to
2.0% of the average month-end Net Asset Value of such Units each year
beginning after such Units have been outstanding for at least twelve months
(subject to the 9.5% ceiling on the total of initial and subsequent
installment selling commissions, in the case of Registered Representatives
not qualified to receive ongoing compensation). In the case of persons
subscribing at more than one time, ongoing compensation is reduced in respect
of all their outstanding Units, not just Units acquired at or subsequent to
the time that their net investment in the Trust equaled or exceeded
$1,000,000.
Selling Agents pass on all or a portion of the selling commissions
and ongoing compensation which they receive to the qualified Registered
Representatives who service the Units in respect of which such commissions
and/or compensation is paid.
Each Selling Agent or Registered Representative who is not
eligible to receive ongoing compensation at the time that a Unit is sold can
subsequently become so if the required CFTC registrations are obtained and
such Registered Representative agrees to provide the enumerated services to
the client holding such Unit.
In 1997, Millburn Ridgefield paid (or accrued) to the Selling
Agents a total of $1,284,725 in selling commissions and $1,519,942 in ongoing
compensation (ongoing compensation only began to accrue once the Units
initially sold in September 1995 had been outstanding for twelve full months).
REDEMPTION CHARGES
Units redeemed on or prior to the end of the first and second
successive six-month periods after their sale will pay redemption charges of
4% and 3%, respectively, of the Net Asset Value at which they are redeemed
(3% and 2%, respectively, in the case of subscriptions for $1,000,000 or
more). These redemption charges are paid to the Managing Owner.
In the event that an investor acquires Units at more than one
closing date, such Units will be treated on a "first-in, first-out" basis for
redemption purposes (including determining the amount of any applicable
redemption charge).
Redemption charges do not reduce Net Asset Value or New Trading
Profit for any purpose; such charges only reduce the amount which Unitholders
receive upon redemption.
In 1997, Millburn Ridgefield received (paid or accrued) a total of
$38,955 in redemption charges.
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REDEMPTIONS; NET ASSET VALUE
REDEMPTION PROCEDURE
The Trust is intended as a medium- to long-term investment (2-3
years). However, a Unitholder may redeem Units as of the close of business
(as determined by the Managing Owner) on the last day of any calendar month,
upon 10 business days' prior written notice to the Managing Owner.
Persons who redeem Units on or prior to the end of the first and
second successive six-month periods after such Units are sold are assessed
redemption charges of 4% and 3%, respectively, of their Units' Net Asset
Value as of the date of redemption (3% and 2%, respectively, in the case of
subscriptions of $1,000,000 or more). These redemption charges are paid to
the Managing Owner. Units purchased on different closing dates are treated on
a "first-in, first-out" basis for purposes of calculating the foregoing
periods. (Additional Units issued as of month-end to subscribers who invest
$1,000,000 or more in the Trust in order to reflect such subscribers being
assessed a 7.0% rather than 9.0% annual Brokerage Fee shall, for such
purposes, be deemed all to have been issued as of the date on which each such
Unitholder first acquired Units, irrespective of whether such Unitholder
makes one or more invest ments. Furthermore, in the event that Units are sold
at an intra-month closing date, the end of such month will constitute the
first of the twelve month-ends as of which such redemption charges are due.)
The Managing Owner may declare additional redemption dates upon
notice to the Unitholders and may, in unusual circumstances, permit certain
(or all) Unitholders to redeem as of dates other than month-end.
UNITHOLDERS MAY REDEEM ANY WHOLE NUMBER OF UNITS; THEY NEED NOT
REDEEM ALL OR ANY MINIMUM NUMBER OF THEIR UNITS IN ORDER TO REDEEM ANY OF
THEIR UNITS.
Fractional Units may only be redeemed upon redemption of a
Unitholder's entire remaining interest in the Trust.
A form of Request for Redemption is attached to the Declaration of
Trust as an Annex.
All requests for redemption will be honored and payment will be
made, except in the event of highly unusual market disruptions, within 15
business days of the effective date of redemption. The Managing Owner will
make arrangements with Selling Agents who so request to pay redemptions
through crediting Unitholders' customer securities accounts with such Selling
Agents.
The Trust's assets will be liquidated to the extent necessary to
effect redemptions. However, because the Trust's assets will primarily
consist of short-term, riskless investments, it should rarely be necessary to
do so. On the other hand, following substantial redemptions, the Managing
Owner may reduce the size of the Trust's overall market commitments.
Any Units purchased by the Managing Owner representing an
investment in excess of its minimum required investment (the lesser of 1% of
the total capital contributions to the Trust or $500,000, but in no event
less than 0.2 of 1% of the total capital contributions to the Trust) may be
redeemed on the same terms as any other Units.
NET ASSET VALUE
Net Assets are determined in accordance with generally accepted
accounting principles and include unrealized profits as well as unrealized
losses on open commodity positions. Net Assets include the sum of all cash,
United States Treasury bills (valued at cost plus accrued interest, which
approximates market value), the liquidating value (or cost of liquidation, as
the case may be) of all futures, forward and options positions and the fair
market value of all other assets of the Trust, less all liabilities of the
Trust (including accrued liabilities irrespective of whether such
liabilities, such as Profit Shares, may, in fact, never be paid). If a
contract cannot be liquidated on a day with respect to which Net Assets are
being determined, the settlement price on the first subsequent day on which
the contract can be liquidated shall be the basis for determining the
liquidating value of such contract for such day, or such other value as the
Managing Owner may deem fair and reasonable.
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THE CLEARING BROKERS
PaineWebber Incorporated and Prudential Securities Incorporated
are the Trust's Clearing Brokers. Although Millburn Ridgefield uses a variety
of different executing brokers, all of the Trust's futures, forward and
commodity options trades are cleared at PaineWebber or Prudential Securities.
PaineWebber clears that portion of the Trust's trades corresponding to the
proportionate part of all outstanding Units which are sold through
PaineWebber and its correspondents; all other such trades are cleared at
Prudential Securities. See "Conflicts of Interest" at page 51.
Millburn Ridgefield receives the Brokerage Fees from the Trust and
is responsible for paying all execution and clearing costs associated with
the Trust's trading. Brokerage commissions received by PaineWebber and
Prudential Securities for their clearing services are in addition to the
initial selling commissions, installment selling commissions and ongoing
compensation paid to them by Millburn Ridgefield.
The Customer Agreements among each Clearing Broker, Millburn
Ridgefield and the Trust provide that the respective Clearing Brokers shall
not be liable to the Trust except for gross negligence, willful misconduct or
bad faith and, in the case of trades executed as well as cleared by the
Clearing Brokers, for errors in such execution.
ALTHOUGH AGREEING TO ACT AS THE CLEARING BROKERS FOR THE TRUST,
PAINEWEBBER AND PRUDENTIAL SECURITIES DO NOT TAKE ANY PART IN ITS ONGOING
MANAGEMENT AND WERE NOT INVOLVED IN ITS ORGANIZATION OR PROMOTION.
The following are summary descriptions of the Principal Selling
Agent and Prudential Securities and of certain civil, administrative or
criminal proceedings relating to them.
PAINEWEBBER INCORPORATED
PaineWebber's principal office is located at 1000 Harbor
Boulevard, Weehawken, New Jersey 07087, telephone: (201) 902-3000.
PaineWebber is a clearing member of all principal U.S. futures exchanges. It
is registered with the CFTC as a futures commission merchant and is a member
of the NFA in such capacity.
Except as set forth below, neither PaineWebber nor any of its
principals have been involved in any administrative, civil or criminal
proceeding - whether pending, on appeal or concluded - within the past years
that is material to a decision whether to invest in the Trust in light of all
the circumstances.
PaineWebber is involved in a number of proceedings concerning
matters arising in connection with the conduct of its business. Certain
actions, in which compensatory damages of $168 million or more appear to be
sought, are described below. PaineWebber is also involved in numerous
proceedings in which compensatory damages of less than $168 million appear to
be sought, or in which punitive or exemplary damages, together with the
apparent compensatory damages alleged, appear to exceed $168 million.
PaineWebber has denied, or believes it has legitimate defenses and will deny,
liability in all significant cases pending against it, including those
described below, and intends to defend actively each such case.
On or about June 10, 1991, PaineWebber was served with a "First
Amended Complaint" in an action captioned ROLO V. CITY INVESTING LIQUIDATING
TRUST, ET AL., Civ. Action 90-4420 (D.N.J.), filed on or about May 13, 1991
naming it and other entities and individuals as defendants. The First Amended
Complaint alleges conspiracy and aiding and abetting violations of: (1) one
or more provisions of the Racketeer Influenced and Corrupt Organizations Act
("RICO"); (2) one or more provisions of the Interstate Land Sales Full
Disclosure Act; and (3) the common law, on behalf of all persons (excluding
defendants) who purchased lots and/or houses from General Development
Corporation ("GDC") or one of its affiliates and who are members of an
association known as the North Port Out-of-State Lot Owners Association.
The secondary liability claims in the First Amended Complaint
relating to PaineWebber are premised on allegations that PaineWebber served
as (1) the co-lead underwriter in connection with the April 8, 1988 offering
by GDC of 12-7/8% senior subordinated notes pursuant to a Registration
Statement and Prospectus and (2) the underwriter for a 1989 offering of
Adjustable Rate General Development Residential Mortgage Pass-Through
Certificates, Series 1989-A, which plaintiffs contend enabled GDC to acquire
additional financial resources for the perpetuation of (and/or aided and
abetted) an alleged scheme to defraud purchasers of GDC lots and/or houses.
The First Amended Complaint requests certain declaratory relief, equitable
relief, compensatory damages of not less than $500 million, punitive
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damages of not less than three times compensatory damages, treble damages
with respect to the RICO count, prejudgment and post-judgment interest on all
sums awarded, and attorneys' fees, costs, disbursement and expert witness
fees.
On December 27, 1993, the District Court entered an order
dismissing plaintiffs' First Amended Complaint against PaineWebber and the
majority of the other defendants for failure to state a claim upon which
relief can be granted.
On November 8, 1994, the United States Court of Appeals for the
Third Circuit affirmed the District Court's order dismissing this action
against PaineWebber. On November 18, 1994, plaintiffs filed a Petition for
Rehearing and Suggestion for Rehearing en banc with the Third Circuit.
On April 4, 1995, the United States Court of Appeals for the Third
Circuit entered an order vacating its order of November 8, 1994, and granted
plaintiffs' application for rehearing and remanded the case to the Distinct
Court for reconsideration. Following the remand by the Third Circuit Court of
Appeals, on August 24, 1995, the District Court entered an order dismissing
the action as to all defendants. On February 20 1996, plaintiffs filed a
notice of appeal from the District Court's order dismissing the action. On
September 16, 1996, the Third Circuit Court of Appeals heard arguments on
plaintiffs' appeal. The court has not yet ruled on the appeal.
In July 1994, PaineWebber, together with numerous unrelated firms,
were named as defendants in a series of purported class action complaints
that have since been consolidated for pre-trial purposes in the United States
District Court for the Southern District of New York under the caption IN RE
NASDAQ MARKET-MAKER ANTITRUST AND SECURITIES LITIGATION. MDL Docket No. 1023.
The refiled consolidated complaint in these actions alleges that the
defendant firms engaged in activities as market makers on the NASDAQ over-the
counter market that violated the federal antitrust laws. The plaintiffs seek
declaratory and injunctive relief, damages in an amount to be determined and
subject to trebling and additional relief. On December 18, 1995, PaineWebber
filed its answer to plaintiffs' refiled consolidated complaint. The parties
are presently engaged in pre-trial discovery. On November 26, 1996, the Court
conditionally certified a class of retail investors who bought or sold
certain NASDAQ securities through defendants (and in limited cases through
non-defendants) during certain periods of time. The United States District
Court for the Southern District of New York granted plaintiffs' motion for
certification of a class that includes institutional investors, as well as
the retail investors previously certified.
PaineWebber and two other broker-dealers were named as defendants
in litigation brought in November 1994 and subsequently styled IN RE MERRILL
LYNCH ET. AL. Securities Litigation Civ. No. 94-5343 (DRD). The amended
complaint, filed in March 1993, alleged that defendants violated federal
securities laws in connection with the execution of orders to buy and sell
NASDAQ securities. On December 13, 1995, the District Court granted
defendants' motion for summary judgment. On January 19, 1996, the plaintiffs
filed a notice of appeal to the United States Court of Appeals for the Third
Circuit. The appeal was heard on October 24, 1996, and on June 19, 1997, the
Court affirmed the District Court's grant of defendants' motions for summary
judgement. On July 30, 1997, the Third Circuit Court of Appeals vacated the
prior Third Circuit opinion and listed the case for rehearing en banc. On
October 29, 1997, the court held an en banc rehearing on the appeal from the
District Court's grant of defendants' motions for summary judgment.
On July 16, 1996, PaineWebber Incorporated entered into a
Stipulation and Order resolving a civil complaint filed by the United States
Department of Justice, alleging that it and other NASDAQ market makers
violated Section 1 of the Sherman Act in connection with certain market
making practices. In entering into the Stipulation and Order, without
admitting the allegations, the parties agreed that the defendants would not
engage in certain types of market making activities and the defendants
undertook specified steps to assure compliance with their agreement. On April
24, 1997, the United States District Court for the Southern District of New
York approved the Stipulation and Order, one aspect of which requires the
defendants to tape record a certain percentage of their NASDAQ traders'
telephone calls. On May 27, 1997, the Court stayed the taping provision
pending an appeal by certain private parties who objected to aspects of the
taping provision. Notice of Appeal has been filed in the United States Court
of Appeals for the Second Circuit; the parties are scheduled to file briefs
in July and August, and oral argument on the appeal is scheduled for late
September.
A series of purported class actions concerning PaineWebber
Incorporated's sale and sponsorship of various limited partnership
investments have been filed against PaineWebber and PaineWebber Group Inc.
(together hereinafter,
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"PaineWebber") among others, by partnership investors since November 1994.
Several such actions (the "Federal Court Limited Partnership Actions") were
filed in the United States District Court for the Southern District of New
York, one was filed in the United States District Court for the Southern
District of Florida and one complaint (the "New York Limited Partnership
Action") was filed in the Supreme Court of the State of New York. The time to
answer or otherwise move with respect to these complaints has not yet expired.
The complaints in all of these cases make substantially similar
allegations that, in connection with the sale of interests in approximately
50 limited partnerships between 1980 and 1992, PaineWebber (1) failed to
provide adequate disclosure of the risks involved with each partnership; (2)
made false and misleading representations about the safety of the investments
and the anticipated performance of the partnerships; and (3) marketed the
partnerships to investors for whom such investments were not suitable. The
plaintiffs, who are suing on behalf of all persons who invested in limited
partnerships sold by PaineWebber between 1980 and 1992, also allege that,
following the sale of the partnership units, PaineWebber misrepresented
financial information about the partnerships' value and performance.
The Federal Court Limited Partnership Actions also allege that
PaineWebber violated the Racketeer Influenced and Corrupt Organization Act
("RICO"), and certain of them also claim that PaineWebber violated the
federal securities laws. The plaintiffs seek unspecified damages, including
reimbursement for all sums invested by them in the partnerships, as well as
disgorgement of all fees and other income derived by PaineWebber from the
limited partnerships. In the Federal Court Limited Partnership Actions, the
plaintiffs also seek treble damages under RICO.
In addition, PaineWebber and several of its present or former
officers were sued in two other purported class actions (the "Geodyne Limited
Partnership Actions") filed in the state court in Harris County, Texas. Those
cases, and WOLFF V. GEODYNE RESOURCES, INC. ET.AL., are similar to the other
Limited Partnership Actions except that the plaintiffs purport to sue only on
behalf of those investors who bought interests in the Geodyne Energy
Partnerships, which were a series of oil and gas partnerships that
PaineWebber sold over several years. The plaintiffs in Geodyne Limited
Partnership Actions allege that PaineWebber committed fraud and
misrepresentation, breached its fiduciary obligations to its investors and
brokerage customers, and breached certain contractual obligations. The
complaints seek unspecified damages, including reimbursement of all sums
invested by them in the partnerships, as well as disgorgement of all fees and
other income derived by PaineWebber from the Geodyne partnerships.
PaineWebber has filed an answer denying the allegations in plaintiffs'
complaints.
On January 18, 1996, PaineWebber signed and filed with the federal
court a memorandum of understanding with the plaintiffs in both the Federal
Court Limited Partnership Actions and the Geodyne Limited Partnership Actions
outlining the terms under which the parties have agreed to settle these
actions. Pursuant to that memorandum of understanding, PaineWebber
irrevocably deposited $125 million into an escrow fund under the supervision
of the United States District Court of the Southern District of New York to
be used to resolve the Federal Court and Geodyne Limited Partnership Actions
in accordance with the definitive settlement agreement and plan of allocation
which the parties subsequently submitted to the court for its consideration
and approval. The court held hearings on the fairness of the settlement in
October and November 1996. On March 20, 1997, the court issued an order
approving the settlement. On July 30, 1997, the United States Court of
Appeals for the Second Circuit affirmed the judgment approving the settlement.
In addition, three actions were filed against PaineWebber in the
District Court for Brazoria County, Texas, two captioned MALLIA V.
PAINEWEBBER, INC. ("MALLIA I" and "MALLIA II") and one captioned BILLY
HAMILTON V. PAINEWEBBER ("HAMILTON"), relating to PaineWebber's sale and
sponsorship of various limited partnership investments. MALLIA I was
originally filed as a class action, but was later amended to assert claims
only on behalf of the named plaintiffs. The complaints in MALLIA I, MALLIA
II, and HAMILTON, collectively, make allegations on behalf of approximately
65 named plaintiffs that are substantially similar to those in the Federal
Court Limited Partnership Actions except that the plaintiffs purport to bring
only state law claims, principally for common law fraud, negligent
misrepresentation, beach of fiduciary duty, violation of the Texas Securities
Act, and violations of the Texas Deceptive Trade Practices Act, on behalf of
those investors who bought interest in Pegasus aircraft leasing partnerships
and in unspecified other limited partnerships and investments. The plaintiffs
seek unspecified damages. All three actions have been removed to federal
court and the two MALLIA actions have been transferred to the United States
District Court for the Southern District of New York. The HAMILTON action has
been dismissed with the consent of the parties on the grounds it is
duplicative of the two MALLIA actions now before the federal court in New
York.
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In April 1995, two investors in the Pegasus limited partnership
filed a purported class action in the Circuit Court of the State of Illinois
for Cook County entitled JACOBSON V. PAINEWEBBER, INC., making allegations
substantially similar to the alleged in the Federal Court Limited Partnership
Actions, but limited in subject matter to the sale of the Pegasus
partnerships, and without a RICO claim. The complaint sought unspecified
damages. The plaintiffs in the JACOBSON case simultaneously remained as
participants in the Federal Court Limited Partnership Actions, and
subsequently dismissed the Illinois action but objected to the proposed
settlement of the Federal Court Limited Partnership Actions. As noted above,
on March 20, 1997, the court approved the fairness of the settlement.
The following items relate to matters involving Kidder, Peabody
and Co. Incorporated which was acquired by PaineWebber in August 1997. In
connection with the acquisition, the seller and its parent General Electric
Company agreed to indemnify the PaineWebber for all losses relating to this
matter.
Kidder Peabody & Co. Incorporated ("Kidder, Peabody"), a
subsidiary of PaineWebber together with other unrelated individuals and
firms, has been named as a defendant in certain actions pending in the United
States District Court of New York for the Southern District of New York
brought on behalf of individuals and two purported classes of investors in
three funds (the "Funds") managed by Askin Capital Management, L.P. and David
J. Askin (collectively, the "Askin Parties"). The actions are PRIMAVERA
FAMILIENSTIFTUNG V. DAVID J. ASKIN, ET AL., Docket No. 95 Civ. 8905; ABF
CAPITAL MANAGEMENT, ET AL. V. ASKIN CAPITAL MANAGEMENT, L.P., Docket No. 96
Civ. 2978; MONTPELLIER RESOURCES, LIMITED ET AL. V. ASKIN CAPITAL MANAGEMENT,
L.P., et al., Docket No. 97 Civ. 1856; RICHARD JOHNSTON AS TRUSTEE FOR THE
DEMETER TRUST, ET AL. V. ASKIN CAPITAL MANAGEMENT L.P., et al., Docket No. 97
Civ. 4335. The plaintiffs have alleged, among other things, that Kidder,
Peabody and other brokerage firms aided and abetted false and misleading
representations made to investors in violation of federal and state
securities laws, used the Funds as an outlet for otherwise unmarketable
tranches of collateralized mortgage obligations, and violated various rules
of the New York Stock Exchange and National Association of Securities
Dealers. Collectively in the four lawsuits the plaintiffs claim damages of
approximately $650 million, as well as unspecified punitive damages. As a
result of various decisions by the District Court, the only claim remaining
in these cases against Kidder, Peabody is for aiding and abetting the Askin
Parties' fraud on the investors. The parties are presently engaged in
pre-trial discovery. No trial date has been set.
In separate, but related action now pending in the United States
Bankruptcy Court for the Southern District of New York captioned ABF CAPITAL
MANAGEMENT, ET AL. V. KIDDER, PEABODY & CO. INCORPORATED, a group of
investors in the Funds have sought to equitably subordinate, pursuant to
Section 510[c] of the Bankruptcy code, certain recoveries received by Kidder,
Peabody, amounting to approximately $15.5 million, in connection with the
settlement of Kidder, Peabody's claim in the Funds' bankruptcy proceedings.
This action is also at an early stage; no trial date has been set.
Kidder, Peabody is a defendant, along with other unrelated
individuals and entities, in RICHARD A. LIPPE ET. AL. V. BAIRNCO CORP. ET
AL., 96 Civ. 7600, in the United States District Court for the Southern
District of New York brought by the Trustees of the Keene Creditors' Trust
("KCT"). This action originally was filed on June 8, 1995 as Adversary
Proceeding No. 95/9393A in the Bankruptcy Court for the Southern District of
New York. On April 10, 1997, the District Court ordered the withdrawal of the
bankruptcy court. KCT was established pursuant to the Plan of Reorganization
approved in connection with the bankruptcy proceedings related to Keene
Corporation ("Keene"). The KCT claims against Kidder, Peabody arise from
fairness opinions rendered by Kidder, Peabody during the 1980's in connection
with the sale of various businesses from Keene. KCT alleges that Kidder
Peabody's fairness opinions intentionally or recklessly undervalued the
assets being sold. KCT further alleges that such acts constituted aiding and
abetting breaches of fiduciary duties and self-dealing by Keene's corporate
officers and directors, who are also defendants, in violation of the New York
Business Corporation Law and the Racketeer Influenced and Corrupt
Organizations Act. KCT seeks damages from Kidder, Peabody and other unrelated
individuals and firms in excess of $700 million. On September 15, 1997,
Kidder, Peabody filed a motion to dismiss the complaint. KCT has not yet
filed its opposition to the motion.
In addition to the foregoing private litigation, the following
administrative and exchange proceedings may be considered material.
On February 4, 1994, the Alabama Securities Commission issued
Administrative Order CV-93-0020. PaineWebber consented, without admitting or
denying the allegations to findings of violations of the Alabama Securities
Act, to place on the branch order ticket or other record of transactions
before any order for purchase or sale of securities through a block trading
desk is executed, a name or designation of the accounts for which such orders
are to be executed and the number of shares or contracts ordered for each
account for two years from the date of the
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Alabama order as to trades placed through its block trading desk by
registered representatives in Birmingham, Alabama. The registered
representatives are required to deliver a copy of the branch order tick to
the branch office manager or to his or her designee prior to the time the
order is placed with a block desk. The Alabama Securities Commission will be
provided with a copy of a consultant's report concerning respondent's
policies, practices and procedures prepared pursuant to an SEC order on
February 18, 1993 and the affidavit of PaineWebber attesting to the
implementation of the recommendations contained in such consultant's report.
PaineWebber is required to certify that all supervisory and managerial
personnel in its Birmingham office have attended the two day seminar required
by the SEC order. PaineWebber was to pay a fine of $87,000 as partial
reimbursement for the Alabama Securities Commission's cost for examining the
matter.
On September 27, 1995, in matter number 94-078-S, the State of
Vermont Department of Banking, Insurance and Securities entered an
Administrative Consent Order alleging that between 1984 and 1988 PaineWebber
did not reasonably supervise two former investment executives with respect to
certain outside activities and limited partnership investment
recommendations. Without admitting or denying the allegations, PaineWebber
agreed, among other things to pay an administrative fine of $100,000.
On or about January 18, 1996, PaineWebber consented, without
admitting or denying the findings therein, to the entry of an Order by the
SEC which imposed a censure, a cease and desist order, a $5 million civil
penalty and various remedial sanctions. The SEC alleged that PaineWebber
violated the antifraud and recordkeeping provisions of the federal securities
laws in connection with the offer and sale of certain limited partnership
interests between 1986 and 1992 and failed reasonably to supervise certain
registered representatives and other employees involved in the sale of those
interests. PaineWebber must comply with its representation that it had paid
and will pay a total of $292.5 million to investors, including a payment of
$40 million for a claims fund.
PRUDENTIAL SECURITIES INCORPORATED
Prudential Securities' main business office is located at
Prudential Securities Building, One Seaport Plaza, New York, New York 10292,
telephone (212) 214-1000.
Prudential Securities, in its capacity as selling agent for the
Partnership, is registered as a broker-dealer with the Securities and
Exchange Commission (the "SEC") and is a member of the National Association
of Securities Dealers, Inc, (the "NASD"). Prudential Securities is a major
securities firm with a large commodity brokerage business. It has over 270
offices in 43 states, the District of Columbia, and 18 foreign countries.
Prudential Securities is a clearing member of the Chicago Board of Trade,
Chicago Mercantile Exchange, Commodity Exchange, Inc., and all other major
United States commodity exchanges.
From time to time Prudential Securities (in its respective
capacities as a commodities broker and as a securities broker-dealer) and its
principals are involved in numerous legal actions, some of which individually
and all of which in the aggregate, seek significant or indeterminate damages.
However, except for the actions described below, during the five years
preceding the date of this Prospectus, there has been no administrative,
civil, or criminal action 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 Partnership.
On July 22, 1993, Prudential Securities entered into a Settlement
Agreement with the Office of the Secretary of State of the State of South
Carolina. Without admitting or denying the allegations, Prudential Securities
agreed to pay $225,000 in settlement of all administrative inquiries,
investigations and other proceedings against Prudential Securities and its
agents in South Carolina relating to the supervisory and retail sales
activities of Prudential Securities and certain of its registered
representatives.
On October 21, 1993, Prudential Securities entered into an omnibus
settlement with the SEC, state securities regulators in 51 jurisdictions (49
states, the District of Columbia and Puerto Rico) and the NASD to resolve
allegations that had been asserted against Prudential Securities with respect
to the sale of interests in more than 700 limited partnerships generated by
Prudential Securities' Direct Investment Group and sold from January 1, 1980
through December 31, 1990. The limited partnerships principally involved real
estate, oil and gas producing properties and aircraft leasing ventures.
The allegations against Prudential Securities were set forth in a
Complaint filed by the SEC on October 21, 1993 and in an Administrative Order
issued by the SEC also on October 21, 1993. It was alleged that federal and
state
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securities laws had been violated through sales of the limited partnership
interests (and a limited number of certain other securities) to persons for
whom such securities were not suitable in light of their investment
objectives, financial status, or investment sophistication. It was also
alleged that the safety, potential returns and liquidity of the investments
had been misrepresented. Prudential Securities neither admitted nor denied
the allegations asserted against it. The Administrative Order included
findings that Prudential Securities' conduct violated the federal securities
laws and that an order issued by the SEC in 1986 requiring Prudential
Securities to adopt, implement and maintain certain supervisory procedures
had not been complied with. The Administrative Order (to which Prudential
Securities consented without admitting or denying the SEC's findings),
directed Prudential Securities to cease and desist from violating the federal
securities laws and imposed a $10 million civil penalty. The Administrative
Order also required Prudential Securities to adopt certain remedial measures
including the establishment of a Compliance Committee of its Board of
Directors.
Prudential Securities' settlement with the state securities
regulators included an agreement to pay a penalty of $500,000 per
jurisdiction. In settling the NASD disciplinary action, Prudential Securities
consented to a censure and to the payment of a $5 million fine to the NASD.
In connection with the settlement of the allegations asserted
against it, and pursuant to a Final Order and Judgment entered on October 21,
1993 in the action commenced by the SEC, Prudential Securities has deposited
$330 million as a fund to be used for the resolution of claims for
compensatory damages asserted by persons who purchased the limited
partnership interests from Prudential Securities, and has agreed to provide
additional funds, if necessary, for that purpose. The fund is to be
administered by a court-approved Claims Administrator who is a former SEC
Commissioner. Prudential Securities also consented to the establishment of
court-supervised expedited claims resolution procedures with respect to such
claims.
On December 17, 1993, Prudential Securities agreed to the entry of
a Consent Order issued by the State of Rhode Island, Department of Business
Regulation, Division of Securities (the "RI Department"). The allegations
against Prudential Securities were that ten employees of Prudential
Securities engaged in investment advisory activities with clients in Rhode
Island although these employees were neither licensed as investment adviser
representatives nor exempt from the licensing requirements of Section 203 of
the Rhode Island Uniform Securities Act (the "RI Act"). Prudential Securities
consented to the payment of a civil penalty in the amount of $33,000 and
agreed to cease and desist from further violations of Section 203 of the RI
Act. Prudential Securities also agreed to modify relevant internal marketing
and training materials distributed to its sales force. Prior to the entry of
the Consent Order discussed above, Prudential Securities entered into a
series of Consent Agreements with the RI Department involving similar
allegations concerning the registration of Prudential Securities investment
adviser representatives.
On January 18, 1994, Prudential Securities agreed to the entry of
a Final Consent Order and a Parallel Consent Order by the Texas State
Securities Board. The firm also entered into a related Agreement with the
Texas State Securities Commissioner. The allegations against Prudential
Securities were that the firm had engaged in improper sales practices and
other improper conduct resulting in pecuniary losses and other harm to
investors residing in Texas with respect to purchases and sales of limited
partnership interests during the period of January 1, 1980 through December
31, 1990. Without admitting or denying the allegations, Prudential Securities
consented to a reprimand, agreed to cease and desist from further violations,
and to provide voluntary donations to the State of Texas in the aggregate
amount of $1,500,000. The firm agreed to suspend the creation of new customer
accounts, the general solicitation of new accounts, and the offering for sale
of securities in or from Prudential Securities' North Dallas office,
irrespective of the place of residence of such new customers, during a period
of twenty consecutive business days. Prudential Securities further agreed to
suspend the creation of new customer accounts, the general solicitation of
new customer accounts, and the offering for sale of securities into or from
the State of Texas to any new customers, irrespective of the place of
residence of such new customers, during a period of five consecutive business
days. Prudential Securities also agreed to comply with the terms of the
Administrative Order entered by the SEC on October 21, 1993 (as discussed
above) and to institute training programs for its securities salesmen in
Texas.
On January 25, 1994, Prudential Securities agreed to the entry of
a Consent Order issued by the Banking Commissioner (the "Commissioner") of
the State of Connecticut, Department of Banking. The allegations against
Prudential Securities were that from January 1992 through at least July 1993,
Prudential Securities employed investment adviser agents who solicited
investment advisory business in Connecticut without being registered to do
so. This conduct was found by the Commissioner to be in violation of the
Connecticut Uniform Securities Act (the "CT Act") and in violation of the
terms and conditions of a Stipulation and Agreement entered into between the
Commissioner and Prudential Securities on February 20, 1992. It was further
alleged, with respect to Prudential Securities' investment
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advisory business, that certain Prudential Securities agents held themselves
out to the public in Connecticut under a business name other than Prudential
Securities. Without admitting or denying the allegations, Prudential
Securities agreed to be censured by the Department of Banking, to cease and
desist from violation of the provisions of the CT Act, and agreed to pay a
civil penalty to the Department of Banking in the amount of $150,000.
Further, Prudential Securities agreed to be subject to a period of
administrative probation which will conclude upon Prudential Securities'
completion of certain remedial actions, including but not limited to, the
following: (a) Prudential Securities shall review, implement and maintain
supervisory procedures designed to ensure its compliance with the provisions
of the CT Act; and (b) commencing on April 1, 1994 and continuing until April
1, 1996, Prudential Securities shall file quarterly reports with the
Securities and Business Investments Division of the Department of Banking
(the "Division") relating to its investment advisory business. In addition,
Prudential Securities has agreed to pay the Department of Banking the cost of
two or more examinations of any of its offices by the Division, such amount
not to exceed $10,000.
On March 10, 1994, Prudential Securities agreed to the entry of a
Consent Order issued by the State of Missouri, Commissioner of Securities.
The allegations against Prudential Securities were that the firm failed to
supervise a former registered representative, in violation of Missouri
securities laws. Without admitting or denying the allegations, Prudential
Securities agreed to the following: (a) to maintain and make available to the
Missouri Division of Securities all customer and regulatory complaints
concerning any Prudential Securities employee working in a branch located in
Missouri or any security sold by such employees; (b) beginning 30 days from
the date of the Consent Order and continuing for a period of three years, to
include at least one public service information piece selected by the
Commissioner of Securities in all of Prudential Securities' new account
packages mailed to Missouri residents; and (c) for a period of three years
from the date of the Consent Order, to annually provide a notice to
Prudential Securities' Missouri customers which details the procedures for
filing a complaint with Prudential Securities and the applicable regulatory
authorities. In addition, Prudential Securities agreed to pay a fine in the
amount of $175,000.
On June 8, 1994, the Business Conduct Committee of the New York
Mercantile Exchange ("NYMEX" or the "Exchange") accepted an Offer of
Settlement submitted by Prudential Securities concerning allegations that
Prudential Securities violated NYMEX rules regarding pre-arranged trades and
wash trades. Without admitting or denying the allegations, Prudential
Securities consented to a finding by the Exchange that it had violated NYMEX
Rule 8.55(A)(18) relating to conduct substantially detrimental to the
interest of the welfare of the Exchange; agreed to cease and desist from
future violations of Rule 8.55; and agreed to pay a fine in the amount of
$20,000.
On September 19, 1994, Prudential Securities consented to the
entry of an Agreement and Order issued by the State of Idaho, Department of
Finance, Securities Bureau (the "ID Department"). The allegations against
Prudential Securities were that the firm failed to supervise certain
employees in connection with the securities and options trading activities
entered into on behalf of Idaho clients, in violation of the Idaho Securities
Act (the "ID Act"). It was further alleged that Prudential Securities failed
to amend the Forms U-4 for certain employees. Prudential Securities agreed to
a number of sanctions and remedial measures including, but not limited to,
the following: (a) to install a new branch manager in the Prudential
Securities Boise branch office, who is to function in a supervisory capacity
only; (b) to designate a regional quality review officer to review all
securities options accounts and securities options trading activities of
Idaho customers in three Prudential Securities offices; (c) to implement
procedures reasonably designed to ensure compliance with regulations
concerning the timely delivery of prospectuses; and (d) to cooperate in the
ID Department's ongoing investigation and to comply with all provisions of
the ID Act. In addition, Prudential Securities has agreed to pay a fine to
the State of Idaho in the amount of $300,000. In addition, Prudential
Securities has voluntarily reimbursed certain customers for losses suffered
in their accounts in the amount of $797,518.49.
On October 27, 1994, Prudential Securities and Prudential
Securities Group entered into an agreement with the Office of the United
States Attorney for the Southern District of New York (the "U.S. Attorney")
deferring prosecution of charges contained in a criminal complaint. The
complaint alleged that Prudential Securities committed fraud in connection
with the sale of certain oil and gas limited partnership interests between
1983 and 1990 in violation of federal securities laws. The agreement requires
that Prudential Securities deposit an additional $330 million into an account
established by the SEC to pay restitution to the investors who purchased the
oil and gas limited partnership interests. Prudential Securities further
agreed to appoint a mutually acceptable outsider to sit on the Board of
Directors of Prudential Securities Group and the Compliance Committee of
Prudential Securities. The outside director will serve as an "ombudsman" whom
Prudential Securities' employees can contact anonymously with complaints
about ethics or compliance. Prudential Securities will report any allegations
or instances of criminal conduct and material improprieties to the new
director. The new director will submit compliance reports of his findings
every three months for a three-
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year period. If, upon completion of a three-year period, Prudential
Securities has complied with the terms of the agreement then the government
will not pursue the charges in the complaint. If Prudential Securities does
not comply with the agreement, then the government may elect to pursue the
charge.
On June 19, 1995, Prudential Securities entered into a settlement
with the CFTC in which, without admitting or denying the allegations of the
complaint, Prudential Securities consented to findings by the CFTC of certain
recordkeeping violations and failure to supervise in connection with the
commodity trading activities, in 1990 and early 1991, of a former broker of
Prudential Securities. Pursuant to the settlement, Prudential Securities
agreed to (i) pay a civil penalty of $725,000, (ii) the entry of a cease and
desist order with respect to the violations charged and (iii) an undertaking
directing the Prudential Securities' Compliance Committee to review certain
of the firm's commodity compliance and supervisory policies and procedures be
conducted and a report to be submitted to the CFTC, as well as a report to
the CFTC on the actions taken as a result of the review.
On February 29, 1996, the State of New Mexico Securities Division
issued a final order, subject to a settlement, whereby Prudential Securities
neither admitted nor denied any allegations that Prudential Securities failed
to supervise two former employees and a Branch Office Manager of its Phoenix,
Arizona branch. 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 and investigative fees in the amount of
$2,000.
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 did not properly
supervise Marshburn by failing to have policies and procedures in place to
detect and deter the alleged allocation scheme; 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.
----------------
Other than as may be set forth above, there have been no material
administrative, civil or criminal actions or proceedings -- whether pending,
on appeal or settled -- against either of the Clearing Brokers or any of
their respective principals.
CONFLICTS OF INTEREST
GENERAL
MILLBURN RIDGEFIELD HAS NOT ESTABLISHED ANY FORMAL PROCEDURES TO
RESOLVE THE CONFLICTS OF INTEREST DESCRIBED BELOW. PROSPECTIVE INVESTORS
SHOULD BE AWARE THAT NO SUCH PROCEDURES HAVE BEEN ESTABLISHED, AND THAT,
CONSEQUENTLY, INVESTORS WILL BE DEPENDENT ON THE GOOD FAITH OF THE RESPECTIVE
PARTIES SUBJECT TO SUCH CONFLICTS TO RESOLVE SUCH CONFLICTS EQUITABLY.
ALTHOUGH MILLBURN RIDGEFIELD WILL ATTEMPT TO MONITOR AND RESOLVE THESE
CONFLICTS IN GOOD FAITH, IT WILL BE EXTREMELY DIFFICULT, IF NOT IMPOSSIBLE,
FOR IT TO ASSURE THAT THESE CONFLICTS WILL NOT, IN FACT, RESULT IN ADVERSE
CONSEQUENCES TO THE TRUST.
PROSPECTIVE INVESTORS SHOULD BE AWARE THAT MILLBURN RIDGEFIELD
PRESENTLY INTENDS TO ASSERT THAT UNITHOLDERS HAVE, BY SUBSCRIBING TO THE
TRUST, CONSENTED TO THE FOLLOWING CONFLICTS OF INTEREST IN THE EVENT OF ANY
PROCEEDING ALLEGING THAT SUCH CONFLICTS VIOLATED ANY DUTY OWED BY MILLBURN
RIDGEFIELD TO INVESTORS.
THE MANAGING OWNER
The responsibilities of Millburn Ridgefield include acting as the
managing owner and trading advisor for the Trust and engaging commodity
brokers and dealers to execute trades on behalf of the Trust. The Managing
Owner has a conflict of interest in that it has a financial disincentive to
replace itself as either the trading advisor or the entity
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receiving the Brokerage Fees from the Trust. THE TRUST MIGHT HAVE BEEN MORE
PROFITABLE HAD THE TRUST HAD ACCESS TO ADVISORS OR BROKERS OTHER THAN
MILLBURN RIDGEFIELD.
Because Millburn Ridgefield receives the "spread" between (i) the
amount paid out to the Selling Agents plus the amount paid out for executing
the Trust's trades and (ii) the Brokerage Fee received by the Managing Owner
from the Trust, the Managing Owner, which also directs the trading of the
Trust, has a conflict of interest between trading in the manner which it
believes to be in the best interests of the Trust and trading in low volume
or in the forward markets so as to reduce the Trust's futures trading costs.
("Bid-ask" spreads, not brokerage commissions, are paid on the Trust's
forward trading, and these are paid by the Trust, not the Managing Owner.)
MILLBURN RIDGEFIELD MIGHT HAVE TRADED MORE SUCCESSFULLY FOR THE TRUST WERE IT
NOT SHARING IN THE TRUST'S BROKERAGE REVENUES.
Millburn Ridgefield directs the trading of a large amount of
client assets, and Millburn Ridgefield and its principals may have incentives
(financial or otherwise) to favor other accounts which they manage over the
Trust in such matters as, for example, the allocation of available
speculative position limits. Different accounts also pay different fees,
trade at different levels of leverage and will, from time to time, compete
for the same positions. IT COULD BE TO THE BENEFIT OF THE TRUST WERE IT TO
HAVE THE EXCLUSIVE ATTENTION OF AT LEAST CERTAIN MILLBURN RIDGEFIELD
PERSONNEL.
Millburn Ridgefield has agreed to treat the Trust equitably with
Millburn Ridgefield's other accounts. However, Millburn Ridgefield trades
different portfolios for other accounts (the Trust was the first client
account traded pursuant to the World Resource Portfolio of markets), and
there can be no assurance whatsoever that such other port folios will not
outperform the Trust. IF THE TRUST INCURS LOSSES, MILLBURN RIDGEFIELD COULD
HAVE A DISINCENTIVE TO EXPEND RESOURCES MANAGING THE TRUST BECAUSE OF THE
NEED TO RECOVER ANY LOSS CARRYFORWARD BEFORE A PROFIT SHARE COULD BE EARNED.
THE CLEARING BROKERS
The Clearing Brokers act from time to time as commodity brokers
for other accounts with which they are affiliated or in which they or one of
their respective affiliates has a financial interest. The compensation
received by the Clearing Brokers from such accounts may be more or less than
the compensation which they receive for their brokerage and forward trading
services to the Trust. In addition, various accounts traded through the
Clearing Brokers (and over which their personnel may have discretionary
trading authority) may take positions in the futures markets opposite to
those of the Trust or compete with the Trust for the same positions. The
Clearing Brokers each may have a conflict of interest in its execution of
trades for the Trust and for other of its customers. Millburn Ridgefield has,
however, no reason to believe that the Clearing Brokers knowingly or
deliberately favor any other customer over the Trust with respect to the
execution of commodity trades.
THE CLEARING BROKERS BENEFIT FROM EXECUTING ORDERS FOR OTHER
CLIENTS, WHEREAS THE TRUST IS HARMED TO THE EXTENT THAT THE CLEARING BROKERS
HAVE FEWER RESOURCES TO ALLOCATE TO THE TRUST'S ACCOUNT DUE TO THE EXISTENCE
OF SUCH OTHER CLIENTS.
THE CLEARING BROKERS BENEFIT FROM ASSESSING THE TRUST HIGHER
BROKERAGE COMMISSION RATES AND FORWARD CONTRACT "BID-ASK" SPREADS THAN OTHER
CLIENTS. BECAUSE PAINEWEBBER ALSO ACTS AS THE PRINCIPAL SELLING AGENT -- AND
THROUGH APRIL 30, 1998 PRUDENTIAL SECURITIES ALSO ACTED AS A PRINCIPAL
SELLING AGENT -- FOR THE TRUST, THE BROKERAGE COMMISSION RATES AND FORWARD
CONTRACT PRICING ARRANGEMENTS FOR THE TRUST MAY NOT HAVE BEEN NEGOTIATED AT
ARM'S LENGTH (MILLBURN RIDGEFIELD, NOT THE TRUST, PAYS ALL BROKERAGE
COMMISSIONS, AS OPPOSED TO "BID-ASK" SPREADS).
Certain officers or employees of the Clearing Brokers are, and may
in the future be, members of United States commodities exchanges and are
serving, and may in the future serve, on the governing bodies and standing
committees of such exchanges and of their clearinghouses and of various
industry organizations. In such capacities, these employees have a fiduciary
duty to the exchanges and their clearinghouses which could compel such
employees to act in the best interests of these entities, perhaps to the
detriment of the Trust.
The Managing Owner retains the Principal Selling Agent and
Prudential Securities as the Clearing Brokers for the Trust, largely because
of their assistance in marketing Units.
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THE SELLING AGENTS
The Selling Agents receive substantial selling commissions on the
sale of Units. Consequently, the Selling Agents have a conflict of interest
in advising their clients whether to invest in the Units.
The Selling Agents receive, beginning in the thirteenth month
after each month-end sale of Units, ongoing compensation or installment
selling commissions (as the case may be) based on Units sold by them which
remain outstanding. CONSEQUENTLY, THE SELLING AGENTS HAVE A CONFLICT OF
INTEREST IN ADVISING CLIENTS WHETHER TO REDEEM THEIR UNITS BETWEEN THE
SELLING AGENTS' INTEREST IN MAXIMIZING THE COMPENSATION WHICH THEY RECEIVE
FROM THE TRUST AND GIVING THEIR CLIENTS THE FINANCIAL ADVICE WHICH THE
SELLING AGENTS BELIEVE TO BE IN SUCH CLIENTS' BEST INTERESTS.
The percentage of the Trust's clearing brokerage allocated to the
Principal Selling Agent is determined based on the percentage of outstanding
Units sold by PaineWebber and its correspondents. Furthermore, the total
dollar amount of brokerage commissions paid by the Trust is dependent upon
the size of the Trust's capitalization. CONSEQUENTLY, THE PRINCIPAL SELLING
AGENT HAS, ENTIRELY APART FROM THE ONGOING COMPENSATION (AND, POSSIBLY,
CERTAIN INSTALLMENT SELLING COMMISSIONS) TO BE RECEIVED BY IT, FINANCIAL
INCENTIVES TO DISCOURAGE ITS CLIENTS FROM REDEEMING UNITS. SEE "THE CLEARING
BROKERS," ABOVE AT PAGE 44.
PROPRIETARY TRADING AND TRADING FOR OTHER ACCOUNTS
Millburn Ridgefield, the Clearing Brokers and their respective
principals and affiliates may trade in the futures and forward markets for
their own accounts and for the accounts of their clients, and in doing so may
take positions opposite to those held by the Trust or may be competing with
the Trust for positions in the marketplace. Records of this trading are not
available for inspection. Such trading may create conflicts of interest on
behalf of one or more of such persons in respect of their obligations to the
Trust.
Because Millburn Ridgefield, the Clearing Brokers and their
respective principals and affiliates may trade for their own accounts at the
same time that they are managing the Trust's account, prospective investors
should be aware that, as a result of a neutral allocation system, testing a
new trading system, trading their proprietary accounts more aggressively or
other actions not constituting a violation of fiduciary duty, such persons
may from time to time take positions in their proprietary accounts which are
opposite, or ahead of, the positions taken for the Trust. UNITHOLDERS ARE
UNLIKELY TO SUFFER ANY DETRIMENT FROM THE PROPRIETARY TRADING OF ANY OF THE
FOREGOING PERSONS OTHER THAN MILLBURN RIDGEFIELD AND ITS PRINCIPALS, BECAUSE
SUCH PERSONS HAVE NO PRIOR KNOWLEDGE OF MILLBURN RIDGEFIELD'S TRADING.
INDEMNIFICATION AND STANDARD OF LIABILITY
The Managing Owner and certain of its affiliates, officers,
directors and controlling persons may not be liable to the Trust or any
Unitholder for errors in judgment or other acts or omissions not amounting to
misconduct or negligence, as a consequence of the indemnification and
exculpatory provisions described in the following paragraph. Purchasers of
Units may have more limited rights of action than they would absent such
provisions.
The Managing Owner and its affiliates shall not have any liability
to the Trust or to any Unitholder for any loss suffered by the Trust which
arises out of any action or inaction of the Managing Owner or any such
affiliate if the Managing Owner or its affiliates, in good faith, determined
that such course of conduct was in the best interests of the Trust, and such
course of conduct did not constitute negligence or misconduct. The Trust has
agreed to indemnify the Managing Owner and its affiliates, officers,
directors and controlling persons against claims, losses or liabilities based
on their conduct relating to the Trust, provided that the conduct resulting
in the claims, losses or liabilities for which indemnity is sought did not
constitute negligence, misconduct or breach any fiduciary obligation to the
Trust and was done in good faith and in a manner the Managing Owner, in good
faith, determined to be in the best interests of the Trust. Affiliates of the
Managing Owner are entitled to indemnity only for losses resulting from
claims against such affiliates due solely to their relationship with the
Managing Owner or for losses incurred by such affiliates in performing the
duties of the Managing Owner.
The Managing Owner, and not the Trust, has agreed to indemnify the
Selling Agents against claims, losses or liabilities arising out of the
Managing Owner's breach of any representation or warranty contained in the
Selling Agreement among the Trust, the Managing Owner and the Selling Agents
or out of any untrue statement of material fact or omission to state a
material fact in this Prospectus or any related promotional material.
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The Declaration of Trust provides that the Managing Owner, its
affiliates and the Selling Agents 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 (1) 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
indemnification of the litigation costs, or (2) 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 indemnification of the
litigation costs, or (3) 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.
The Declaration of Trust also provides that in any claim for
indemnification for federal or state securities law violations, the party
seeking indemnification is required to place before the court the position of
the SEC and various state regulatory authorities that indemnification for
securities law violations is void as against public policy.
THE MANAGING OWNER MAY, DUE TO THE EXCULPATORY AND INDEMNITY
PROVISIONS OF THE DECLARATION OF TRUST, HAVE MORE FLEXIBILITY THAN THE
MANAGING OWNER OTHERWISE WOULD TO RESOLVE THE FOREGOING CONFLICTS OF INTEREST
IN A MANNER MORE FAVORABLE TO THE MANAGING OWNER THAN TO THE TRUST.
THE TRUST AND THE TRUSTEE
THE FOLLOWING SUMMARY DESCRIBES IN BRIEF CERTAIN ASPECTS OF THE
OPERATION OF THE TRUST AND THE TRUSTEE'S AND MANAGING OWNER'S RESPECTIVE
RESPONSIBILITIES CONCERNING THE TRUST. PROSPECTIVE INVESTORS SHOULD CAREFULLY
REVIEW THE DECLARATION OF TRUST ATTACHED HERETO AS EXHIBIT A AND CONSULT WITH
THEIR OWN ADVISERS CONCERNING THE IMPLICATIONS TO SUCH PROSPECTIVE
SUBSCRIBERS OF INVESTING IN A DELAWARE BUSINESS TRUST. THE SECTION REFERENCES
BELOW ARE TO SECTIONS IN THE DECLARATION OF TRUST.
PRINCIPAL OFFICE; LOCATION OF RECORDS
The Trust is organized under the Delaware Business Trust Act. The
Trust is administered by the Managing Owner, whose office is located at 411
West Putnam Avenue, Greenwich, Connecticut 06830 (telephone: (203) 625-
7554). The records of the Trust, including a list of the Unitholders and
their addresses, is located at the foregoing address, and available for
inspection and copying (upon payment of reasonable reproduction costs) by
Unitholders or their representatives during regular business hours as
provided in the Declaration of Trust. (Section 10). There is a limitation to
non-commercial purposes. Certain administrative and transfer agent services
are provided at the Managing Owner's Chicago area office, 1560 Sherman
Avenue, Suite 810, Evanston, Illinois 60201. The Managing Owner will maintain
and preserve the books and records of the Trust for a period of not less than
six years.
CERTAIN ASPECTS OF THE TRUST
THE TRUST IS THE FUNCTIONAL EQUIVALENT OF A LIMITED PARTNERSHIP;
PROSPECTIVE INVESTORS SHOULD NOT ANTICIPATE ANY LEGAL OR PRACTICAL
PROTECTIONS UNDER THE DELAWARE BUSINESS TRUST ACT GREATER THAN THOSE
AVAILABLE TO LIMITED PARTNERS OF A LIMITED PARTNERSHIP.
No special custody arrangements are applicable to the Trust which
would not be applicable to a limited partnership, and the existence of a
trustee should not be taken as an indication of any additional level of
management or supervision over the Trust. To the greatest extent permissible
under Delaware law, the Trustee acts in an entirely passive role, delegating
all authority over the operation of the Trust to the Managing Owner. The
Managing Owner is the functional equivalent of a sole general partner in a
limited partnership. (Sections 5(a), 9 and 18).
Although units of beneficial interest in a trust need not carry
any voting rights, the Declaration of Trust gives Unitholders voting rights
comparable to those typically extended to limited partners in
publicly-offered futures funds. (Section 18).
The Delaware Business Trust Act under which the Trust is formed is
filed as an exhibit to the Registration Statement of which this Prospectus is
a part.
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THE TRUSTEE
Wilmington Trust Company, a Delaware banking corporation, is the
sole Trustee of the Trust. The Trustee's principal offices are located at
Rodney Square North, 1100 North Market Street, Wilmington, Delaware
19890-0001. The Trustee is unaffiliated with the Managing Owner or the
Selling Agents. The Trustee's duties and liabilities with respect to the
offering of the Units and the administration of the Trust are limited to its
express obligations under the Declaration of Trust.
The rights and duties of the Trustee, the Managing Owner and the
Unitholders are governed by the provisions of the Delaware Business Trust Act
and by the Declaration of Trust.
The Trustee serves as the Trust's sole trustee in the State of
Delaware. The Trustee will accept service of legal process on the Trust in
the State of Delaware and will make certain filings under the Delaware
Business Trust Act. The Trustee does not owe any other duties to the Trust,
the Managing Owner or the Unitholders. The Trustee is permitted to resign
upon at least 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 Declaration of Trust provides that the Trustee is
compensated by the Trust, and is indemnified by the Managing Owner against
any expenses 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
Declaration of Trust, 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 replace the Trustee.
Only the Managing Owner has signed the Registration Statement of
which this Prospectus is a part, and only the assets of the Trust and the
Managing Owner are subject to issuer liability under the federal securities
laws for the information contained in this Prospectus and under federal and
state laws with respect to the issuance and sale of the Units. 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 Units. The Trustee's liability in
connection with the issuance and sale of the Units is limited solely to the
express obligations of the Trustee set forth in the Declaration of Trust.
Under the Declaration of Trust, 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, nor shall the Trustee have any
liability for the acts or omissions of the Managing Owner. In addition, the
Managing Owner has been designated as the "tax matters partner" of the Trust
for purposes of the Internal Revenue Code of 1986, as amended (the "Code").
The Unitholders have no voice in the operations of the Trust, other than
certain limited voting rights as set forth in the Declaration of Trust. In
the course of its management, the Managing Owner may, in its sole and
absolute discretion, appoint an affiliate or affiliates of the Managing Owner
as additional managing owners (except where the Managing Owner has been
notified by the Unitholders that it is to be replaced as the managing owner)
and retain such persons, including affiliates of the Managing Owner, as it
deems necessary for the efficient operation of the Trust. (Section 2).
Because the Trustee has delegated substantially all of its
authority over the operation of the Trust to the Managing Owner, the Trustee
itself is not registered in any capacity with the CFTC.
MANAGEMENT OF TRUST AFFAIRS; VOTING BY UNITHOLDERS
The Unitholders take no part in the management or control, and
have no voice in the operations of the Trust or its business. (Section 9(a)).
Unitholders may, however, remove and replace the Managing Owner as managing
owner of the Trust, and may amend the Declaration of Trust, except in certain
limited respects, by the affirmative vote of a majority of the outstanding
Units then owned by Unitholders (as opposed to by the Managing Owner and its
affiliates). The owners of a majority of the outstanding Units then owned by
Unitholders may also compel dissolution of the Trust. (Section 18(b)). The
owners of 10% of the outstanding Units then owned by Unitholders have the
right to bring a matter before a vote of the Unitholders. (Section 18(c)).
The Managing Owner has no power under the Declaration of Trust to restrict
any of the Unitholders' voting rights. (Section 18(c)). Any Units purchased
by the Managing Owner or its affiliates, as well as the Managing Owner's
general liability interest in the Trust, are non-voting. (Section 7).
The Managing Owner has the right unilaterally to amend the
Declaration of Trust provided that any such amendment is for the benefit of
and not adverse to the Unitholders or the Trustee and also in certain unusual
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circumstances -- for example, if doing so is necessary to effect the intent
of the Trust's tax allocations or to comply with certain regulatory
requirements. (Section 18(a)).
In the event that the Managing Owner or the Unitholders vote to
amend the Declaration of Trust in any material respect, the amendment will
not become effective prior to all Unitholders having an opportunity to redeem
their Units. (Section 18(c)).
RECOGNITION OF THE TRUST IN CERTAIN STATES
A number of states do not have "business trust" statutes such as
that under which the Trust has been formed in the State of Delaware. It is
possible, although unlikely, that a court in such a state could hold that,
due to the absence of any statutory provision to the contrary in such
jurisdiction, the Unitholders, although entitled under Delaware law to the
same limitation on personal liability as stockholders in a private
corporation for profit organized under the laws of the State of Delaware, are
not so entitled in such state. In order to protect Unitholders against any
loss of limited liability, the Declaration of Trust provides that no written
obligation may be undertaken by the Trust unless such obligation is
explicitly limited so as not to be enforceable against any Unitholder
personally. Furthermore, the Trust itself indemnifies all Unitholders against
any liability which such Unitholders might incur in addition to that of a
limited partner. The Managing Owner is itself generally liable for all
obligations of the Trust and would use its assets to satisfy any such
liability before such liability would be enforced against any Unitholder
individually.
POSSIBLE REPAYMENT OF DISTRIBUTIONS RECEIVED BY UNITHOLDERS; INDEMNIFICATION
OF THE TRUST BY UNITHOLDERS
The Units are limited liability investments; investors may not
lose more than the amount which they invest plus any profits recognized on
their investment. (Section 8(e)). However, Unitholders could be required, as
a matter of bankruptcy law, to return to the Trust's estate any distribution
which they received at a time when the Trust was in fact insolvent or in
violation of the Declaration of Trust. In addition, although the Managing
Owner is not aware of this provision ever having been invoked in the case of
any public futures fund, Unitholders agree in the Declaration of Trust that
they will indemnify the Trust for any harm suffered by it as a result of (i)
Unitholders' actions unrelated to the business of the Trust, (ii) transfers
of their Units in violation of the Declaration of Trust or (iii) taxes
imposed on the Trust by the states or municipalities in which such investors
reside (Sections 8(d) and 17(c)).
The foregoing repayment of distributions and indemnity provisions
(other than the provision for Unitholders indemnifying the Trust for taxes
imposed upon it by the state or municipality in which particular Unitholders
reside, which is included only as a formality due to the fact that many
states do not have business trust statutes so that the tax status of the
Trust in such states might, theoretically, be challenged -- although Millburn
Ridgefield is unaware of any instance in which this has actually occurred)
are commonplace in publicly-offered commodity pools as well as other trusts
and limited partnerships.
TRANSFERS OF UNITS RESTRICTED
A Unitholder may, subject to compliance with applicable federal
and state securities laws, assign his or her Units upon notice to the Trust
and the Managing Owner. No assignment will be effective in respect of the
Trust or the Managing Owner until the first day of the month succeeding the
month in which such notice is received. No assignee may become a substituted
Unitholder except with the consent of the Managing Owner and upon execution
and delivery of an instrument of transfer in form and substance satisfactory
to the Managing Owner. (Section 11).
There are, and will be, no certificates for the Units. Any
transfers of Units are reflected on the books and records of the Trust.
Transferors and transferees of Units will each receive notification from the
Managing Owner to the effect that such transfers have been duly reflected as
notified to the Managing Owner. (Section 11).
REPORTS TO UNITHOLDERS
Each month the Managing Owner reports such information as the CFTC
may require to be given to the participants in "commodity pools" such as the
Trust and any such other information as the Managing Owner may deem
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appropriate. There are similarly distributed to Unitholders, not later than
March 15 of each year, certified financial statements and the tax information
related to the Trust necessary for the preparation of their annual federal
income tax returns. (Section 10).
The Managing Owner will notify Unitholders within seven business
days of any decline in the Net Asset Value per Unit to less than 50% of such
Net Asset Value as of the previous month-end valuation date. In addition, the
Managing Owner will notify Unitholders of any change in the fees paid by the
Trust or of any material changes in the basic investment policies or
structure of the Trust. Any such notifications shall include a description of
Unitholders' voting rights. The cost of any such notifications to Unitholders
(as opposed to routine reports issued by the Managing Owner) will be paid by
the Managing Owner. (Section 10).
GENERAL
In compliance with the Statement of Policy of the North American
Securities Administrators Association, Inc. relating to the registration of
commodity pool programs under state securities or "Blue Sky" laws, the
Declaration of Trust provides that: (i) the executing and clearing
commissions paid by the Trust shall be competitive (Section 9(e)), and the
Managing Owner shall include in the annual reports containing the Trust's
certified financial statements distributed to Unitholders each year the
approximate round-turn equivalent rate paid on the Trust's trades during the
preceding year, as well as the actual amounts paid by the Managing Owner for
the Trust's execution and clearing costs (Section 10); (ii) no rebates or
give-ups, among other things, may be received from the Trust by any of the
Selling Agents, and such restriction may not be circumvented by any
reciprocal business arrangements among any Selling Agent or any of their
respective affiliates and the Trust (Section 9(f)); (iii) no trading advisor
of the Trust (including Millburn Ridgefield) may participate directly or
indirectly in any per-trade commodity brokerage commissions generated by the
Trust (Section 9(f)); (iv) any agreements between the Trust and the Managing
Owner or any affiliates of the Managing Owner must be terminable by the Trust
upon no more than 60 days' written notice (Section 9(f)); (v) the Trust may
make no loans, and the funds of the Trust will not be commingled with the
funds of any other person (deposit of Trust assets with a commodity broker,
clearinghouse or currency dealer does not constitute commingling for these
purposes) (Section 9(f)); and (vi) the Trust will not employ the trading
technique commonly known as "pyramiding." (Section 9(f)).
FEDERAL INCOME TAX ASPECTS
IN THE OPINION OF SIDLEY & AUSTIN, THE FOLLOWING SUMMARY CORRECTLY
DESCRIBES THE MATERIAL UNITED STATES FEDERAL INCOME TAX CONSEQUENCES, AS OF
THE DATE HEREOF, TO A UNITED STATES INDIVIDUAL TAXPAYER WHO INVESTS IN THE
TRUST. THE OPINION OF SIDLEY & AUSTIN IS BASED, IN CERTAIN CASES, ON THE
DESCRIPTION OF THE PROPOSED OPERATION OF THE TRUST CONTAINED IN THIS
PROSPECTUS AND, IN CERTAIN CASES, IS SUBJECT TO THE UNCERTAINTIES DESCRIBED
BELOW.
THE TRUST'S PARTNERSHIP TAX STATUS
In the opinion of Sidley & Austin, the Trust is properly
classified as a partnership for federal income tax purposes. Consequently,
the Unitholders individually, not the Trust itself, are subject to tax.
The Managing Owner believes that all of the income generated by
the Trust to date and expected to be generated by the Trust will constitute
"qualifying income" and has so advised Sidley & Austin. As a result, in the
opinion of Sidley & Austin, the Trust is not subject to tax as a corporation
under the provisions applicable to "publicly-traded partnerships."
If the Trust were not treated as a partnership or if the Trust
were subject to tax as a "publicly-traded partnership," the Trust as an
entity would be subject to tax at the same tax rates applicable to
corporations, distributions to Unitholders would be taxable to them as
dividends to the extent of the current and accumulated earnings and profits
of the Trust, and Unitholders would not be entitled to report their share of
any deductions or loss of the Trust on their federal income tax returns.
The remainder of this summary assumes that the Trust is treated as
a partnership and not as a "publicly-traded partnership."
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TAXATION OF UNITHOLDERS ON PROFITS AND LOSSES OF THE TRUST
The Trust, as an entity, is not subject to federal income tax in
the opinion of Sidley & Austin as described above. Consequently, with the
exception of Unitholders who are not citizens or residents of the United
States, each Unitholder is required for federal income tax purposes to take
into account, in his or her taxable year with which or within which a taxable
year of the Trust ends, his or her allocable share of all items of Trust
income, gain (including unrealized gain from open futures and forward
contracts and options "marked-to-market"), loss, deduction and other items
for such taxable year of the Trust. A Unitholder must take such items into
account even if the Trust does not make any distributions of cash or other
property to such Unitholder.
A Unitholder's share of such items for federal income tax purposes
generally is determined by the allocations made pursuant to the Declaration
of Trust unless such items so allocated do not have "substantial economic
effect" or are not in accordance with the Unitholders' interests in the
Trust. Under the Declaration of Trust, allocations are generally made in
proportion to Unitholders' capital accounts (each Unit sharing equally in the
Net Assets of the Trust), and therefore such allocations should have
substantial economic effect. However, in cases in which a Unitholder redeems
part or all of his or her interest in the Trust, the allocations of capital
gain or loss specified in the Declaration of Trust are not in proportion to
capital accounts. Because such allocations are consistent with the economic
effect of the Declaration of Trust that bases the amount to be paid to a
redeeming Unitholder upon his or her share of the realized and unrealized
gains and losses at the time his or her Units are redeemed, the Managing
Owner files the Trust's tax return based upon the allocations specified in
the Declaration of Trust. In the opinion of Sidley & Austin, the foregoing
allocations should be upheld if audited. Nevertheless, it is not certain that
the IRS would agree that such allocations have substantial economic effect or
are determined in accordance with the Unitholders' interests in the Trust. If
such tax allocations were challenged and not sustained, some or all of a
redeeming Unitholder's capital gain or loss could be converted from
short-term to long-term and each remaining Unitholder's share of the capital
gain or loss that is the subject of such allocations would be increased
(solely for tax purposes).
LIMITATIONS ON DEDUCTIBILITY OF TRUST LOSSES BY UNITHOLDERS
The amount of any Trust loss (including capital loss) that a
Unitholder is entitled to include in his or her personal income tax return is
limited to his or her tax basis for his or her interest in the Trust as of
the end of the Trust's taxable year in which such loss occurred. Generally, a
Unitholder's tax basis for his or her interest in the Trust is the amount
paid for such interest reduced (but not below zero) by his or her share of
any Trust distributions, realized losses (including constructively realized
under the "mark-to-market" system described below) and expenses and increased
by his or her share of the Trust's realized income and gains (including
constructively realized under the "mark-to-market" system described below).
Similarly, a Unitholder that is subject to the "at risk"
limitations (generally, non-corporate taxpayers and closely-held
corporations) may not deduct losses of the Trust (including capital losses)
to the extent that they exceed the amount he or she has "at risk" with
respect to his or her interest in the Trust at the end of the year. The
amount that a Unitholder has at risk will generally be the same as his or her
adjusted basis as described above, except that it will not include any amount
that he or she has borrowed on a nonrecourse basis or from a person who has
an interest in the Trust or a person related to such person. Losses denied
under the basis or at risk limitations are suspended and may be deducted in
subsequent years, subject to these and other applicable limitations.
Because of the limitations imposed upon the deductibility of
capital losses (see "-- Tax on Capital Gains and Losses," below at page 59),
a Unitholder's distributive share of any capital losses of the Trust does not
materially reduce the federal income tax payable on his or her ordinary
income (including his or her allocable share of the Trust's interest income).
TREATMENT OF INCOME AND LOSS UNDER THE "PASSIVE ACTIVITY LOSS RULES"
The Code contains rules (the "Passive Activity Loss Rules")
designed to prevent the deduction of losses from "passive activities" against
income not derived from such activities, including income from investment
activities not constituting a trade or business, such as interest and
dividends ("Portfolio Income"), and salary. The trading activities of the
Trust do not constitute a "passive activity," with the result that income
derived from such activities constitute Portfolio Income or other income not
from a passive activity. Thus, losses resulting from a Unitholder's "passive
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activities" cannot be offset against such income, and net losses from Trust
operations are deductible in computing the taxable income of such Unitholder
(subject to other limitations on the deductibility of such losses, in
particular the annual limitation applicable to non-corporate investors that
no more than $3,000 of capital losses can be deducted against ordinary
income).
CASH DISTRIBUTIONS AND REDEMPTIONS OF UNITS
Cash received from the Trust by a Unitholder as a distribution
with respect to his or her Units or in redemption of less than all of his or
her Units generally is not reportable as taxable income by such Unitholder,
except as described below. Rather, such distribution or withdrawal reduces
(but not below zero) the total tax basis of all of the Units held by the
Unitholder after the distribution or withdrawal. Any cash distribution in
excess of a Unitholder's adjusted tax basis for all of his or her Units is
taxable to him or her as gain from the sale or exchange of such Units. See
"-- Tax on Capital Gains and Losses" below (for a discussion of holding
periods and corresponding tax rates).
Redemption for cash of the entire interest held by a Unitholder
results in the recognition of gain or loss for federal income tax purposes.
Such gain or loss equals the difference, if any, between the amount of the
cash distribution and the Unitholder's adjusted tax basis for his or her
Units.
GAIN OR LOSS ON SECTION 1256 CONTRACTS
Under the "mark-to-market" system of taxing futures and futures
options contracts traded on United States exchanges and certain foreign
currency forward contracts ("Section 1256 Contracts"), any unrealized profit
or loss on positions in such Section 1256 Contracts which are open as of the
end of a taxpayer's fiscal year is treated as if such profit or loss had been
realized for tax purposes as of such time. If an open position on which
profit has been realized as of the end of a fiscal year declines in value
after such year-end and before the position is in fact offset, a loss is
recognized for tax purposes at the end of the fiscal year in which the value
declines (irrespective of the fact that the taxpayer may actually have
realized a gain on the position considered from the time that such position
was initiated). The converse is the case with an open position on which a
"mark-to-market" loss was recognized for tax purposes as of the end of a
fiscal year but which subsequently increases in value prior to being offset.
In general, 60% of the net gain or loss which is generated as a result of the
"mark-to-market" system is treated as long-term capital gain or loss, and the
remaining 40% of such net gain or loss is treated as short-term capital gain
or loss.
GAIN OR LOSS ON NON-SECTION 1256 CONTRACTS
Except as described below with respect to Section 988 transactions
entered into by a qualified fund, gain or loss with respect to contracts that
are non-Section 1256 Contracts will generally be taken into account for tax
purposes only when realized.
Foreign currency transactions ("Section 988 transactions") include
entering into or acquiring any forward contract, futures contract or similar
instrument if the amount paid or received is denominated in terms of a
foreign currency (or determined by reference to the value of one or more
currencies) other than the taxpayer's functional currency or if the
underlying property to which the contract or instrument ultimately relates is
a foreign currency other than the taxpayer's functional currency. In general,
foreign currency gain or loss on Section 988 transactions is treated as
ordinary income or loss. Under a qualified fund election, however, gain or
loss with respect to certain Section 988 transactions, other than those
described in Section 1256 which would be taxed as described above under "--
Gain or Loss on Section 1256 Contracts," would be short-term capital gain or
loss. In addition, all such transactions would be subject to the
"mark-to-market" rules (see "-- Gain or Loss on Section 1256 Contracts,"
above).
TAX ON CAPITAL GAINS AND LOSSES
The maximum tax rate for non-corporate taxpayers on adjusted net
capital gains (as defined below) is 20%. Only capital assets held for more
than 18 months (including 60% of the net gain on Section 1256 Contracts) are
eligible for the 20% tax rate. Net gain on capital assets held more than 12
months and not more than 18 months (and certain other gain) is subject to a
maximum tax rate of 28% ("28 percent rate gain"). Net short-term capital gain
(i.e., net gain on assets held for 12 months or less, including 40% of net
gain on Section 1256 Contracts) is subject to tax at the same rates as
ordinary income. Adjusted net capital gain is the excess of net long-term
capital gain over net short-term
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capital loss reduced by 28 percent rate gain and certain other amounts, if
any. See "-- Limitation on Deductibility of Interest on Investment
Indebtedness," below at page 61 (for a discussion of the reduction in the
amount of a non-corporate taxpayer's net capital gain for a taxable year to
the extent such gain is taken into account by such taxpayer as investment
income). Capital losses are deductible by non-corporate taxpayers only to the
extent of capital gains for the taxable year plus $3,000. See "Risk Factors
- -- (17) Taxation of Interest Income Irrespective of Trading Losses" at page
16.
If a non-corporate taxpayer incurs a net capital loss for a year,
the portion thereof, if any, which consists of a net loss on Section 1256
Contracts may, at the election of the taxpayer, be carried back three years.
Losses so carried back may be deducted only against net capital gain for such
year to the extent that such gain includes gains on Section 1256 Contracts.
Losses so carried back will be deemed to consist of 60% long-term capital
loss and 40% short-term capital loss (see "-- Gain or Loss on Section 1256
Contracts," above). To the extent that such losses are not used to offset
gains on Section 1256 Contracts in a carryback year, they will carry forward
indefinitely as losses on Section 1256 Contracts in future years.
The Profit Share allocated to the Managing Owner correspondingly
reduces the Trust's capital gain to be allocated among Unitholders for
federal income tax purposes.
LIMITED DEDUCTION FOR CERTAIN EXPENSES
The Code provides that, for non-corporate taxpayers who itemize
deductions when computing taxable income, expenses of producing income,
including "investment advisory fees," are aggregated with unreimbursed
employee business expenses, other expenses of producing income and certain
other deductions (collectively, "Aggregate Investment Expenses"), and that
the aggregate amount of such expenses is deductible only to the extent that
such amount exceeds 2% of a non-corporate taxpayer's adjusted gross income
(the "2% Floor"). In addition, Aggregate Investment Expenses in excess of the
2% threshold, when combined with a taxpayer's deductions for certain items
are subject to a reduction equal to, generally, 3% of the taxpayer's adjusted
gross income in excess of a certain threshold amount (the "3% Phase Out").
Moreover, such Aggregate Investment Expenses are miscellaneous itemized
deductions which are not deductible by a non-corporate taxpayer in
calculating its alternative minimum tax.
The Managing Owner treats the ordinary expenses of the Trust as
ordinary business deductions not subject to the 2% Floor or the 3% Phase Out.
It is the standard practice in the managed futures industry to treat such
charges as not being subject to the 2% Floor or the 3% Phase Out.
Based on the trading activities of the Trust, in the opinion of
Sidley & Austin, the Trust should be treated as engaged in the conduct of a
trade or business for federal income tax purposes, and, as a result, the
ordinary and necessary business expenses incurred by the Trust in conducting
its commodity futures trading business should not be subject to the 2% Floor
or the 3% Phase-Out.
Sidley & Austin has also opined that the Profit Share should be
treated as a distributive share of the Trust's income allocated to Millburn
Ridgefield. However, if the Profit Share were held to constitute a fee rather
than an allocation of income, it should, nevertheless, be deductible as an
ordinary and necessary business expense, pursuant to the foregoing opinion of
Sidley & Austin that the Trust should be treated as engaged in a trade or
business.
Investors should be aware that an opinion of counsel is not
binding on the IRS or on any court and it is possible that the IRS could
contend, or that a court could decide, that the contemplated trading
activities of the Trust do not constitute a trade or business for federal
income tax purposes. In addition, the IRS could contend that some or all of
the Brokerage Fee and the Profit Share paid to the Managing Owner should be
characterized as "investment advisory fees." To the extent the
characterization of these payments as "investment advisory fees" were to be
sustained, each non-corporate Unitholder's PRO RATA share of the amounts so
characterized would be deductible only to the extent that such non-corporate
Unitholder's Aggregate Investment Expenses exceeded the 2% Floor and, when
combined with certain other itemized deductions, exceeded the 3% Phase-Out.
In addition, each non-corporate Unitholder's distributive share of income
from the Trust would be increased (solely for tax purposes) by such
Unitholder's PRO RATA share of the amounts so recharacterized. Any such
recharacterization could require Unitholders to pay additional taxes,
interest and possibly penalities. (See "-- IRS Audits of the Trust and Its
Unitholders," below at page 62.)
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INTEREST INCOME
Interest received by the Trust, as well as on subscriptions while
held in escrow, is taxed as ordinary income.
The trading by the Trust generates almost exclusively capital gain
or loss. Capital losses can be deducted against ordinary income, in the case
of non-corporate taxpayers, only to the extent of $3,000 per year.
Accordingly, the Trust could incur significant capital losses but an
investor, nevertheless, could be required to pay substantial taxes in respect
of such investor's allocable share of the Trust's interest income and other
ordinary income. See "Risk Factors -- (17) Taxation of Interest Income
Irrespective of Trading Losses" at page 16.
SYNDICATION EXPENSES
Neither the Trust nor any Unitholder is entitled to any deduction
for syndication expenses, nor can these expenses be amortized by the Trust or
any Unitholder, even though the payment of such expenses reduces Net Asset
Value.
That portion of the Trust's administrative expenses related to the
ongoing offering of Units, including the preparation of this Prospectus,
constitutes a non-deductible, non-amortizable, syndication expense.
The IRS could take the position that a portion of the Brokerage
Fee paid to the Managing Owner constitutes a non-deductible syndication
expense.
LIMITATION ON DEDUCTIBILITY OF INTEREST ON INVESTMENT INDEBTEDNESS
Interest paid or accrued on indebtedness properly allocable to
property held for investment constitutes "investment interest." Interest
expense incurred by a Unitholder to acquire or carry his or her Units (as
well as other investments) will constitute "investment interest." Such
interest is generally deductible by non-corporate taxpayers only to the
extent that it does not exceed net investment income (that is, generally, the
excess of (i) gross income from interest, dividends, rents and royalties,
which would include a Unitholder's share of the Trust's interest income, and
(ii) certain gains from the disposition of investment property, over the
expenses directly connected with the production of such investment income).
Any investment interest expense disallowed as a deduction in a taxable year
solely by reason of the above limitation is treated as investment interest
paid or accrued in the succeeding taxable year. A non-corporate taxpayer's
net capital gain from the disposition of investment property is included in
clause (ii) of the second preceding sentence only to the extent such taxpayer
elects to make a corresponding reduction in the amount of net capital gain
that is subject to tax at the lower capital gains rates described above. (See
"--Tax on Capital Gains and Losses," above at page 59.)
TAXATION OF FOREIGN INVESTORS
A Unitholder who is a non-resident alien individual, foreign
corporation, foreign partnership, foreign trust or foreign estate (a "Foreign
Unitholder") generally is not subject to taxation by the United States on
capital gains from commodity trading, provided that such Foreign Unitholder
(in the case of an individual) does not spend more than 182 days in the
United States during his or her taxable year, and provided further, that such
Foreign Unitholder is not engaged in a trade or business within the United
States during a taxable year to which income, gain, or loss of the Trust is
treated as "effectively connected." An investment in the Trust should not, by
itself, cause a Foreign Unitholder to be engaged in a trade or business
within the United States for the foregoing purposes, assuming that the
trading activities of the Trust continue to be conducted as described in this
Prospectus. Pursuant to a "safe harbor" in the Code, an investment fund which
trades commodities for its own account should not be treated as engaged in a
trade or business within the United States provided that such investment fund
is not a dealer in commodities and that the commodities traded are of a kind
customarily dealt in on an organized commodity exchange. The Managing Owner
has advised Sidley & Austin of the contracts that the Trust currently trades.
Based on a review of such contracts as of the date of this Prospectus, the
Trust has been advised by its counsel, Sidley & Austin, that such contracts
should satisfy the safe harbor. If the contracts traded by the Trust in the
future were not covered by the safe harbor, there is a risk that the Trust
would be treated as engaged in a trade or business within the United States.
In the event that the Trust were found to be engaged in a United States trade
or business, a Foreign Unitholder would be required to file a United States
federal income tax return for such year and pay tax at full United States
rates. In the case of a Foreign
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Unitholder which is a foreign corporation, an additional 30% "branch profits"
tax might be imposed. Furthermore, in such event the Trust would be required
to withhold taxes from the income or gain allocable to such a Unitholder
under Section 1446 of the Code.
A Foreign Unitholder is not subject to United States tax on
certain interest income, including income attributable to (i) original issue
discount on Treasury bills having a maturity of 183 days or less or (ii)
commercial bank deposits, provided, in either case, that such Foreign
Unitholder is not engaged in a trade or business within the United States
during a taxable year. Additionally, a Foreign Unitholder, not engaged in a
trade or business within the United States, is not subject to United States
tax on interest income (other than certain so-called "contingent interest")
attributable to obligations issued after July 18, 1984 that are in registered
form if the Foreign Unitholder provides the Trust with a Form W-8 or its
equivalent. The interest received by the Trust is not subject to U.S.
withholding tax.
"UNRELATED BUSINESS TAXABLE INCOME"
Income earned by the Trust does not constitute "unrelated business
taxable income" under Section 511 of the Code to employee benefit plans and
other tax-exempt entities which purchase Units, provided that the Units
purchased by such plans and entities are not debt-financed.
IRS AUDITS OF THE TRUST AND ITS UNITHOLDERS
The tax treatment of Trust-related items is determined at the
Trust level rather than at the Unitholder level. The Managing Owner is the
Trust's "tax matters partner" with the authority to determine the Trust's
responses to an audit, except that the Managing Owner does not have the
authority to settle tax controversies on behalf of any Unitholder who files a
statement with the Internal Revenue Service stating that the Managing Owner
has no authority to do so. The limitations period for assessment of
deficiencies and claims for refunds with respect to items related to the
Trust is three years after the Trust's return for the taxable year in
question is filed, and the Managing Owner has the authority to, and may,
extend such period with respect to all Unitholders.
If an audit results in an adjustment, all Unitholders may be
required to pay additional taxes, plus interest, and, possibly, tax penalties
and additions to tax. Unitholders may themselves also be subject to tax
audits. There can be no assurance that the Trust's or a Unitholder's tax
return will not be audited by the Internal Revenue Service or that no
adjustments to such returns will be made as a result of such an audit.
STATE AND OTHER TAXES
In addition to the federal income tax consequences described
above, the Trust and the Unitholders may be subject to various state and
other taxes. Certain of such taxes could, if applicable, have a significant
effect on the amount of tax payable in respect of an investment in the Trust.
--------------------
THE FOREGOING DISCUSSION IS NOT INTENDED AS A SUBSTITUTE FOR
CAREFUL TAX PLANNING, PARTICULARLY SINCE CERTAIN OF THE INCOME TAX
CONSEQUENCES OF AN INVESTMENT IN THE TRUST MAY NOT BE THE SAME FOR ALL
TAXPAYERS. ACCORDINGLY, PROSPECTIVE INVESTORS ARE URGED TO CONSULT THEIR TAX
ADVISERS WITH SPECIFIC REFERENCE TO THEIR OWN TAX SITUATION UNDER FEDERAL LAW
AND THE PROVISIONS OF APPLICABLE STATE AND OTHER LAWS BEFORE DETERMINING
WHETHER TO SUBSCRIBE FOR UNITS.
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THE FUTURES AND FORWARD MARKETS
FUTURES AND FORWARD CONTRACTS
Commodity futures contracts in the United States are required to
be made on approved commodity exchanges and call for the future delivery of
various commodities at a specified time and place. These contractual
obligations, depending on whether one is a buyer or a seller, may be
satisfied either by taking or making physical delivery of an approved grade
of the particular commodity (or, in the case of some contracts, by cash
settlement) or by making an offsetting sale or purchase of an equivalent
commodity futures contract on the same exchange prior to the designated date
of delivery.
Currencies may be purchased or sold for future delivery through
banks or dealers pursuant to what are commonly referred to as "forward
contracts." In such instances, the bank or dealer generally acts as principal
in the transaction and includes its anticipated profit and the costs of the
transaction in the prices it quotes for such contract; such mark-ups are
known as "bid-ask" spreads. Brokerage commissions are typically not charged
in forward trading. (The level of the Trust's Brokerage Fee is, however,
unaffected by the amount of forward trades it executes.)
HEDGERS AND SPECULATORS
The two broad classifications of persons who trade in commodity
futures are "hedgers" and "speculators." Commercial interests that market or
process commodities use the futures markets to a significant extent for
hedging. Hedging is a protective procedure designed to minimize losses that
may occur because of price fluctuations, for example, between the time a
merchandiser or processor makes a contract to sell a raw or processed
commodity and the time he or she must perform the contract. The commodity
markets enable the hedger to shift the risk of price fluctuations to the
speculator. The speculator, unlike the hedger, generally expects neither to
deliver nor receive the physical commodity; rather, the speculator risks his
or her capital with the hope of making profits from price fluctuations in
commodity futures contracts. Speculators rarely take delivery of physical
commodities but rather close out their futures positions by entering into
offsetting purchases or sales of futures contracts.
COMMODITY EXCHANGES
Commodity exchanges provide centralized market facilities for
trading in futures contracts relating to specified commodities. Each of the
commodity exchanges in the United States has an associated "clearinghouse."
Once trades made between members of an exchange have been confirmed, the
clearinghouse becomes substituted for the clearing member acting on behalf of
each buyer and each seller of contracts traded on the exchange and in effect
becomes the other party to the trade. Thereafter, each clearing member firm
party to the trade looks only to the clearinghouse for performance.
Clearinghouses do not deal with customers, but only with member firms, and
the "guarantee" of performance under open positions provided by the
clearinghouse does not run to customers. If a customer's commodity broker
becomes bankrupt or insolvent, or otherwise defaults on such broker's
obligations to such customer, the customer in question may not receive all
amounts owing to such customer in respect of his or her trading, despite the
clearinghouse fully discharging all of its obligations.
The Managing Owner trades on foreign commodity exchanges. Foreign
commodity exchanges differ in certain respects from their United States
counterparts and are not subject to regulation by any United States
governmental agency. Therefore, the protections afforded by such regulation
are not available to the Trust in its trading on such exchanges. For example,
in contrast to United States exchanges, many foreign exchanges are
"principals' markets," where trades remain the liability of the traders
involved and the exchange or clearinghouse does not become substituted for
any party. Certain foreign exchanges also have no position limits, with each
dealer, acting individually, establishing the size of the positions it will
permit traders to hold.
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The Trust engages, to a substantial extent, in transactions on
foreign exchanges, and in doing so is subject to the risks of trading in
principals' markets as well as the risk of fluctuations in the exchange rate
between the currencies in which the contracts traded on such foreign
exchanges are denominated and United States dollars (as well as the
possibility that exchange controls could be imposed in the future).
SPECULATIVE POSITION AND DAILY LIMITS
The CFTC and the United States exchanges have established limits,
referred to as "speculative position limits," on the maximum net long or net
short position that any person (other than a hedger) may hold or control in
futures contracts or options on particular commodities. These limits may
restrict the Managing Owner's ability to acquire positions which it otherwise
would acquire on behalf of the Trust, particularly in certain non-financial
commodities, such as energy, metals and agriculture.
Most United States exchanges limit by regulations the maximum
permissible fluctuation in commodity futures contract prices during a single
trading day. These regulations specify what are commonly referred to as
"daily limits." Daily limits establish the maximum amount by which the price
of a futures contract may vary either up or down from the previous day's
settlement price at the end of the trading session. Because daily limits
apply only on a day-to-day basis, they do not limit ultimate losses, and may
cause illiquidity in certain markets which results in substantial losses to
the Trust which the Managing Owner is powerless to limit or prevent.
MARGIN
Margin represents a security deposit to assure futures traders'
performance under their open positions. When a position is established,
"initial margin" is deposited and at the close of each trading day "variation
margin" is either credited or debited from a trader's account, representing
the unrealized gain or loss on open positions during the day. If "variation
margin" payments cause a trader's "initial margin" to fall below "maintenance
margin" levels, a "margin call" will be made requiring the trader to deposit
additional margin or have his or her position closed out.
PURCHASES BY EMPLOYEE BENEFIT PLANS
ALTHOUGH THERE CAN BE NO ASSURANCE THAT AN INVESTMENT IN THE
TRUST, OR ANY OTHER MANAGED FUTURES PRODUCT, WILL ACHIEVE THE INVESTMENT
OBJECTIVES OF AN EMPLOYEE BENEFIT PLAN, SUCH INVESTMENTS HAVE CERTAIN
FEATURES WHICH MAY BE OF INTEREST TO SUCH PLANS. FOR EXAMPLE, THE FUTURES
MARKETS ARE ONE OF THE FEW INVESTMENT FIELDS IN WHICH EMPLOYEE BENEFIT PLANS
CAN PARTICIPATE IN LEVERAGED STRATEGIES WITHOUT BEING REQUIRED TO PAY TAX ON
"UNRELATED BUSINESS TAXABLE INCOME." SEE "FEDERAL INCOME TAX ASPECTS --
'UNRELATED BUSINESS TAXABLE INCOME'" AT PAGE 62. IN ADDITION, BECAUSE THEY
ARE NOT TAXPAYING ENTITIES, EMPLOYEE BENEFIT PLANS ARE NOT SUBJECT TO PAYING
ANNUAL TAX ON THEIR PROFITS (IF ANY) FROM THE TRUST DESPITE RECEIVING NO
DISTRIBUTIONS FROM IT, AS ARE OTHER UNITHOLDERS.
AS A MATTER OF POLICY, MILLBURN RIDGEFIELD LIMITS SUBSCRIPTIONS TO
THE TRUST FROM ANY EMPLOYEE BENEFIT PLAN TO NO MORE THAN 10% OF THE "LIQUID"
NET ASSETS OF SUCH PLAN AT THE TIME OF INVESTMENT (IRRESPECTIVE OF THE NET
WORTH OF THE BENEFICIARY OR BENEFICIARIES OF SUCH PLAN).
GENERAL
The following section sets forth certain consequences under the
Employee Retirement Income Security Act of 1974, as amended ("ERISA"), and
the Code, which a fiduciary of an "employee benefit plan" as defined in and
subject to ERISA or of a "plan" as defined in Section 4975 of the Code who
has investment discretion should consider before deciding to invest any of
such plan's assets in the Trust (such "employee benefit plans" and "plans"
being referred to herein as "Plans," and such fiduciaries with investment
discretion being referred to herein as "Plan Fiduciaries"). The following
summary is not intended to be complete, but only to address certain questions
under ERISA and the Code which are likely to be raised by the Plan
Fiduciary's own counsel.
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In general, the terms "employee benefit plan" as defined in ERISA
and "plan" as defined in Section 4975 of the Code together refer to any plan
or account of various types which provide retirement benefits or welfare
benefits to an individual or to an employer's employees and their
beneficiaries. Such plans and accounts include, but are not limited to,
corporate pension and profit sharing plans, "simplified employee pension
plans," KEOGH plans for self-employed individuals (including partners),
individual retirement accounts described in Section 408 of the Code and
medical benefit plans, but generally do not include any such plan maintained
by a church or by a state or local government.
Each Plan Fiduciary must give appropriate consideration to the
facts and circumstances that are relevant to an investment in the Trust,
including the role that an investment in the Trust plays in the Plan's
overall investment portfolio. Each Plan Fiduciary, before deciding to invest
in the Trust, must be satisfied that investment in the Trust is a prudent
investment for the Plan, that the investments of the Plan, including the
investment in the Trust, are diversified so as to minimize the risk of large
losses and that an investment in the Trust complies with the terms of the
Plan and the related trust.
EACH PLAN FIDUCIARY CONSIDERING ACQUIRING UNITS MUST CONSULT
WITH ITS OWN LEGAL AND TAX ADVISERS BEFORE DOING SO. AN
INVESTMENT IN THE TRUST IS SPECULATIVE AND INVOLVES
A HIGH DEGREE OF RISK. THE TRUST IS NOT INTENDED
AS A COMPLETE INVESTMENT PROGRAM.
"PLAN ASSETS"
The purchase of Units by a Plan raises the issue of whether that
purchase will cause, for purposes of Title I of ERISA and Section 4975 of the
Code, the underlying assets of the Trust to be considered to constitute
assets of such Plan. A regulation issued under ERISA (the "ERISA Regulation")
contains rules for determining when an investment by a Plan in an equity
interest of an entity will result in the underlying assets of such entity
being considered assets of such Plan for purposes of ERISA and Section 4975
of the Code (I.E., "plan assets"). Those rules provide that assets of an
entity will not be considered assets of a Plan which purchases an equity
interest in the entity if certain exceptions apply, including an exception
applicable if the equity interest purchased is a "publicly-offered security."
The Units qualify as a "publicly-offered security" pursuant to the foregoing
rules.
INELIGIBLE PURCHASERS
Units may not be purchased with the assets of a Plan if Millburn
Ridgefield, the Trustee, any Selling Agent, any Clearing Broker, Chemical
Bank, N.A. or any of their respective affiliates or any of their respective
agents or employees: (a) has investment discretion with respect to the
investment of the assets of such Plan invested in the Units; (b) has
authority or responsibility to give or regularly gives investment advice with
respect to such Plan 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 Plan assets and that such advice will be based
on the particular investment needs of the Plan; or (c) is an employer
maintaining or contributing to such Plan. A party that is described in clause
(a) or (b) of the preceding sentence is a fiduciary under ERISA and the Code
with respect to the Plan, and any such purchase might result in a "prohibited
transaction" under ERISA and the Code.
Except as otherwise set forth, the foregoing statements regarding
the consequences under ERISA and the Code of an investment in the Trust are
based on the provisions of the Code and ERISA as currently in effect, and the
existing administrative and judicial interpretations thereunder. No assurance
can be given that administrative, judicial or legislative changes will not
occur that will not make the foregoing statements incorrect or incomplete.
ACCEPTANCE OF SUBSCRIPTIONS ON BEHALF OF PLANS IS IN NO RESPECT A
REPRESEN TATION BY THE TRUST, MILLBURN RIDGEFIELD, ANY SELLING AGENT OR ANY
OTHER PARTY THAT THIS INVESTMENT MEETS SOME OR ALL OF THE RELEVANT LEGAL
REQUIREMENTS WITH RESPECT TO INVESTMENTS BY ANY PARTICULAR PLAN OR THAT THIS
INVESTMENT IS APPRO PRIATE FOR ANY PARTICULAR PLAN. THE PERSON WITH
INVESTMENT DISCRETION SHOULD CONSULT WITH HIS OR HER ATTORNEY AND FINANCIAL
ADVISERS AS TO THE PROPRIETY OF
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AN INVESTMENT IN THE TRUST IN LIGHT OF THE CIRCUMSTANCES OF THE PARTICULAR
PLAN AND CURRENT TAX LAW.
PLAN OF DISTRIBUTION
SUBSCRIPTION PROCEDURE
The Units are offered to the public -- on a "best efforts" basis
- --at Net Asset Value as of the first business day of each calendar month
(Millburn Ridgefield may from time to time elect to issue Units at
intra-month closings). The minimum initial investment is $5,000; $2,000 for
trustees or custodians of eligible employee benefit plans and individual
retirement accounts. Subscriptions in excess of these minimums are permitted
in $100 increments. Additional subscriptions by existing Unitholders are
permitted in $1,000 minimums with $100 increments. Units are sold in
fractions calculated up to three decimal places.
In order to purchase Units, an investor must complete, execute and
deliver to a Selling Agent an original of the Subscription Agreement and
Power of Attorney Signature Page which accompanies this Prospectus, together
with a check for the amount of his or her subscription. Checks should be made
payable to "CHEMICAL BANK, AS ESCROW AGENT FOR THE MILLBURN WORLD RESOURCE
TRUST, ESCROW ACCOUNT NO. SE14791."
Subscription payments by clients of certain Selling Agents may be
made by authorizing the Selling Agents to debit a subscriber's customer
securities account for the amount of the subscription. When a subscriber
authorizes such a debit, the subscriber will be required to have the amount
of his or her subscription payment on deposit in his or her account on a
settlement date specified by such Selling Agent. The account will be debited,
and amounts so debited will be transmitted directly to Chemical Bank by such
Selling Agent via check or wire transfer made payable to "CHEMICAL BANK, AS
ESCROW AGENT FOR THE MILLBURN WORLD RESOURCE TRUST, ESCROW ACCOUNT NO.
SE14791," for deposit in the escrow account of the Trust, on such settlement
date. Such settlement date will occur on a date specified by such Selling
Agents, not later than three business days following notification by the
Managing Owner of the acceptance of an investor's subscription and not later
than the termination of the Offering Period.
The Managing Owner determines, in its sole discretion, whether to
accept or reject a subscription in whole or in part. Such determination is
made within five (5) business days of the submission of a subscription to the
Managing Owner. Settlement of the subscription payments on accepted
subscriptions is made within three (3) business days of acceptance of the
related subscription.
Subscription documents must generally be received at least five
(5) calendar days before the end of a month in order to be accepted as of the
first day of the immediately following month.
Interest earned on each subscription while held in escrow (escrow
interest is allocated PRO RATA among all subscribers during a particular
escrow period based on the amount of their respective subscriptions and the
length of time on deposit in escrow) is invested in the Trust and increases
the number of Units received by such investors. Interest earned on rejected
subscriptions is paid directly to the rejected subscribers.
Subscription funds are invested in short-term United States
Treasury bills or comparable authorized instruments while held in escrow
pending investment in the Units and will earn interest at the prevailing
"risk free" rates.
No fees are charged on any subscriptions while held in escrow.
Subscribers are notified prior to any return of their subscriptions, and the
amounts returned to them shall in no event be reduced by any deductions for
fees or expenses.
Subscriptions, if rejected, are promptly returned to investors
together with all interest accrued thereon while held in escrow.
Subject to compliance with applicable regulatory requirements, the
Managing Owner may at any time elect not to continue to use an escrow
account. In such case, prospective subscribers will be duly notified that
subscriptions will be accepted at a single month-end closing date, directly
into the Trust's account.
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No subscriptions are final or binding on a subscriber until the
close of business on the fifth business day following such subscriber's
receipt of a final Prospectus.
THE SELLING AGENTS
No selling commissions are paid from the proceeds of this
offering. The Selling Agents are paid selling commissions by the Managing
Owner equal to 5% of Net Asset Value of all Units sold by each Selling Agent,
respec tively. In addition to selling commissions, the Managing Owner will
also pay ongoing compensation to the Selling Agents which are registered with
the CFTC as "futures commission merchants" or "introducing brokers" in the
amount of 0.33 of 1% (a 4.0% annual rate) of the month-end Net Assets of all
Units sold by them which remain outstanding, beginning with the end of the
thirteenth full month after the date such Units were first issued (not the
date that the related subscription was deposited into escrow); provided that
such ongoing compensation may only be paid on Units sold by Registered
Representatives who are (i) registered with the CFTC, (ii) have passed either
the Series 3 or the Series 31 Examination, and (iii) agree to provide certain
ongoing services to their clients who own outstanding Units. Such ongoing
compensation may be deemed to constitute underwriting compensation.
In the event that either a Selling Agent or a Selling Agent's
Registered Representative is not duly registered with the CFTC, or such
Registered Representative does not agree to provide ongoing services to his
or her clients who own outstanding Units, no ongoing compensation may be paid
either to such Selling Agent or to such Registered Repre sentative by the
Managing Owner. Rather, pursuant to applicable rules of the NASD, such
Selling Agent and such Registered Representative are restricted to receiving,
in addition to the initial 5% selling commissions, installment selling
commissions payable in the same manner as ongoing compensation, but limited
in amount to 4.5% of the initial subscription price of Units sold by them --
resulting in total initial and installment selling commissions equal to 9.5%
of such subscription price.
The selling commissions and ongoing compensation paid by the
Managing Owner in respect of Units acquired by persons which invest
$1,000,000 or more in the Trust (and, accordingly, will pay Brokerage Fees of
7.0% rather than 9.0% per annum), are reduced to 3% of the subscription
amount and a 2% annual rate, respectively.
PaineWebber, the Principal Selling Agent, selects certain
"introducing brokers," for which PaineWebber clears customer transactions and
carries customer accounts, to distribute Units. On Units sold through such
introducing brokers (each of which must be registered as a broker-dealer or a
foreign broker exempt from such registration requirement), PaineWebber will
retain (i) 1% of the 5% initial selling commissions, passing on to the
introducing brokers the remaining 4% (1% of the 3% initial selling
commissions being retained by PaineWebber and 2% passed on to such
introducing broker in the case of subscriptions of $1,000,000 or more), as
well as (ii) 1% per annum of the ongoing compensation paid on Units which
remain outstanding more than twelve months, passing on the remaining 3% to
the introducing brokers (0.75% being retained by PaineWebber and 1.25% passed
on to such introducing broker in the case of subscriptions of $1,000,000 or
more).
In addition to distributing Units through the Selling Agents, the
Trust may from time to time sell Units directly, without selling or
"trailing" commissions. Units sold directly by the Trust (the Trust has made
one such sale to date) may pay brokerage fees reduced to reflect the absence
of selling and "trailing" commissions paid in respect of such Units. Direct
Unit sales by the Trust will have no effect on any other Units (except to the
extent that the sale of such Units reduces all Units' PRO RATA share of the
organizational and initial offering expenses reimbursement payments due to
Millburn Ridgefield by the Trust), and the proceeds of all Units will be
managed in the same trading account.
Other than as described above, no commissions or other fees are
paid, directly or indirectly, by the Trust, the Managing Owner, any affiliate
of the foregoing or any principal or officer of any of the foregoing, to any
person in connection with the solicitation of purchasers for Units.
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The Managing Owner advanced the Trust's organizational and initial
offering costs in the amount of $600,000, for which the Managing Owner has
been fully reimbursed, without interest, by the Trust.
LEGAL MATTERS
Legal matters in connection with the Units being offered hereby
are passed upon for the Managing Owner by Sidley & Austin, Chicago, Illinois
and Richards, Layton & Finger, Wilmington, Delaware. Neither Sidley & Austin
nor Richards, Layton & Finger represent either the Trust or the Unitholders,
although Sidley & Austin advises the Managing Owner on an ongoing basis,
including concerning its responsibilities as Managing Owner and with respect
to matters relating to the management of the Trust and the Managing Owner's
obligations to the Unitholders. The state ments under "Federal Income Tax
Aspects" have been reviewed by Sidley & Austin.
EXPERTS
Arthur F. Bell, Jr. & Associates, L.L.C. is Millburn Ridgefield's
independent public accountant. The Millburn Ridgefield Corporation Statement
of Financial Condition as of December 31, 1997 included in this Prospectus
has been audited by Arthur F. Bell, Jr., & Associates, L.L.C., independent
auditor, as stated in its report appearing herein, and is so included in
reliance upon such report, given upon the authority of that firm as an expert
in auditing and accounting.
Coopers & Lybrand L.L.P. are the Trust's independent accountants.
The financial statements of the Trust as of December 31, 1997 and December
31, 1996 included in this Prospectus have been audited by Coopers & Lybrand
L.L.P., independent accountants, as stated in their report appearing herein,
and have been so included in reliance upon such report given upon the
authority of that firm as experts in auditing and accounting.
REPORTS
Applicable rules of the CFTC require that this Prospectus be
accompanied by summary financial information (which may be a recent Monthly
Report of the Trust) current within 60 calendar days.
ADDITIONAL INFORMATION
This Prospectus constitutes part of the Registration Statement
filed by the Trust with the SEC in Washington, D.C. This Prospectus does not
contain all of the information set forth in such Registration Statement,
certain portions of which have been omitted pursuant to the rules and
regulations of the SEC including, without limitation, certain exhibits
thereto (for example, the Selling Agreement, the Escrow Agreement and the
Customer Agreements). The descriptions contained herein of agreements
included as exhibits to the Registration Statement are necessarily summaries,
and the exhibits themselves may be inspected without charge at the public
reference facilities maintained by the SEC in Washington, D.C., and copies of
all or part thereof may be obtained from the SEC upon payment of the
prescribed fees.
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INDEX OF DEFINED TERMS
A NUMBER OF DEFINED OR SPECIALIZED TERMS ARE USED IN THIS PROSPECTUS. THE
RESPECTIVE DEFINITIONS OR DESCRIPTIONS OF SUCH TERMS MAY BE FOUND ON
THE FOLLOWING PAGES OF THIS PROSPECTUS.
Page(s)
------
Additional Selling Agents.................................... -i-
Administrative expenses...................................... 41
"Bid-ask" spreads............................................ 39
"Breakeven" analysis......................................... 8
Brokerage Fee................................................ 38
Business trust............................................... 54
CFTC......................................................... -i-
Clearing Broker.............................................. -i-
Clearinghouse................................................ 63
Daily limits................................................. 64
Employee benefit plan........................................ 64
Forward contracts............................................ 63
Futures contracts............................................ 63
Initial margin............................................... 64
Installment selling commissions.............................. -ii-
Investment advisory fees..................................... 16
Maintenance margin........................................... 64
Managing Owner............................................... Cover Page
Margin....................................................... 64
Margin call.................................................. 64
Millburn Ridgefield.......................................... Cover Page
Net Asset Value.............................................. 43
New Trading Profit........................................... 40
NFA.......................................................... -ii-
Ongoing compensation......................................... -i-
Organizational and initial offering cost reimbursement....... 42
Principals' markets.......................................... 63
Principal Selling Agent...................................... -i-
Profit Share................................................. 40-41
Redemption charges........................................... 42
Round-turn commissions....................................... 38
Selling Agents............................................... -i-
Selling commissions.......................................... -i-
Series 3 Examination......................................... -i-
Series 31 Examination........................................ -i-
Speculative position limits.................................. 64
Trust........................................................ Cover Page
Variation margin............................................. 64
World Resource Portfolio..................................... 27
"Zero-sum" trading........................................... 15
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INDEX TO FINANCIAL STATEMENTS
PAGE
THE MILLBURN WORLD RESOURCE TRUST
Report of Independent Accountants....................................... 71
Statements of Financial Condition as of December 31, 1997 and 1996...... 72
Statements of Operations for the years ended December 31, 1997 and
1996 and the period from September 13, 1995 (commencement of
trading operations) to December 31, 1995............................. 73
Statements of Changes in Trust Capital for the years ended December
31, 1997 and 1996 and the period from June 7, 1995 (date Trust was
organized) to December 31, 1995...................................... 74
Notes to Financial Statements........................................... 75
MILLBURN RIDGEFIELD CORPORATION
Independent Auditor's Report............................................ 80
Statement of Financial Condition-- December 31, 1997.................... 81
Notes to Financial Statement............................................ 82
--------------------
Schedules are omitted for the reason that they are not required or are
not applicable or that equivalent information has been included in the
financial statements or notes thereto.
-70-
<PAGE>
REPORT OF INDEPENDENT ACCOUNTANTS
TO THE UNITHOLDERS OF
THE MILLBURN WORLD RESOURCE TRUST:
We have audited the accompanying statements of financial condition of THE
MILLBURN WORLD RESOURCE TRUST as of December 31, 1997 and 1996, and the
related statements of operations for the years ended December 31, 1997 and
1996 and the period from September 13, 1995 (commencement of trading
operations) to December 31, 1995, and the statements of changes in Trust
capital for the years ended December 31, 1997 and 1996 and the period from
June 7, 1995 (date Trust was organized) to December 31, 1995. These financial
statements are the responsibility of management of the Managing Owner. Our
responsibility is to express an opinion on these financial statements based
on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to
obtain reasonable assurance about whether the financial statements are free
of material misstatement. An audit includes examining, on a test basis,
evidence supporting the amounts and disclosures in the financial statements.
An audit also includes assessing the accounting principles used and
significant estimates made by management, as well as evaluating the overall
financial statement presentation. We believe that our audits provide a
reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the financial position of The Millburn World Resource
Trust as of December 31, 1997 and 1996 and the results of its operations for
the years ended December 31, 1997, 1996 and for the period from June 7, 1995
(date Trust was organized) to December 31, 1995, in conformity with generally
accepted accounting principles.
COOPERS & LYBRAND L.L.P.
New York, New York
January 26, 1998
-71-
<PAGE>
THE MILLBURN WORLD RESOURCE TRUST
STATEMENTS OF FINANCIAL CONDITION
AS OF DECEMBER 31, 1997 AND 1996
ASSETS:
<TABLE>
<CAPTION>
DECEMBER 31, 1997 DECEMBER 31, 1996
----------------- -----------------
<S> <C> <C>
Equity in trading accounts:
Investments in U.S. Treasury bills - at value (amortized cost $16,490,244
at December 31, 1997 and $30,256,310 at December 31, 1996)
(Note 3) $16,490,244 $30,256,310
Options owned, at market value (cost $396,056 at December 31, 1997
and $685,996 at December 31, 1996) 559,110 922,536
Unrealized appreciation on open contracts 4,753,326 3,779,038
Unrealized depreciation on open currency contracts -- (573,797)
Cash 2,105,808 5,855,321
----------- -----------
23,908,488 40,813,205
Money market fund 9,944,556 2,447,271
Investment in U.S. Treasury bills - at value (amortized cost $41,009,510
at December 31, 1997 and $15,656,090 at December 31, 1996) (Note 3) 41,009,510 15,656,090
------------ ----------
Total assets $74,862,554 $58,916,566
=========== ===========
LIABILITIES AND TRUST CAPITAL:
Due to broker for U.S. Treasury bills purchased -- 293,705
Due to Managing Owner (Note 4) -- 252,264
Accounts payable and accrued expenses 73,925 52,344
Redemptions payable to Unitholders, net (Note 10) 773,980 1,260,914
Accrued brokerage Fees (Note 5) 443,746 343,224
---------- -------------
Total liabilities 1,291,651 2,776,248
------------ ------------
Trust capital (Notes 5, 10 and 11):
Managing Owner interest 776,209 1,417,312
Unitholders (61,563.868 and 47,579.531
Units of Beneficial Interest outstanding in 1997 and 1996, respectively) 72,794,684 54,723,006
------------ ------------
Total Trust capital 73,570,903 56,140,318
------------ ------------
Total liabilities and Trust capital $74,862,554 $58,916,566
=========== ===========
</TABLE>
See accompanying notes to financial statements.
PAST PERFORMANCE IS NOT NECESSARILY INDICATIVE OF FUTURE RESULTS.
-72-
<PAGE>
THE MILLBURN WORLD RESOURCE TRUST
STATEMENTS OF CHANGES IN TRUST CAPITAL
<TABLE>
<CAPTION>
FOR THE YEARS ENDED DECEMBER 31, 1997 AND 1996 AND THE PERIOD FROM SEPTEMBER 13, 1995
(COMMENCEMENT OF TRADING OPERATIONS) TO DECEMBER 31, 1995
FOR THE PERIOD FROM
SEPTEMBER 13, 1995
(COMMENCEMENT OF
YEAR ENDED FOR THE YEAR ENDED TRADING OPERATIONS)
DECEMBER 31, 1997 DECEMBER 31, 1996 TO DECEMBER 31, 1995
----------------- ----------------- --------------------
<S> <S> <C> <C>
Income (Note 3):
Net gains on trading of futures, forward and
option contracts:
Realized gains (losses):
Futures and forwards $4,123,599 $7,778,511 $ 551,797
Options (486,783) 750,368 (98,084)
Change in unrealized appreciation (depreciation):
Futures and forwards 1,548,085 489,201 2,716,040
Options (73,486) 123,713 112,827
---------- ---------- ----------
5,111,415 9,141,793 3,282,580
Less, Brokerage Fees (Note 5) 6,057,327 3,998,675 548,790
---------- ---------- ----------
Net realized and unrealized gains
(losses) on trading
of futures, forward and
option contracts (945,912) 5,143,118 2,733,790
Interest income 3,467,544 2,115,972 303,229
Foreign exchange gain (loss) 62,685 (72,910) (9,539)
---------- ---------- ----------
Total income 2,584,317 7,186,180 3,027,480
---------- ---------- ----------
Expenses (Note 3):
Profit Share (Note 5) 695,667 829,081 460,840
Administrative expenses 345,473 519,753 59,492
---------- ---------- ----------
Total expenses 1,041,140 1,348,834 520,332
---------- ---------- ----------
Net income $1,543,177 $5,837,346 $2,507,148
---------- ---------- ----------
---------- ---------- ----------
Net income per Unit of
Beneficial Interest (Note 10) $ 32.29 $ 99.45 $ 75.75
---------- ---------- ----------
---------- ---------- ----------
</TABLE>
See accompanying notes to financial statements.
PAST PERFORMANCE IS NOT NECESSARILY INDICATIVE OF FUTURE RESULTS.
-73-
<PAGE>
THE MILLBURN WORLD RESOURCE TRUST
STATEMENTS OF CHANGES IN TRUST CAPITAL
<TABLE>
<CAPTION>
FOR THE YEARS ENDED DECEMBER 31, 1997 AND 1996 AND THE PERIOD FROM JUNE 7, 1995
(DATE TRUST WAS ORGANIZED) TO DECEMBER 31, 1995
NEW
PROFITS
MEMO MANAGING
UNITHOLDERS ACCOUNT OWNER TOTAL
------------- -------------- ------------ ------------
<S> <C> <C> <C> <C>
Initial capital contributions $ 1,600 $ 400 $ 2,000
Proceeds from initial offering of 15,141.664 Units
of Beneficial Interest and Managing Owner
contribution 15,141,664 155,005 15,296,669
Initial capital contribution withdrawn (1,600) (1,600)
------------- ------------ ------------
Opening Trust capital for operations 15,141,664 155,405 15,297,069
Proceeds from sale of 8,926.044 Units of
Beneficial Interest and Managing Owner
contributions 8,267,366 85,000 8,352,366
Organizational and initial offering costs (593,674) (6,326) (600,000)
Net income 2,471,680 35,468 2,507,148
Redemptions (81.621 Units of Beneficial Interest) (85,146) (85,146)
Managing Owner's Profit Share $ 460,840 460,840
Transfer from New Profits Memo Account to
Managing Owner (460,840) 460,840
------------- -------------- ------------ ------------
Trust capital at December 31, 1995 25,201,890 -- 730,387 25,932,277
Proceeds from sale of 30,447.310 Units of
Beneficial Interest 31,099,099 217,000 31,316,099
Net income 5,735,662 712 100,972 5,837,346
Redemptions (6,951.474 Units of Beneficial Interest) (7,313,645) (460,840) (7,774,485)
Limited Partnership Units (97.608) allocated
Managing Owner's Profit Share 829,081 829,081
Transfer from New Profits Memo Account to
Managing Owner (829,793) 829,793
------------- -------------- ------------ ------------
Trust capital at December 31, 1996 54,723,006 -- 1,417,312 56,140,318
Proceeds from sale of 22,517.798 Units of
Beneficial Interest 26,834,427 7,679 115,000 26,957,106
Net income 1,469,088 323 73,766 1,543,177
Redemptions (8,664.831 Units of Beneficial Interest) (10,231,827) (8,002) (1,525,536) (11,765,365)
Limited Partnership Units (131.370) allocated -- -- -- --
Managing Owner's Profit Share -- 695,667 -- 695,667
Transfer from New Profits Memo Account
to Managing Owner -- (695,667) 695,667 --
------------- -------------- ------------ ------------
Total capital at December 31, 1997 $ 72,794,694 $ - $ 776,209 $ 73,570,903
------------- -------------- ------------ ------------
------------- -------------- ------------ ------------
</TABLE>
See accompanying notes to financial statements.
PAST PERFORMANCE IS NOT NECESSARILY INDICATIVE OF FUTURE RESULTS.
-74-
<PAGE>
THE MILLBURN WORLD RESOURCE TRUST
NOTES TO FINANCIAL STATEMENTS
1. ORGANIZATION:
The Millburn World Resource Trust (the "Trust") was organized on June
7, 1995 under the Delaware Business Trust Act. At such time, the only
capital contributed to the Trust was the original capital
contribution of $400 by Millburn Ridgefield Corporation (the
"Managing Owner") and $1,600 by the initial Unitholder. The Managing
Owner has agreed to make additional capital contributions as Managing
Owner, subject to certain possible exceptions, in order to maintain
its capital account at not less than 1% of the total capital accounts
of the Trust. The Managing Owner and the holders of the Units of
Beneficial Interest ("Units") issued by the Trust will share in any
profits and losses of the Trust in proportion to the percentage
interest owned by each, before brokerage commissions and profit share
allocations.
The proceeds from the initial offering of Units were turned over to
the Trust on September 13, 1995, and the Trust commenced trading
operations. The Trust is engaged in speculative trading in the
futures, options and forward markets.
2. THE OFFERING OF THE UNITS:
The Trust offered Units to the public initially at the price of
$1,000 per Unit, and, after the initial sale of the Units, at the Net
Asset Value per Unit (as defined in the Declaration of Trust and
Trust Agreement) as of the first business day of each calendar month.
Selling commissions are paid by the Managing Owner. These selling
commissions will be up to 5% of the subscription price (Net Asset
Value) per Unit after trading begins.
The proceeds from the subscriptions for Units are held in escrow and
invested in interest-bearing obligations. Subscribers are credited,
when the Units are issued, with additional Units in an amount
corresponding to the interest earned on their subscriptions while
held in escrow. If a subscription is rejected, the subscription funds
plus all interest earned thereon while held in escrow are promptly
returned to the investor.
3. ACCOUNTING POLICIES:
a. INVESTMENTS
Open options, futures and forward contracts are valued at market
value. Realized gains (losses) and changes in unrealized appreciation
(depreciation) on futures, forward and option contracts are
recognized in the periods in which the contracts are closed or the
changes occur, and are included in net gains (losses) on the trading
of futures, forward and option contracts.
Investments in U.S. government obligations are valued at cost plus
amortized discount which approximates market. Amortization of
discount is reflected as interest income.
b. FOREIGN CURRENCY TRANSLATION
Assets and liabilities denominated in foreign currencies are
translated at quoted prices of such currencies. Purchases and sales
of investments are translated at the exchange rate prevailing when
such transactions occurred.
c. INCOME TAXES
Income taxes have not been provided, as each Unitholder is
individually liable for the taxes, if any, on his share of the
Trust's income and expenses.
PAST PERFORMANCE IS NOT NECESSARILY INDICATIVE OF FUTURE RESULTS.
-75-
<PAGE>
THE MILLBURN WORLD RESOURCE TRUST
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
d. ESTIMATES
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates
and assumptions that affect the reported amounts of revenues and
expenses during the period. Actual results could differ from these
estimates.
e. RIGHT OF OFFSET
The customer agreements between the Trust and certain brokers give
the Trust the legal right to net unrealized gains and losses.
Unrealized gains and losses related to transactions with these
brokers are reflected on a net basis in the equity in trading
accounts in the statements of financial condition.
4. ORGANIZATIONAL AND INITIAL OFFERING COSTS:
Organizational and initial offering costs (exclusive of selling
commissions), estimated at $600,000, were advanced by the Managing
Owner and were reimbursed by the Trust in 24 equal monthly
installments, subject to a provision that the monthly installments
received during any fiscal year did not in the aggregate exceed 0.167
of 1% (a 2% annual rate) of the month-end Net Asset Value of the
Trust as of each of the months elapsed during such fiscal year
including the month of determination. The reimbursement of these
costs was completed in the year ended December 31, 1997. The total
costs were deducted from Trust capital upon commencement of trading,
and reduced the redemption value per Unit to the extent that the
reimbursement payments were made to the Managing Owner. The Managing
Owner was also to pay, from its own funds, selling commissions on all
sales of Units.
5. TRUST AGREEMENT:
The Trust Agreement provides that the Managing Owner shall control,
conduct and manage the business of the Trust, and may make all
trading decisions.
The Trust pays brokerage fees to the Managing Owner at the annual
rate of 9.0% of the Trust's average month-end Net Assets of
Unitholders' interests (prior to reduction for accrued brokerage fees
or Profit Share). The Managing Owner retains the right to charge less
than the annual brokerage rate of 9% to those subscribers who either
invest $1,000,000 or more in the Units or subscribe without incurring
the selling commission paid by the Managing Owner. The Managing
Owner, not the Trust, will pay all routine costs of executing and
clearing the Trust's futures and options trades, including brokerage
commissions payable to the clearing brokers.
Profit Share equal to 17.5% of any New Trading Profits (as defined)
in excess of the highest cumulative level of Trading Profit as of any
previous calendar quarter-end is added to the New Profits Memo
Account. A transfer from such account to the Managing Owner's capital
account is made to the extent taxable capital gains are allocated to
the Managing Owner.
The Trust pays its legal, accounting, auditing, printing, postage and
similar administrative expenses (including the Trustee's fees, the
charges of an outside accounting services agency and the expenses of
updating the Prospectus), as well as extraordinary costs.
6. TRADING ACTIVITIES:
All of the derivatives owned by the Trust, including options, futures
and forwards, are held for trading purposes. The results of the
Trust's trading activity are shown in the statement of operations.
The fair value of the derivative financial instruments, at December
31, 1997 and 1996, respectively, was $5,312,436 and $4,127,777 and
the average fair value during the periods then ended (calculated on a
monthly basis), approximated $3,510,394 and $3,351,056, respectively.
PAST PERFORMANCE IS NOT NECESSARILY INDICATIVE OF FUTURE RESULTS.
-76-
<PAGE>
THE MILLBURN WORLD RESOURCE TRUST
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
The Trust conducts its trading activities with various brokers acting
either as a broker or counterparty to various transactions. At
December 31, 1997 and 1996, respectively, cash and treasury bills,
aggregating $18,596,052 and $36,111,631, included in the Trust's
equity in trading accounts are held by such brokers in segregated
accounts as required by Commodity Futures Trading Commission
regulations.
7. DERIVATIVE INSTRUMENTS:
The Trust is party to derivative instruments in the normal course of
its business. These financial instruments include forwards, futures
and options, whose value is based upon an underlying asset, index, or
reference rate, and generally represent future commitments to
exchange currencies or cash flows, or to purchase or sell other
financial instruments at specific terms at specified future dates.
These instruments may be traded on an exchange or over-the-counter.
Exchange traded instruments are standardized and include futures and
certain options. Each of these instruments is subject to various
risks similar to those related to the underlying financial
instruments including market and credit risk.
Market risk is the potential change in the value of the instruments
traded by the Trust due to market changes, including interest and
foreign exchange rate movements and fluctuations in commodity or
security prices. Market risk is directly impacted by the volatility
and liquidity in the markets in which the related underlying assets
are traded.
Credit risk is the possibility that a loss may occur due to the
failure of a counterparty to perform according to the terms of a
contract. Credit risk is normally reduced to the extent that an
exchange or clearing organization acts as a counterparty to futures
or options transactions, since typically the collective credit of the
members of the exchange is pledged to support the financial integrity
of the exchange. In the case of over-the-counter transactions, the
Trust must rely solely on the credit of the individual
counterparties. The Trust's risk of loss in the event of counterparty
default is typically limited to the amounts recognized in the
statement of financial condition, not to the contract or notional
amounts of the instruments.
8. OPEN DERIVATIVE INSTRUMENTS (CONTRACTS) AT DECEMBER 31, 1997 AND
1996:
<TABLE>
<CAPTION>
DECEMBER 31, 1997 DECEMBER 31, 1996
NOTIONAL OR CONTRACTUAL NOTIONAL OR CONTRACTUAL
AMOUNT OF COMMITMENTS AMOUNT OF COMMITMENTS
---------------------------------- ------------------------------------
TO PURCHASE TO SELL TO PURCHASE TO SELL
------------- -------------- ------------- --------------
<S> <C> <C> <C> <C>
Financial instruments $ 308,387,000 $ 89,641,000 $ 252,988,000 $ 17,461,000
Stock indices 600,000 17,726,000 12,346,000 17,737,000
Currencies* 16,768,000 48,924,000 69,560,000 90,704,000
Energy - 33,784,000 13,082,000
Agricultural 21,519,000 21,184,000 20,597,000 18,231,000
Metals - 30,027,000 7,935,000 34,480,000
------------- -------------- ------------- --------------
$ 347,274,000 $ 241,286,000 $ 376,508,000 $ 178,613,000
============= ============== ============= ==============
</TABLE>
* Currencies include offsetting commitments to purchase and sell the
same currency on the same date in the future. These commitments are
economically offsetting but are not, as a technical matter, offset
in the forward market until the settlement date.
PAST PERFORMANCE IS NOT NECESSARILY INDICATIVE OF FUTURE RESULTS.
-77-
<PAGE>
THE MILLBURN WORLD RESOURCE TRUST
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
The notional or contractual amounts of these derivative instruments,
while not recorded in the financial statements, reflect the extent of
the Trust's involvement in these instruments.
<TABLE>
<CAPTION>
NOTIONAL OR CONTRACTUAL
AMOUNT OF COMMITMENTS UNREALIZED GAIN (LOSS)
------------------------------------ ----------------------------
TO PURCHASE TO SELL GROSS NET
------------- ------------- ---------- ----------
<S> <C> <C> <C> <C>
DECEMBER 31, 1997
Exchange traded $ 331,269,000 $ 192,362,000 $5,134,786 $4,431,017
Non-exchange traded 16,005,000 48,924,000 691,714 485,363
------------- ------------- ---------- ----------
$ 347,274,000 $ 241,286,000 $5,826,500 $4,916,380**
============= ============= ========== ==========
</TABLE>
** Includes net unrealized gains on exchange traded options of $112,827.
<TABLE>
<CAPTION>
NOTIONAL OR CONTRACTUAL
AMOUNT OF COMMITMENTS UNREALIZED GAIN (LOSS)
------------------------------------ -----------------------------
TO PURCHASE TO SELL GROSS NET
------------- ------------ ---------- ----------
<S> <C> <C> <C> <C>
DECEMBER 31, 1996
Exchange traded $ 306,948,000 $ 87,909,000 $4,451,695 $2,820,134
Non-exchange traded 69,560,000 90,704,000 876,180 621,647
------------- ------------ ---------- ----------
$ 376,508,000 $178,613,000 $5,327,875 $3,441,781***
============= ============ ========== ==========
</TABLE>
*** Includes net unrealized gains on exchange traded options of $236,540.
9. TERMINATION:
The Trust will terminate on December 31, 2025 or at an earlier date
if certain conditions occur as defined in the Declaration of Trust
and Trust Agreement.
10. REDEMPTIONS:
Units may be redeemed, at the option of any Unitholder, at Net Asset
Value (as defined) as of the close of business on the last business
day of any calendar month on ten business days' written notice to the
Managing Owner. Persons who redeem Units at or prior to the end of
the first and second successive six-month periods after such Units
are sold will be assessed redemption charges of 4% and 3%,
respectively (3% and 2%, respectively, in the case of subscriptions
of $1,000,000 or more), of their redeemed Units' Net Asset Value as
of the date of redemption. All redemption charges will be paid to the
Managing Owner.
PAST PERFORMANCE IS NOT NECESSARILY INDICATIVE OF FUTURE RESULTS.
-78-
<PAGE>
THE MILLBURN WORLD RESOURCE TRUST
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
11. NET ASSET VALUE PER UNIT:
Changes in net asset value per Unit during the years ended December
31, 1997 and 1996 and the period from September 13, 1995
(commencement of trading operations) to December 31, 1995 were as
follows:
<TABLE>
<CAPTION>
YEAR ENDED YEAR ENDED PERIOD ENDED
DECEMBER 31, DECEMBER 31, DECEMBER 31,
1997 1996 1995
---------- --------- ---------
<S> <C> <C> <C>
Net realized and unrealized gains
on futures, forwards and options $ (19.79) $ 87.62 $ 83.52
Interest income 72.56 36.05 14.46
Foreign exchange gain (loss) 1.31 (1.24) (0.38)
Profit Share expense (14.56) (14.12) (19.16)
Administrative expenses (7.23) (8.86) (2.69)
---------- --------- ---------
Net income per unit 32.29 99.45 75.75
Organization and offering costs - 0.00 (25.06)
---------- --------- ---------
Increase for the period 32.29 99.45 50.69
Net asset value per Unit, beginning of period 1,150.14 1,050.69 1,000.00
---------- --------- ---------
Net asset value per Unit, end of period $ 1,182.43 $1,150.14 $1,050.69
========== ========= =========
Redemption value per Unit (before redemption charge) $ 1,182.43 $1,154.81 $1,072.34
========== ========= =========
</TABLE>
PAST PERFORMANCE IS NOT NECESSARILY INDICATIVE OF FUTURE RESULTS.
-79-
<PAGE>
INDEPENDENT AUDITOR'S REPORT
TO THE STOCKHOLDERS AND BOARD OF DIRECTORS
MILLBURN RIDGEFIELD CORPORATION
We have audited the accompanying statement of financial condition of Millburn
Ridgefield Corporation as of December 31, 1997. This financial statement is
the responsibility of the Corporation's management. Our responsibility is to
express an opinion on this financial statement based on our audit. The
Corporation has investments in sponsored funds. The financial statements for
certain of these sponsored funds were audited by other auditors. The value of
such investments, audited by other auditors, at December 31, 1997 of
$13,877,229, is derived from the audited financial statements of such funds.
The reports of the other auditors have been furnished to us, and our opinion,
insofar as it relates to these investments, is based primarily on the reports
of such other auditors.
We conducted our audit in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to
obtain reasonable assurance about whether the statement of financial
condition is free of material misstatement. An audit includes examining, on a
test basis, evidence supporting the amounts and disclosures in the statement
of financial condition. An audit also includes assessing the accounting
principles used and significant estimates made by management, as well as
evaluating the overall statement of financial condition presentation. We
believe that our audit and the reports of other auditors provide a reasonable
basis for our opinion.
In our opinion, based on our audit and the reports of other auditors, the
statement of financial condition referred to above presents fairly, in all
material respects, the financial position of Millburn Ridgefield Corporation
as of December 31, 1997, in conformity with generally accepted accounting
principles.
ARTHUR F. BELL, JR. & ASSOCIATES, L.L.C.
Lutherville, Maryland
March 31, 1998
-80-
<PAGE>
MILLBURN RIDGEFIELD CORPORATION
STATEMENT OF FINANCIAL CONDITION
DECEMBER 31, 1997
<TABLE>
<CAPTION>
<S> <C>
ASSETS
Cash and cash equivalents $ 241,157
Fees receivable 6,581,968
Loans receivable from stockholders and affiliate 5,511,832
Investments in sponsored funds 16,705,485
Other investments 3,126,646
Furniture and equipment, net of accumulated
depreciation of $558,873 99,524
------------
Total assets $ 32,266,612
============
LIABILITIES
Accounts payable and accrued expenses $ 599,988
Due to affiliated companies 2,735,000
Due to Apollo Fund 4,400,000
Stockholder distributions payable 5,800,000
------------
Total liabilities 13,534,988
============
STOCKHOLDERS' EQUITY
Common stock - $.005 par value; 200,000 shares
authorized, issued and outstanding 1,000
Additional paid-in capital 1,142,983
Retained earnings 17,587,641
------------
Total stockholders' equity 18,731,624
------------
Total liabilities and stockholders' equity $ 32,266,612
============
</TABLE>
SEE ACCOMPANYING NOTES.
-81-
<PAGE>
MILLBURN RIDGEFIELD CORPORATION
NOTES TO FINANCIAL STATEMENT
Note 1. ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
A. General
Millburn Ridgefield Corporation (the Corporation) was
incorporated in the state of Delaware on May 19, 1982. The
Corporation earns commissions and fees as a Commodity Trading
Advisor and Commodity Pool Operator and is a Futures
Commission Merchant registered with and subject to the
regulations of the Commodity Futures Trading Commission
(CFTC), an agency of the United States (U.S.) government,
which regulates most aspects of the commodity futures
industry. It is also subject to the rules of the National
Futures Association, an industry self-regulatory organization.
The Corporation's statement of financial condition is are
presented in accordance with generally accepted accounting
principles. The preparation of financial statements in
conformity with generally accepted accounting principles
requires 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 statement of financial condition.
B. Cash and Cash Equivalents
Cash and cash equivalents includes cash and investments in
money market mutual funds.
C. Investments in Sponsored Funds
The Corporation is the general partner or managing owner of
various commodity pools and investment funds formed as limited
partnerships or trusts, collectively referred to as sponsored
funds. The Corporation's investments in sponsored funds are
carried at its share of the underlying equity in the net asset
value of the funds. The funds carry their assets and
liabilities at fair value as required by generally accepted
accounting principles for such entities.
As the general partner or managing owner, the Corporation has
a fiduciary responsibility to the sponsored funds and
potential liability beyond amounts recognized as an asset in
the statement of financial condition.
D. Other Investments
The Corporation invests in various other commodity and
investment funds sponsored by third parties. These investments
are carried at their reported net asset values.
E. Furniture and Equipment
Furniture and equipment is stated at cost and consists
primarily of office furniture, office equipment, computers and
software. Depreciation is provided for over the estimated
useful lives of the related assets using accelerated methods
with lives that range from 3 to 7 years.
F. Revenue Recognition
Commission income is earned from sponsored funds generally
based on a fixed percentage of the funds' net asset value, as
defined in the respective limited partnership or trust
agreements. Commission income from managed accounts (of which
the Corporation is the Commodity Trading Advisor) is earned
based on the terms specified in the respective advisory
agreements.
-82-
<PAGE>
MILLBURN RIDGEFIELD CORPORATION
NOTES TO FINANCIAL STATEMENT (CONTINUED)
Note 1. ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
(CONTINUED)
F. Revenue Recognition (continued)
Incentive, management and other fees accrue based on the terms
of the respective advisory agreements. Incentive fees
generally are based on a percentage of the net profits
experienced by a client account. Management fees generally are
based on a fixed percentage of the client assets under
management. Incentive and management fees are also received
from a joint venture which the Corporation has entered into as
a trading advisor.
Commissions and fees are recognized when earned, in accordance
with the related advisory agreements.
G. Income Taxes
The Corporation has elected S corporation status, pursuant to
which the Corporation does not pay U.S. corporate income tax
on its taxable income. Instead, the stockholders are liable
for individual income tax on their share of the Corporation's
taxable income. However, the S corporation election is only
partially recognized under Connecticut law and the Corporation
is liable for a Connecticut S-Corp. business tax based on the
greater of a tax on taxable income or a tax on capital. For
1997, the Corporation's Connecticut S-Corp. business tax has
been estimated based on capital since estimated taxable income
for state tax purposes is minimal. Taxable income for
Connecticut S-Corp. business tax purposes excludes capital
gains and is adjusted for available operating loss
carryforwards. The Connecticut S-Corp. business tax on taxable
income is being phased out over the next three years.
Note 2. INVESTMENTS IN SPONSORED FUNDS
The Corporation has general partner interests in various limited
partnerships and is the managing owner of a trust, collectively
referred to as sponsored funds. The Corporation's investments in such
sponsored funds at December 31, 1997 are as follows:
<TABLE>
<CAPTION>
<S> <C>
Millburn Global Markets
Portfolio L.P. $ 1,412,928
Millburn MCo Partners L.P. 2,217,521
Nestor Partners 6,137,588
The Millburn Global
Opportunity Fund L.P. 979,861
The Millburn World
Resource Trust 776,209
Millburn Currency Fund L.P. 2,399,432
Others 2,781,946
------------
Total $ 16,705,485
============
</TABLE>
-83-
<PAGE>
MILLBURN RIDGEFIELD CORPORATION
NOTES TO FINANCIAL STATEMENT (CONTINUED)
Note 2. INVESTMENTS IN SPONSORED FUNDS (CONTINUED)
Summarized financial information for the more significant sponsored
funds as of December 31, 1997 is as follows:
<TABLE>
<CAPTION>
MILLBURN THE MILLBURN THE MILLBURN
MILLBURN GLOBAL MCO GLOBAL WORLD MILLBURN
MARKETS PARTNERS NESTOR OPPORTUNITY RESOURCE CURRENCY
PORTFOLIO L.P. L.P. PARTNERS FUND L.P. TRUST FUND L.P.
<S> <C> <C> <C> <C> <C> <C>
Assets $4,021,193 $118,466,537 $211,184,038 $19,008,327 $74,862,554 $31,460,653
Liabilities 27,796 1,500,000 3,271,567 442,434 1,291,651 161,221
---------- ------------ ------------ ----------- ----------- -----------
Net asset value $3,993,397 $116,966,537 $207,912,471 $18,565,893 $73,570,903 $31,299,432
========== ============ ============ =========== =========== ===========
</TABLE>
The combined net asset value of other sponsored funds as of
December 31, 1997 is approximately $90,500,000.
As the general partner or managing owner, the Corporation conducts
and manages the respective businesses of the sponsored funds. Each
limited partnership or trust agreement requires the Corporation, as
sponsor, to maintain a specified investment in the respective fund.
Such minimum investments generally are 1% of either net assets, total
assets or total contributions or a minimum dollar amount (if
greater). The trust agreement of Millburn World Resource Trust (the
Trust), a public fund sponsored by the Corporation, requires the
Corporation to maintain an investment of no less than the lesser of
1% of the total contributions to the trust or $500,000. The
Corporation, as managing owner, has also agreed to maintain a net
worth not less than the greater of $50,000 or 5% of the total
contributions to the trust and to all other entities of which it is
managing owner or general partner. These requirements are defined in
each respective limited partnership or trust agreement and the
Corporation is in compliance with all such requirements.
Note 3. OTHER INVESTMENTS
The Corporation invests in various commodity and investment funds
sponsored by third parties. Pacific Rainbow Fund Ltd. (a Cayman
Islands Corporation) is the largest individual other investment held
by the Corporation at December 31, 1997. The aggregate reported net
asset value of this investment was approximately $2,025,000, at
December 31, 1997.
Note 4. RELATED PARTY TRANSACTIONS
The Corporation has extensive transactions and relationships with
affiliated companies. The affiliates provide administrative,
accounting, research and other services to the Corporation.
Additionally, ComminVest Research L.P. owns the trading systems used
by the Corporation in managing client assets. The Corporation, in
turn, is charged consulting fees for such services.
The Corporation owes the following amounts to such affiliates at
December 31, 1997:
<TABLE>
<CAPTION>
<S> <C>
The Millburn Corporation $ 2,055,000
ComminVest Research L.P. 680,000
-----------
Total due to affiliated companies $ 2,735,000
===========
</TABLE>
The Corporation has entered into borrowing arrangements with the
Apollo Fund, a limited partnership whose limited partners are the
stockholders of the Corporation. The loan currently bears interest at
a variable rate which has ranged from 5.1% to 8.4% for the period
since the loans inception. The Corporation has also made loans to
several of its stockholders. No specific repayment terms apply to
these related party liabilities and receivables.
-84-
<PAGE>
MILLBURN RIDGEFIELD CORPORATION
NOTES TO FINANCIAL STATEMENT (CONTINUED)
Note 4. RELATED PARTY TRANSACTIONS (CONTINUED)
Additionally, the Corporation has loaned funds to The Millburn
Corporation (TMC) in connection with construction and furnishing
costs incurred by TMC for its offices located in New York City. Per
the related loan agreement, the loan is due on demand with interest
accruing at an annualized rate of 2% above the interest rate of a
money market fund held by the Corporation. TMC may borrow up to
$1,700,000 under such agreement and the outstanding balance is
approximately $1,112,000 at December 31, 1997.
Note 5. TRADING ACTIVITIES AND RELATED RISKS
The sponsored funds for which the Corporation is either the general
partner or managing owner engage in speculative trading of futures
contracts, options on futures contracts and forward contracts
(collectively, ("derivatives"). These derivatives include both
financial and non-financial contracts held as part of diversified
trading programs and may be traded on an exchange or
over-the-counter. Exchange traded investments are standardized and
include futures and certain options. The sponsored funds are exposed
to both market risk, the risk arising from changes in the market
value of the contracts, and credit risk, the risk of failure by
another party to perform according to the terms of a contract.
Theoretically, the sponsored funds and the Corporation, as general
partner or managing owner, are exposed to market risk equal to the
notional value of derivative contracts purchased and unlimited
liability on such contracts sold short.
The average fair value of derivatives held by the sponsored funds
during 1997 was approximately $18,000,000 and the related year end
fair value was approximately $21,517,000. The fair value of contracts
represents unrealized gains and losses on open futures and long and
short options at market value.
At December 31, 1997, the notional amounts of open contracts to
purchase and sell held by the sponsored funds aggregated
approximately $1,861,700,000 and $1,280,100,000, respectively. These
amounts do not represent the sponsored funds' risk of loss due to
market and credit risk, but rather represent the extent of
involvement in derivatives at December 31, 1997.
The Corporation, as general partner or managing owner, has
established procedures to actively monitor and minimize market and
credit risk of the sponsored funds.
Note 6. LEASE OBLIGATION
In March 1997, the Corporation executed a noncancelable lease for
office space in Greenwich, Connecticut. This lease commenced April 1,
1997 and provides for annual rent of $64,821. The future minimum
lease payments under this noncancelable lease are as follows:
<TABLE>
<CAPTION>
<S> <C>
1998 $ 64,821
1999 64,821
2000 64,821
2001 64,821
2002 21,607
--------
$280,891
========
</TABLE>
Note 7. MINIMUM ADJUSTED NET CAPITAL
The Corporation is subject to the net capital requirements of the
CFTC. At December 31, 1997, the Corporation's regulatory net capital
exceeded the minimum net capital requirement by $659,435.
-85-
<PAGE>
PERFORMANCE OF THE MILLBURN RIDGEFIELD
CLIENT FUNDS AND TRADING PROGRAMS
PERFORMANCE OF THE MILLBURN RIDGEFIELD CLIENT FUNDS
The following performance summaries present the results of the Millburn
Ridgefield client funds which, while employing the same basic trading systems
as the Trust, have traded with a significantly different market emphasis.
This difference in market emphasis has resulted in significant differences in
performance results despite the use of the same trading systems. For example,
in 1994, Nestor Partners had a 9.53% gain, while Millburn Currency Fund II,
L.P. had a (16.59)% loss. Similarly, in 1993, Nestor Partners had a 8.43%
gain, while Millburn Currency Fund L.P. had a (11.71)% loss.
The following performance tables are included herein per CFTC requirements
and may make possible certain performance comparisons which may be helpful to
prospective investors in determining whether to acquire Units. However, the
difference in the performance of these funds (E.G., Millburn Global
Opportunity Fund L.P., 6.28%, Millburn Currency Fund II, L.P. (12.17)% in
1993) indicates that the performance of one Millburn Ridgefield fund may have
very little significance in terms of the performance of other Millburn
Ridgefield client funds employing different portfolios.
Although Millburn Ridgefield and its principals have significant
investments in certain of the following funds, the performance presented
reflects that experienced by an investor paying full client fees.
The following performance information has been calculated on the accrual
basis of accounting in accordance with generally accepted accounting
principles.
THE FOLLOWING CAPSULES INCLUDE THE PERFORMANCE OF FUNDS WHICH HAVE TRADED
PURSUANT TO THE SAME SYSTEMS BUT IN MATERIALLY DIFFERENT MARKET SECTORS THAN
DOES THE TRUST. THE PERFORMANCE OF MILLBURN RIDGEFIELD FUNDS TRADING IN
DIFFERENT MARKETS THAN THE TRUST IS NOT REPRESENTATIVE OF HOW THE TRUST HAS
OR WILL PERFORM.
INVESTORS SHOULD NOTE THAT INTEREST INCOME MAY CONSTITUTE A SIGNIFICANT
PORTION OF A COMMODITY POOL'S INCOME AND, IN CERTAIN INSTANCES, MAY GENERATE
PROFITS WHERE THERE HAVE BEEN REALIZED AND UNREALIZED LOSSES FROM COMMODITY
TRADING.
PAST PERFORMANCE IS NOT NECESSARILY INDICATIVE OF FUTURE RESULTS.
FUTURES TRADING IS SPECULATIVE. INVESTORS MAY LOSE ALL
OR SUBSTANTIALLY ALL OF THEIR INVESTMENT.
ALL PERFORMANCE DATA IS CURRENT THROUGH FEBRUARY 28, 1998
-86-
<PAGE>
PERFORMANCE OF THE MILLBURN RIDGEFIELD CLIENT FUNDS
MILLBURN GLOBAL OPPORTUNITY FUND L.P.
TYPE OF POOL: Publicly offered, single-advisor
INCEPTION OF TRADING: January 1993
AGGREGATE SUBSCRIPTIONS: $42 million
FEBRUARY 28, 1998 CAPITALIZATION: $18 million
WORST MONTHLY DRAWDOWN: (10.54)% (1/94)
WORST PEAK-TO-VALLEY DRAWDOWN: (13.78)% (12/93-1/95)
1998 COMPOUND RATE OF RETURN (2 MONTHS): (3.44)%
1997 COMPOUND RATE OF RETURN: 11.51%
1996 COMPOUND RATE OF RETURN: 9.42%
1995 COMPOUND RATE OF RETURN: 24.00%
1994 COMPOUND RATE OF RETURN: (8.99)%
1993 COMPOUND RATE OF RETURN: 6.28%
-------------
FEBRUARY 28, 1998 VALUE OF INITIAL $1,000 UNIT: $1,413
------------------------------
MILLBURN CURRENCY FUND II, L.P.
TYPE OF POOL: Publicly offered, single-advisor, 75% principal protected
INCEPTION OF TRADING: August 1991
AGGREGATE SUBSCRIPTIONS: $13 million
FEBRUARY 28, 1998 CAPITALIZATION: $2.1 million
WORST MONTHLY DRAWDOWN: (9.15)% (8/93)
WORST PEAK-TO-VALLEY DRAWDOWN: (32.96)% (9/92-1/95)
1998 COMPOUND RATE OF RETURN (2 MONTHS): (4.81)%
1997 COMPOUND RATE OF RETURN: 18.65%
1996 COMPOUND RATE OF RETURN: 7.84%
1995 COMPOUND RATE OF RETURN: 11.49%
1994 COMPOUND RATE OF RETURN: (16.59)%
1993 COMPOUND RATE OF RETURN: (12.17)%
-----------
FEBRUARY 28, 1998 VALUE OF INITIAL $100 UNIT: $116
PURCHASERS OF UNITS WILL ACQUIRE NO INTEREST IN THESE FUNDS WHICH TRADE IN
MATERIALLY DIFFERENT MARKET SECTORS THAN DOES THE TRUST.
PAST PERFORMANCE IS NOT NECESSARILY INDICATIVE OF FUTURE RESULTS.
ALL PERFORMANCE DATA IS CURRENT THROUGH FEBRUARY 28, 1998.
SEE NOTES AT PAGE 96.
-87-
<PAGE>
PERFORMANCE OF THE MILLBURN RIDGEFIELD CLIENT FUNDS
(CONTINUED)
NESTOR PARTNERS
TYPE OF POOL: Privately offered, single-advisor
INCEPTION OF TRADING: February 1977
AGGREGATE SUBSCRIPTIONS: $234 million
FEBRUARY 28, 1998 CAPITALIZATION: $206 million
WORST MONTHLY DRAWDOWN: (10.12)% (2/96)
WORST PEAK-TO-VALLEY DRAWDOWN: (11.01)% (2/96-5/96)
1998 COMPOUND RATE OF RETURN (2 MONTHS): (0.36)%
1997 COMPOUND RATE OF RETURN: 11.76%
1996 COMPOUND RATE OF RETURN: 14.21%
1995 COMPOUND RATE OF RETURN: 26.68%
1994 COMPOUND RATE OF RETURN: 9.53%
1993 COMPOUND RATE OF RETURN: 8.43%
----------
FEBRUARY 28, 1998 VALUE OF INITIAL $1,000 UNIT: $31,316
PURCHASERS OF UNITS WILL ACQUIRE NO INTEREST IN THIS FUND
WHICH TRADES IN THE SAME MARKET SECTORS AS THE TRUST
BUT WITH DIFFERENT MARKET ALLOCATIONS.
------------------------------
MILLBURN GLOBAL MARKETS PORTFOLIO L.P.
TYPE OF POOL: Privately offered, single-advisor
INCEPTION OF TRADING: October 1993
AGGREGATE SUBSCRIPTIONS: $2.1 million
FEBRUARY 28, 1998 CAPITALIZATION: $3.9 million
WORST MONTHLY DRAWDOWN: (9.67)% (1/94)
WORST PEAK-TO-VALLEY DRAWDOWN: (13.12)% (2/96-8/96)
1998 COMPOUND RATE OF RETURN (2 MONTHS): (3.11)%
1997 COMPOUND RATE OF RETURN: 13.59%
1996 COMPOUND RATE OF RETURN: 11.77%
1995 COMPOUND RATE OF RETURN: 28.76%
1994 COMPOUND RATE OF RETURN: (4.35)%
1993 COMPOUND RATE OF RETURN: 9.24% (3 mos.)
---------
FEBRUARY 28, 1998 VALUE OF INITIAL $1,000 UNIT: $1,655
PURCHASERS OF UNITS WILL ACQUIRE NO INTEREST IN THIS FUND WHICH
TRADES IN DIVERSIFIED BUT DIFFERENT MARKET
SECTORS THAN DOES THE TRUST.
PAST PERFORMANCE IS NOT NECESSARILY INDICATIVE OF FUTURE RESULTS.
ALL PERFORMANCE DATA IS CURRENT THROUGH FEBRUARY 28, 1998.
SEE NOTES AT PAGE 96.
-88-
<PAGE>
PERFORMANCE OF THE MILLBURN RIDGEFIELD CLIENT FUNDS
(CONTINUED)
MILLBURN CURRENCY FUND L.P.
TYPE OF POOL: Privately offered, single-advisor
INCEPTION OF TRADING: January 1990
AGGREGATE SUBSCRIPTIONS: $58 million
FEBRUARY 28, 1998 CAPITALIZATION: $30 million
WORST MONTHLY DRAWDOWN: (9.68)% (8/93)
WORST PEAK-TO-VALLEY DRAWDOWN: (24.94)% (9/92-1/95)
1998 COMPOUND RATE OF RETURN (2 MONTHS): (4.38)%
1997 COMPOUND RATE OF RETURN: 20.13%
1996 COMPOUND RATE OF RETURN: 13.87%
1995 COMPOUND RATE OF RETURN: 19.28%
1994 COMPOUND RATE OF RETURN: (8.63)%
1993 COMPOUND RATE OF RETURN: (11.71)%
-----------
FEBRUARY 28, 1998 VALUE OF INITIAL $1,000 UNIT: $2,266
------------------------------
MRC CURRENCY PARTNERS L.P.
TYPE OF POOL: Privately offered, single-advisor
INCEPTION OF TRADING: August 1990; ceased operations May 31, 1997
AGGREGATE SUBSCRIPTIONS: $93 million
FEBRUARY 28, 1998 CAPITALIZATION: N/A
WORST MONTHLY DRAWDOWN: (9.44)% (8/93)
WORST PEAK-TO-VALLEY DRAWDOWN: (20.41)% (10/92-1/95)
1998 COMPOUND RATE OF RETURN: N/A
1997 COMPOUND RATE OF RETURN: (5 mos.): 15.31%%
1996 COMPOUND RATE OF RETURN: 16.59%
1995 COMPOUND RATE OF RETURN: 22.02%
1994 COMPOUND RATE OF RETURN: (6.71)%
1993 COMPOUND RATE OF RETURN: (8.53)%
-----------
FEBRUARY 28, 1998 VALUE OF INITIAL $1,000 UNIT: N/A
PURCHASERS OF UNITS WILL ACQUIRE NO INTEREST IN THESE FUNDS
WHICH TRADE IN MATERIALLY DIFFERENT MARKET SECTORS THAN DOES THE TRUST.
PAST PERFORMANCE IS NOT NECESSARILY INDICATIVE OF FUTURE RESULTS.
ALL PERFORMANCE DATA IS CURRENT THROUGH FEBRUARY 28, 1998.
SEE NOTES AT PAGE 96.
-89-
<PAGE>
PERFORMANCE OF THE MILLBURN RIDGEFIELD CLIENT FUNDS
(CONTINUED)
MILLBURN WORLD RESOURCE FUND L.P.
TYPE OF POOL: Privately offered, single-advisor
INCEPTION OF TRADING: January 1995
AGGREGATE SUBSCRIPTIONS: $15 million
FEBRUARY 28, 1998 CAPITALIZATION: $12 million
WORST MONTHLY DRAWDOWN: (11.82)% (2/96)
WORST PEAK-TO-VALLEY DRAWDOWN: (14.00)% (1/96-5/96)
1998 COMPOUND RATE OF RETURN (2 MONTHS): 3.09%
1997 COMPOUND RATE OF RETURN: 10.50%
1996 COMPOUND RATE OF RETURN: 17.45%
1995 COMPOUND RATE OF RETURN: 36.25%
1994 COMPOUND RATE OF RETURN: N/A
1993 COMPOUND RATE OF RETURN: N/A
-----------
FEBRUARY 28, 1998 VALUE OF INITIAL $1,000 UNIT: $1,823
------------------------------
PURCHASERS OF UNITS WILL ACQUIRE NO INTEREST IN THIS FUND
WHICH TRADES PURSUANT TO THE SAME TRADING PROGRAM AS THE TRUST.
PAST PERFORMANCE IS NOT NECESSARILY INDICATIVE OF FUTURE RESULTS.
ALL PERFORMANCE DATA IS CURRENT THROUGH FEBRUARY 28, 1998.
SEE NOTES AT PAGE 96.
-90-
<PAGE>
PERFORMANCE OF THE MILLBURN RIDGEFIELD CLIENT TRADING PROGRAMS
The following capsules present not the results of individual funds, but the
composite results of all accounts traded pursuant to different Millburn
Ridgefield trading portfolios. The performance of particular accounts may be
significantly impacted by the timing of when they begin trading, a factor which
is mitigated by a composite presentation of a number of accounts.
The information presented is current as of February 28, 1998.
Millburn Ridgefield is a highly systematic trader, which uses essentially the
same systematic approach in each market traded. These systems and models have
evolved over time, but Millburn Ridgefield applies the same basic trading
policies now as it did when it began in 1971. The difference in the performance
of the various portfolios is significant and is due primarily to different
market conditions prevailing in certain market sectors, particularly currencies,
during different periods. In volatile, "whipsaw" markets, Millburn's systems --
which are based on attempting to identify major price trends -- are likely to be
unprofitable. In addition, the more concentrated a trading program, in terms of
the market sectors in which it trades, the more volatile such program is likely
to be. Comparing the performance capsules for the Diversified Portfolio and the
Currency Portfolio gives an indication of the extent to which market focus can
increase variability of performance, despite use of the same basic trading
systems.
Millburn Ridgefield and its principals maintain investments in each of the
following programs.
THE FOLLOWING CAPSULES INCLUDE THE PERFORMANCE OF PROGRAMS WHICH HAVE TRADED
PURSUANT TO THE SAME SYSTEMS BUT IN MATERIALLY DIFFERENT MARKET SECTORS THAN
DOES THE TRUST. THE PERFORMANCE OF MILLBURN RIDGEFIELD PROGRAMS TRADING IN
DIFFERENT MARKETS THAN THE TRUST IS NOT REPRESENTATIVE OF HOW THE TRUST HAS OR
WILL PERFORM.
INVESTORS SHOULD NOTE THAT INTEREST INCOME MAY CONSTITUTE A SIGNIFICANT
PORTION OF A COMMODITY TRADING ADVISOR'S INCOME AND, IN CERTAIN INSTANCES, MAY
GENERATE PROFITS WHERE THERE HAVE BEEN REALIZED AND UNREALIZED LOSSES FROM
COMMODITY TRADING.
PAST PERFORMANCE IS NOT NECESSARILY INDICATIVE OF FUTURE RESULTS.
FUTURES TRADING IS SPECULATIVE. INVESTORS MAY LOSE ALL
OR SUBSTANTIALLY ALL OF THEIR INVESTMENT.
ALL PERFORMANCE DATA IS CURRENT THROUGH FEBRUARY 28, 1998.
-91-
<PAGE>
PERFORMANCE OF THE MILLBURN RIDGEFIELD
CLIENT TRADING PROGRAMS
WORLD RESOURCE PORTFOLIO
NAME OF CTA: Millburn Ridgefield Corporation
INCEPTION OF TRADING BY CTA: February 1971
INCEPTION OF TRADING IN PROGRAM: September 1995
NUMBER OF OPEN ACCOUNTS: 10
TOTAL ASSETS UNDER MANAGEMENT: $754 million
TOTAL ASSETS IN PROGRAM: $169 million
WORST MONTHLY DRAWDOWN: (12.28)% (2/96)
WORST PEAK-TO-VALLEY DRAWDOWN: (15.26)% (2/97-8/97)
ACCOUNTS CLOSED PROFITABLE: 0
ACCOUNTS CLOSED UNPROFITABLE: 0
1998 COMPOUND RATE OF RETURN (2 MONTHS): 2.17%
1997 COMPOUND RATE OF RETURN: 1.81%
1996 COMPOUND RATE OF RETURN: 2.79%
1995 COMPOUND RATE OF RETURN: 7.28%
1994 COMPOUND RATE OF RETURN: N/A
1993 COMPOUND RATE OF RETURN: N/A
THIS PROGRAM IS UTILIZED ON BEHALF OF THE TRUST.
------------------------------
DIVERSIFIED PORTFOLIO
NAME OF CTA: Millburn Ridgefield Corporation
INCEPTION OF TRADING BY CTA: February 1971
INCEPTION OF TRADING IN PROGRAM: February 1971
NUMBER OF OPEN ACCOUNTS: 11
TOTAL ASSETS UNDER MANAGEMENT: 754 million
TOTAL ASSETS IN PROGRAM: $322 million
WORST MONTHLY DRAWDOWN: (11.50)% (2/96)
WORST PEAK-TO-VALLEY DRAWDOWN: (12.93)% (1/96-5/96)
ACCOUNTS CLOSED PROFITABLE: 1
ACCOUNTS CLOSED UNPROFITABLE: 0
1998 COMPOUND RATE OF RETURN (2 MONTHS): 0.03%
1997 COMPOUND RATE OF RETURN: 12.65%
1996 COMPOUND RATE OF RETURN: 17.33%
1995 COMPOUND RATE OF RETURN: 32.82%
1994 COMPOUND RATE OF RETURN: 11.78%
1993 COMPOUND RATE OF RETURN: 10.90%
THIS PROGRAM IS NOT UTILIZED ON
BEHALF OF THE TRUST, BUT ALSO
TRADES A DIVERSIFIED RANGE OF
MARKETS.
PAST PERFORMANCE IS NOT NECESSARILY INDICATIVE OF FUTURE RESULTS.
ALL PERFORMANCE DATA IS CURRENT THROUGH FEBRUARY 28, 1998.
SEE NOTES AT PAGE 96.
-92-
<PAGE>
PERFORMANCE OF THE MILLBURN RIDGEFIELD
CLIENT TRADING PROGRAMS
(CONTINUED)
GLOBAL PORTFOLIO
NAME OF CTA: Millburn Ridgefield Corporation
INCEPTION OF TRADING BY CTA: February 1971
INCEPTION OF TRADING IN PROGRAM: November 1989
NUMBER OF OPEN ACCOUNTS: 6
TOTAL ASSETS UNDER MANAGEMENT: $754 million
TOTAL ASSETS IN PROGRAM: $176 million
WORST MONTHLY DRAWDOWN: (10.54)% (1/94)
WORST PEAK-TO-VALLEY DRAWDOWN: (13.74)% (6/94-1/95)
ACCOUNTS CLOSED PROFITABLE: 3
ACCOUNTS CLOSED UNPROFITABLE: 0
1998 COMPOUND RATE OF RETURN (2 MONTHS): (2.96)%
1997 COMPOUND RATE OF RETURN: 13.85%
1996 COMPOUND RATE OF RETURN: 11.38%
1995 COMPOUND RATE OF RETURN: 25.76%
1994 COMPOUND RATE OF RETURN: (5.24)%
1993 COMPOUND RATE OF RETURN: 9.10%
THIS PROGRAM IS NOT UTILIZED ON BEHALF OF THE TRUST
AND TRADES IN THE SAME MARKET SECTORS AS THE TRUST
BUT WITH DIFFERENT MARKET ALLOCATIONS.
---------------
CURRENCY PORTFOLIO
NAME OF CTA: Millburn Ridgefield Corporation
INCEPTION OF TRADING BY CTA: February 1971
INCEPTION OF TRADING IN PROGRAM: November 1989
NUMBER OF OPEN ACCOUNTS: 9
TOTAL ASSETS UNDER MANAGEMENT: $754 million
TOTAL ASSETS IN PROGRAM: $72 million
WORST MONTHLY DRAWDOWN: (12.03)% (8/93)
WORST PEAK-TO-VALLEY DRAWDOWN: (33.06)% (9/92-1/95)
ACCOUNTS CLOSED PROFITABLE: 22
ACCOUNTS CLOSED UNPROFITABLE: 17
1998 COMPOUND RATE OF RETURN (2 MONTHS): (4.22)%
1997 COMPOUND RATE OF RETURN: 21.46%
1996 COMPOUND RATE OF RETURN: 11.29%
1995 COMPOUND RATE OF RETURN: 18.88%
1994 COMPOUND RATE OF RETURN: (7.90)%
1993 COMPOUND RATE OF RETURN: (13.00)%
THIS PROGRAM IS NOT UTILIZED ON BEHALF OF THE TRUST AND
TRADES IN DIVERSIFIED BUT DIFFERENT MARKET SECTORS.
PAST PERFORMANCE IS NOT NECESSARILY INDICATIVE OF FUTURE RESULTS.
ALL PERFORMANCE DATA IS CURRENT THROUGH FEBRUARY 28, 1998.
SEE NOTES AT PAGE 96.
-93-
<PAGE>
PERFORMANCE OF THE MILLBURN RIDGEFIELD
CLIENT TRADING PROGRAMS
(CONTINUED)
HIGH LEVERAGE GLOBAL PORTFOLIO
NAME OF CTA: Millburn Ridgefield Corporation
INCEPTION OF TRADING BY CTA: February 1971
INCEPTION OF TRADING IN PROGRAM: July 1993
NUMBER OF OPEN ACCOUNTS: 0
TOTAL ASSETS UNDER MANAGEMENT: $754 million
TOTAL ASSETS IN PROGRAM: $0
WORST MONTHLY DRAWDOWN: (13.23)% (1/94)
WORST PEAK-TO-VALLEY DRAWDOWN: (20.05)% (6/94-1/95)
ACCOUNTS CLOSED PROFITABLE: 4
ACCOUNTS CLOSED UNPROFITABLE: 1
1998 COMPOUND RATE OF RETURN (2 MONTHS): N/A
1997 COMPOUND RATE OF RETURN: 11.82%
1996 COMPOUND RATE OF RETURN: 11.15%
1995 COMPOUND RATE OF RETURN: 32.15%
1994 COMPOUND RATE OF RETURN: (9.03)%
1993 COMPOUND RATE OF RETURN (6 MONTHS): 9.34%
---------------
HIGH LEVERAGE CURRENCY PORTFOLIO
NAME OF CTA: Millburn Ridgefield Corporation
INCEPTION OF TRADING BY CTA: February 1971
INCEPTION OF TRADING IN PROGRAM: July 1993
NUMBER OF OPEN ACCOUNTS: 1
TOTAL ASSETS UNDER MANAGEMENT: $754 million
TOTAL ASSETS IN PROGRAM: $13 million
WORST MONTHLY DRAWDOWN: (13.10)% (8/93)
WORST PEAK-TO-VALLEY DRAWDOWN: (29.75)% (7/93-1/95)
ACCOUNTS CLOSED PROFITABLE: 0
ACCOUNTS CLOSED UNPROFITABLE: 3
1998 COMPOUND RATE OF RETURN (2 MONTHS): (7.06)%
1997 COMPOUND RATE OF RETURN: 27.99%
1996 COMPOUND RATE OF RETURN: 16.36%
1995 COMPOUND RATE OF RETURN: 25.15%
1994 COMPOUND RATE OF RETURN: (21.29)%
1993 COMPOUND RATE OF RETURN (6 MONTHS): (11.10)%
THESE PROGRAMS ARE NOT UTILIZED ON BEHALF OF THE TRUST AND
TRADE IN MATERIALLY DIFFERENT MARKET SECTORS.
PAST PERFORMANCE IS NOT NECESSARILY INDICATIVE OF FUTURE RESULTS.
ALL PERFORMANCE DATA IS CURRENT THROUGH FEBRUARY 28, 1998.
SEE NOTES AT PAGE 96.
-94-
<PAGE>
PERFORMANCE OF THE MILLBURN RIDGEFIELD
CLIENT TRADING PROGRAMS
(CONTINUED)
GRAIN PORTFOLIO
NAME OF CTA: Millburn Ridgefield Corporation
INCEPTION OF TRADING BY CTA: February 1971
INCEPTION OF TRADING IN PROGRAM: March 1997
NUMBER OF OPEN ACCOUNTS: 1
TOTAL ASSETS UNDER MANAGEMENT: $754 million
TOTAL ASSETS IN PROGRAM: $1.7 million
WORST MONTHLY DRAWDOWN: (7.84)% (5/97)
WORST PEAK-TO-VALLEY DRAWDOWN: (14.66)% (4/97-12/97)
ACCOUNTS CLOSED PROFITABLE: 0
ACCOUNTS CLOSED UNPROFITABLE: 0
1998 COMPOUND RATE OF RETURN (2 MONTHS): 0.03%
1997 COMPOUND RATE OF RETURN: (10.66)%
1996 COMPOUND RATE OF RETURN: N/A
1995 COMPOUND RATE OF RETURN: N/A
1994 COMPOUND RATE OF RETURN: N/A
1993 COMPOUND RATE OF RETURN: N/A
THIS PROGRAM IS NOT UTILIZED ON BEHALF OF THE TRUST AND
TRADES IN ONLY ONE MARKET SECTOR.
PAST PERFORMANCE IS NOT NECESSARILY INDICATIVE OF FUTURE RESULTS.
ALL PERFORMANCE DATA IS CURRENT THROUGH FEBRUARY 28, 1998.
SEE NOTES AT PAGE 96.
-95-
<PAGE>
NOTES TO PERFORMANCE OF
THE MILLBURN RIDGEFIELD CLIENT FUNDS AND TRADING PROGRAMS
NOTES TO PERFORMANCE OF THE MILLBURN RIDGEFIELD CLIENT FUNDS
1. TYPE OF POOL. The CFTC specifies that pools should be categorized as:
(i) either publicly or privately offered; (ii) "principal protected"
(I.E., generally assuring the return of some or all of an initial
investment at a date certain in the future), if applicable; and
(iii) either multi-advisor or single-advisor.
2. INCEPTION OF TRADING is the date of inception of trading by the fund.
3. AGGREGATE SUBSCRIPTIONS is the aggregate gross capital subscriptions
(without regard to redemptions).
4. CURRENT CAPITALIZATION is the net asset value of the fund at the end of
the period indicated.
5. WORST MONTHLY DRAWDOWN is the largest net asset loss experienced in any
calendar month during the period January 1, 1993 (or inception) through
February 28, 1998, expressed as a percentage of net asset value, and
includes the month and year of such drawdown.
6. WORST PEAK-TO-VALLEY DRAWDOWN is the largest calendar month-end to
calendar month-end net asset loss (regardless of whether such loss is
continuous) experienced during the period January 1, 1993 (or inception)
through February 28, 1998, expressed as a percentage of total equity in
the program, and includes the months and years in which it occurred. For
example, a Worst Peak-to-Valley Drawdown of (13.78)% (1/94-1/95) (see the
"Millburn Global Opportunity Fund L.P." at page 87) means that the
peak-to-valley drawdown lasted from January 1994 through January 1995 and
resulted in a (13.78)% drawdown.
7. COMPOUND RATE OF RETURN is calculated on the basis of the actual rate of
return recognized by an initial $1,000 investment in the fund.
NOTES TO PERFORMANCE OF THE MILLBURN RIDGEFIELD CLIENT TRADING PROGRAMS
1. NAME OF CTA is Millburn Ridgefield Corporation.
2. INCEPTION OF TRADING BY CTA is the date on which Millburn Ridgefield
began trading client accounts.
3. INCEPTION OF TRADING IN PROGRAM is the date on which Millburn Ridgefield
began trading client accounts pursuant to the program shown.
4. NUMBER OF OPEN ACCOUNTS is the number of accounts directed by Millburn
Ridgefield pursuant to the program shown as of February 28, 1998.
5. TOTAL ASSETS UNDER MANAGEMENT is the aggregate amount of assets under the
management of Millburn Ridgefield as of February 28, 1998.
6. TOTAL ASSETS IN PROGRAM is the aggregate amount of assets in the program
specified as of February 28, 1998.
7. WORST MONTHLY DRAWDOWN is the largest loss experienced by the program in
any calendar month during the period January 1, 1993 through February 28,
1998 expressed as a percentage of the total equity in the program and
includes the month and year of such drawdown.
8. WORST PEAK-TO-VALLEY DRAWDOWN is the largest calendar month-end to
calendar month-end net asset loss experienced by the program (regardless
of whether such loss is continuous) during the period January 1, 1993 (or
inception) through February 28, 1998 expressed as a percentage of total
equity in the program and includes the months and years in which it
occurred. For example, a Worst Peak-to-Valley Drawdown of (20.05)%
(6/94-1/95) (see the "High Leverage Global Portfolio" at page 94) means
that the peak-to-valley drawdown was (20.05)% and lasted from June 1994
through January 1995.
9. ACCOUNTS CLOSED PROFITABLE is the number of accounts traded pursuant to
the program that were closed while profitable during the period January
1, 1993 (or inception) through February 28, 1998.
10. ACCOUNTS CLOSED UNPROFITABLE is the number of accounts traded pursuant
to the program that were closed while unprofitable during the period
January 1, 1993 (or inception) through February 28, 1998.
11. COMPOUND RATE OF RETURN is computed on a compounded monthly basis
assuming reinvestment of accrued profits. Rate of Return is computed by
reference to total equity in the program. These numbers represent the
composite performance of all accounts in the program, not the performance
of any specific account.
-96-
<PAGE>
ANNUAL RATES OF RETURN SINCE INCEPTION
OF THE MILLBURN RIDGEFIELD CLIENT FUNDS
The following are the annual rates of return of the client (as
opposed to proprietary) futures funds sponsored by Millburn Ridgefield (other
than the Trust itself; see "Performance of the Trust" at page 21). Of the
following funds, Nestor Partners trades a diversified portfolio most similar
(but nevertheless materially different) in market sector emphasis to the World
Resource Portfolio. THE MANAGING OWNER WISHES TO EMPHASIZE TO PROSPECTIVE
INVESTORS THAT THERE HAVE BEEN A NUMBER OF YEARS IN WHICH MILLBURN RIDGEFIELD
CLIENT FUNDS HAVE SUSTAINED SIGNIFICANT LOSSES AND THAT THE VOLATILITY OF THESE
FUNDS' PERFORMANCE IS QUALITATIVELY GREATER THAN THAT OF MANY MANAGED FUTURES
FUNDS.
None of the following funds is managed pursuant to the World Resource
Portfolio. None of the following funds is being offered to investors pursuant to
the Prospectus, and it is the performance of the Trust itself, not of Millburn
Ridgefield's other funds, which is most pertinent to a decision whether or not
to invest in the Units.
PAST PERFORMANCE IS NOT NECESSARILY INDICATIVE OF FUTURE RESULTS.
<TABLE>
<CAPTION>
MILLBURN GLOBAL MILLBURN CURRENCY NESTOR PARTNERS
OPPORTUNITY FUND L.P. FUND II, L.P. (DIVERSIFIED;
(CURRENCIES AND FINANCIALS; (CURRENCIES ONLY; PRIVATELY OFFERED)
PUBLICLY OFFERED) PUBLICLY OFFERED)
ANNUAL ANNUAL ANNUAL
YEAR RATE OF RETURN YEAR RATE OF RETURN YEAR RATE OF RETURN
- ---- -------------- ---- -------------- ---- --------------
<S> <C> <C> <C> <C> <C>
1998 (2 mos.) (3.44)% 1998 (2 mos.) (4.81)% 1998 (2 mos.) (0.36)%
1997 11.51 1997 18.65 1997 11.76
1996 9.42 1996 7.84 1996 14.21
1995 24.00 1995 11.49 1995 26.68
1994 (8.99) 1994 (16.59) 1994 9.53
1993 6.28 1993 (12.17) 1993 8.43
1992 11.39 1992 14.91
1991 (5 mos.) 4.75 1991 4.43
1990 48.25
1989 0.43
1988 2.20
1987 43.70
1986 (17.09)
1985 26.56
1984 20.74
1983 (6.28)
1982 26.54
1981 39.11
1980 48.57
1979 60.93
1978 20.78
1977 (11 mos.) 3.33
</TABLE>
PURCHASERS OF UNITS WILL ACQUIRE NO INTEREST IN THESE FUNDS.
-97-
<PAGE>
<TABLE>
<CAPTION>
ANNUAL RATES OF RETURN SINCE INCEPTION
OF THE MILLBURN RIDGEFIELD CLIENT FUNDS
(CONTINUED)
MILLBURN GLOBAL MILLBURN CURRENCY MRC CURRENCY
MARKETS PORTFOLIO L.P. FUND L.P. PARTNERS L.P.
(DIVERSIFIED; PRIVATELY OFFERED) (CURRENCIES ONLY; (CURRENCIES ONLY;
PRIVATELY OFFERED) PRIVATELY OFFERED)
ANNUAL ANNUAL ANNUAL
YEAR RATE OF RETURN YEAR RATE OF RETURN YEAR RATE OF RETURN
- ---- -------------- ---- -------------- ---- --------------
<S> <C> <C> <C> <C> <C>
1998 (2 mos.) (3.11)% 1998 (2 mos.) (4.38)% 1998 N/A
1997 13.59 1997 20.13 1997 (5 mos.)* 15.31%
1996 11.77 1996 13.87 1996 16.59
1995 28.76 1995 19.28 1995 22.02
1994 (4.35) 1994 (8.63) 1994 (6.71)
1993 (3 mos.) 9.24 1993 (11.71) 1993 (8.53)
1992 14.57 1992 15.67
1991 3.63 1991 6.35
1990 51.64 1990 (5 mos.) 26.16
</TABLE>
* Ceased operations May 31, 1997.
<TABLE>
<CAPTION>
MILLBURN WORLD
RESOURCE FUND L.P.
(DIVERSIFIED; PRIVATELY OFFERED)
ANNUAL
YEAR RATES OF RETURN
- ---- ---------------
<S> <C>
1998 (2 mos.) 3.09%
1997 10.50
1996 17.43
1995 36.25
</TABLE>
------------------------
Prospective investors should note the significant extent to which
Millburn Ridgefield's private pools have outperformed its public funds. This is
due in principal part to the significantly higher costs to which public funds
are subject, due primarily to the costs associated with the distribution of the
interests in such funds to the public. The Trust, as a public fund, is subject
to such higher costs, and its performance can be expected to reflect the effect
of such costs, which cumulate significantly over time.
THE ANNUAL RATES OF RETURN SET FORTH ABOVE SUGGEST THAT MILLBURN
RIDGEFIELD'S PERFORMANCE MAY HAVE BEEN ADVERSELY AFFECTED BY INCREASING THE
AMOUNT OF ASSETS UNDER ITS MANAGEMENT. MILLBURN RIDGEFIELD, IN GENERAL, APPEARS
TO HAVE BEEN ABLE TO ACHIEVE BETTER PERFORMANCE IN EARLIER THAN IN MORE RECENT
YEARS. ALTHOUGH THIS COULD BE DUE TO A NUMBER OF FACTORS, INCREASED ASSETS UNDER
MANAGEMENT MAY WELL BE A MATERIALLY CONTRIBUTING FACTOR. SEE "RISK FACTORS --
(7) POSSIBLE ADVERSE EFFECTS OF INCREASING MILLBURN RIDGEFIELD'S ASSETS UNDER
MANAGEMENT" AT PAGE 13.
PAST PERFORMANCE -- AND CERTAINLY THE PAST PERFORMANCE OF FUNDS OTHER
THAN THE TRUST -- IS NOT NECESSARILY INDICATIVE OF FUTURE RESULTS. FURTHERMORE,
EACH OF THE FOREGOING FUNDS TRADES A DIFFERENT PORTFOLIO THAN DOES THE MILLBURN
WORLD RESOURCE TRUST.
-98-
<PAGE>
THERE ARE MATERIAL DIFFERENCES BETWEEN THE PORTFOLIOS TRADED BY
THE OTHER MILLBURN RIDGEFIELD CLIENT FUNDS (EVEN THE DIVERSIFIED FUNDS --
NESTOR PARTNERS AND MILLBURN GLOBAL MARKETS PORTFOLIO L.P.) AND THAT TRADED
BY THE TRUST. FURTHERMORE, MILLBURN RIDGEFIELD'S SYSTEMS HAVE DEVELOPED
SIGNIFICANTLY OVER THE PERIOD PRESENTED IN THE PERFORMANCE RECORDS INCLUDED
HEREIN, SO THAT SUCH SYSTEMS ARE NOT CURRENTLY THE SAME AS THOSE WHICH
GENERATED A SUBSTANTIAL PORTION OF THE PERFORMANCE REFLECTED HEREIN. NO
REPRESENTATION IS OR COULD BE MADE THAT THE TRUST WOULD HAVE PERFORMED, OR
WILL IN THE FUTURE PERFORM, IN A MANNER SIMILAR TO THE RESULTS SET FORTH IN
THE APPENDICES.
PURCHASERS OF UNITS WILL ACQUIRE NO INTEREST IN THESE FUNDS.
-100-
<PAGE>
APPENDIX
"BLUE SKY" GLOSSARY
PROSPECTIVE INVESTORS SHOULD BE AWARE OF THE FOLLOWING DEFINITIONS
WHICH ARE APPLIED BY THE STATE SECURITIES ADMINISTRATORS WHEN REVIEWING A
PUBLIC FUTURES FUND OFFERING FOR COMPLIANCE WITH THE "GUIDELINES FOR THE
REGISTRATION OF COMMODITY POOL PROGRAMS" STATEMENT OF POLICY PROMULGATED BY
THE NORTH AMERICAN SECURITIES ADMINISTRATORS ASSOCIATION, INC. A COPY OF SAID
"GUIDELINES" IS FILED AS AN EXHIBIT TO THE REGISTRATION STATEMENT OF WHICH
THE PROSPECTUS IS A PART. THE FOLLOWING DEFINITIONS ARE REPRINTED VERBATIM
FROM SAID GUIDELINES AND MAY, ACCORDINGLY, NOT IN ALL CASES BE RELEVANT TO AN
INVESTMENT IN THE TRUST. FOR AN INDEX OF DEFINED TERMS THAT APPEAR IN THE
PROSPECTUS, SEE "INDEX OF DEFINED TERMS" AT PAGE 69.
DEFINITIONS -- As used in the Guidelines, the following
terms have the following meanings:
ADMINISTRATOR -- The official or agency administering the
security laws of a state.
ADVISOR -- 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.
AFFILIATE -- An Affiliate of a Person means: (a) any Person
directly or indirectly owning, controlling or holding with power to
vote 10% or more of the outstanding voting securities of such Person;
(b) any Person 10% or more of whose outstanding voting securities are
directly or indirectly owned, controlled or held with power to vote,
by such Person; (c) any Person, directly or indirectly, controlling,
controlled by, or under common control of such Person; (d) any
officer, director or partner of such Person; or (e) if such Person is
an officer, director or partner, any Person for which such Person
acts in any such capacity.
CAPITAL CONTRIBUTIONS -- The total investment in a Program
by a Participant or by all Participants, as the case may be.
COMMODITY BROKER -- 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 -- 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.
CROSS-REFERENCE SHEET -- A compilation of the Guideline
sections, referenced to the page of the prospectus, Program
agreement, or other exhibits, and justification of any deviation from
the Guidelines.
NET ASSETS -- The total assets, less total liabilities, of
the Program determined on the basis of generally accepted accounting
principles. Net Assets shall include any unrealized profits or losses
on open positions, and any fee or expense including Net Asset fees
accruing to the Program.
NET ASSET VALUE PER PROGRAM INTEREST -- The Net Assets
divided by the number of Program Interests outstanding.
NET WORTH -- 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 TRADING PROFITS -- The excess, if any, of Net Assets at
the end of the period over Net Assets at the end of the highest
previous period or Net Assets at the date trading commences,
whichever is higher, and as further adjusted to eliminate the effect
on Net Assets resulting from new Capital Contributions, redemptions,
or capital distributions, if any, made during the period decreased by
interest or other income not directly related to trading activity,
earned on Program assets during the period, whether the assets are
held separately or in a margin account.
APP-1
<PAGE>
ORGANIZATIONAL AND OFFERING EXPENSES -- All expenses
incurred by the Program in connection with and in preparing a Program
for registration and subsequently offering and distributing it to the
public, including, but not limited to, total underwriting and
brokerage discounts and commissions (including fees of the
underwriter's attorneys), expenses for printing, engraving, mailing,
salaries of employees while engaged in sales activity, charges of
transfer agents, registrars, trustees, escrow holders, depositories,
experts, expenses of qualification of the sale of its Program
Interest under federal and state law, including taxes and fees,
accountants' and attorneys' fees.
PARTICIPANT -- The holder of a Program Interest.
PERSON -- Any natural Person, partnership, corporation,
association or other legal entity.
PIT BROKERAGE FEE -- Pit Brokerage Fee shall include floor
brokerage, clearing fees, National Futures Association fees, and
exchange fees.
PROGRAM -- A limited partnership, joint venture,
corporation, trust or other entity formed and operated for the
purpose of investing in Commodity Contracts.
PROGRAM BROKER -- A Commodity Broker that effects trades in
Commodity Contracts for the account of a Program.
PROGRAM INTEREST -- A limited partnership interest or other
security representing ownership in a Program.
PYRAMIDING -- A method of using all or a part of an
unrealized profit in a Commodity Contract position to provide margin
for any additional Commodity Contracts of the same or related
commodities.
SPONSOR -- Any Person directly or indirectly instrumental
in organizing a Program or any Person who will manage or participate
in the management of a Program, including a Commodity Broker who pays
any portion of the Organizational Expenses of the Program, and the
general partner(s) and any other Person who regularly performs or
selects the Persons who perform services for the Program. 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.
VALUATION DATE -- The date as of which the Net Assets of
the Program are determined.
VALUATION PERIOD -- A regular period of time between
Valuation Dates.
APP-2
<PAGE>
EXHIBIT A
THE MILLBURN WORLD RESOURCE TRUST
SECOND AMENDED AND RESTATED
DECLARATION OF TRUST AND TRUST AGREEMENT
DATED AS OF MAY 1, 1996
APP-3
<PAGE>
THE MILLBURN WORLD RESOURCE TRUST
SECOND AMENDED AND RESTATED
DECLARATION OF TRUST AND TRUST AGREEMENT
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C> <C>
1. Declaration of Trust.......................................................... TA-1
2. The Trustee................................................................... TA-2
(a) Term; Resignation........................................................ TA-2
(b) Powers................................................................... TA-2
(c) Compensation and Expenses of the Trustee................................. TA-2
(d) Indemnification.......................................................... TA-2
(e) Successor Trustee........................................................ TA-3
(f) Liability of the Trustee................................................. TA-3
(g) Reliance by the Trustee and the Managing Owner; Advice of Counsel........ TA-4
(h) Not Part of Trust Estate................................................. TA-4
3. Principal Office.............................................................. TA-5
4. Business...................................................................... TA-5
5. Term, Dissolution, Fiscal Year and Net Asset Value............................ TA-5
(a) Term..................................................................... TA-5
(b) Dissolution.............................................................. TA-5
(c) Fiscal Year.............................................................. TA-6
(d) Net Asset Value.......................................................... TA-6
6. Net Worth of Managing Owner................................................... TA-6
7. Capital Contributions; Units; Managing Owner's Liability ..................... TA-6
8. Allocation of Profits and Losses.............................................. TA-7
(a) Capital Accounts and Allocations......................................... TA-7
(b) Allocation of Profit and Loss for Federal Income Tax Purposes............ TA-9
(c) Profit Share; New Profits Memo Account................................... TA-11
(d) Expenses; Interest Income................................................ TA-12
(e) Limited Liability of Unitholders......................................... TA-13
(f) Return of Capital Contributions.......................................... TA-13
9. Management of the Trust....................................................... TA-13
(a) Authority of the Managing Owner.......................................... TA-13
(b) Notification of Basic Changes............................................ TA-14
(c) Certain Agreements....................................................... TA-14
(d) Fiduciary Duties......................................................... TA-14
(e) Brokerage Arrangements................................................... TA-14
(f) Prohibited Activities.................................................... TA-14
(g) Freedom of Action........................................................ TA-15
10. Audits and Reports to Unitholders............................................. TA-15
11. Assignability of Units........................................................ TA-16
12. Redemptions................................................................... TA-17
13. Offering of Units............................................................. TA-18
14. Special Power of Attorney..................................................... TA-19
15. Withdrawal of a Unitholder.................................................... TA-19
16. Benefit Plan Investors........................................................ TA-20
17. Standard of Liability; Indemnification........................................ TA-20
(a) Standard of Liability for the Managing Owner............................. TA-20
(b) Indemnification of the Managing Owner by the Trust....................... TA-20
(c) Indemnification by the Unitholders....................................... TA-22
</TABLE>
TA-i
<PAGE>
<TABLE>
<CAPTION>
PAGE
----
<S> <C> <C>
18. Amendments; Meetings........................................................... TA-22
(a) Amendments with Consent of the Managing Owner............................. TA-22
(b) Amendments and Actions without Consent of the Managing Owner.............. TA-22
(c) Meetings; Other........................................................... TA-23
(d) Consent by Trustee........................................................ TA-23
19. Governing Law.................................................................. TA-23
20. Miscellaneous.................................................................. TA-23
(a) Notices................................................................... TA-23
(b) Binding Effect............................................................ TA-23
(c) Captions.................................................................. TA-24
21. Certain Definitions............................................................ TA-24
22. No Legal Title to Trust Estate................................................. TA-26
23. Legal Title.................................................................... TA-26
24. Creditors...................................................................... TA-26
Testimonium
Signatures
Schedule A -- Certificate of Trust............................................. TA-28
Annex -- Request for Redemption................................................ RR-1
</TABLE>
TA-ii
<PAGE>
THE MILLBURN WORLD RESOURCE TRUST
SECOND AMENDED AND RESTATED
DECLARATION OF TRUST AND TRUST AGREEMENT
This SECOND AMENDED AND RESTATED DECLARATION OF TRUST
AND TRUST AGREEMENT ("Declaration of Trust") of THE MILLBURN WORLD RESOURCE
TRUST (the "Trust") is made and entered into as of this 1st day of May, 1996
by and among MILLBURN RIDGEFIELD CORPORATION, a Delaware corporation, as
managing owner (the "Managing Owner"), WILMINGTON TRUST COMPANY, a Delaware
banking corporation, as trustee (the "Trustee"), and each other party who
shall execute a counterpart of this Declaration of Trust as an owner of a
unit ("Unit") of beneficial interest of the Trust or who becomes a party to
this Declaration of Trust as a Unitholder by execution of a Subscription
Agreement and Power of Attorney Signature Page or otherwise and who is shown
in the books and records of the Trust as a Unitholder (individually, a
"Unitholder" and, collectively, the "Unitholders").
W I T N E S S E T H:
WHEREAS, the parties hereto desire to form and continue
the Trust for the business and purpose of issuing Units, the capital of which
shall be used to engage in speculative trading, buying, selling or otherwise
acquiring, holding or disposing of futures and forward contracts on
currencies, interest rate, energy and agricultural products, metals and stock
indices, hybrid instruments, swaps, any rights pertaining thereto and any
options thereon or on physical commodities, with the objective of capital
appreciation through speculative trading, and to amend and restate the
original Declaration of Trust and Trust Agreement of the Trust in its
entirety.
NOW THEREFORE, the parties hereto agree as follows:
1. DECLARATION OF TRUST.
The Trustee hereby declares that it holds the
investments in the Trust in trust upon and subject to the conditions set
forth herein for the use and benefit of the Unitholders. It is the intention
of the parties hereto that the Trust shall be a business trust under the Act,
and that this Declaration of Trust shall constitute the governing instrument
of the Trust. The Trustee has filed the Certificate of Trust required by
Section 3810 of the Delaware Business Trust Act, 12 DEL. C. SECTION 3801, ET
SEQ., as amended from time to time (the "Act").
Nothing in this Declaration of Trust shall be construed
to make the Unitholders partners or members of a joint stock association
except to the extent that such Unitholders, as constituted from time to time,
are deemed to be partners under the Internal Revenue Code of 1986, as amended
(the "Code"), and applicable state and local tax laws. Notwithstanding the
foregoing, it is the intention of the parties hereto that the Trust be
treated as a partnership for purposes of taxation under the Code and
applicable state and local tax laws. Effective as of the date hereof, the
Trustee shall have all of the rights, powers and duties set forth herein and
in the Act with respect to accomplishing the purposes of the Trust.
TA-1
<PAGE>
2. THE TRUSTEE.
(a) TERM; RESIGNATION. (i) Wilmington Trust
Company has been appointed and has agreed 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(e)
hereof.
(ii) The Trustee may resign at any time upon the
giving of at least sixty (60) days' advance written notice to the Trust;
provided, that such resignation shall not become effective unless and until a
successor Trustee shall have been appointed by the Managing Owner in
accordance with Section 2(e) 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.
(b) POWERS. Except to the extent expressly set
forth in this Section 2, the duty and authority of the Trustee to manage the
business and affairs of the Trust are hereby delegated to the Managing Owner.
The Trustee shall have only the rights, obligations or liabilities
specifically provided for herein and in the Act and shall have no implied
rights, obligations or liabilities with respect to the business or affairs of
the Trust. The Trustee shall have the power and authority to execute,
deliver, acknowledge and file all necessary documents, including any
amendments to or cancellation of the Certificate of Trust, and to maintain
all necessary records of the Trust as required by the Act. The Trustee shall
provide prompt notice to the Managing Owner of its performance of any of the
foregoing. The Managing Owner shall 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 Act.
(c) COMPENSATION AND EXPENSES OF THE TRUSTEE. The
Trustee shall be entitled to receive from the Trust or, if the assets of the
Trust are insufficient, from the Managing Owner reasonable compensation for
its services hereunder in accordance with the Trustee's standard fee
schedule, and shall be entitled to be reimbursed by the Trust or, if the
assets of the Trust are insufficient, by the Managing Owner for reasonable
out-of-pocket expenses incurred by the Trustee 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, to the extent attributable to the Trust.
(d) 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 as indemnity payments pursuant to this Section 2(d)), 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(d) shall survive the termination of this
Declaration of Trust or the removal or resignation of the Trustee. In
addition, the Indemnified Parties shall be entitled to indemnification from
any cash, net equity in any commodity futures, forward and option contracts,
all funds on deposit in the accounts of the Trust, any other property held by
the Trust, and all proceeds therefrom, including any rights of the Trust
pursuant to any agreements to which the Trust is a party (the "Trust Estate")
to the extent such expenses are attributable to the formation, operation or
termination of the Trust as set forth above, and to
TA-2
<PAGE>
secure the same the Trustee shall have a lien against the Trust Estate which
shall be prior to the rights of the Managing Owner and the Unitholders to
receive distributions from the Trust Estate. The Trustee nevertheless agrees
that it will, at its own cost and expense, promptly take all action as may be
necessary to discharge any liens on any part of the Trust Estate which result
from claims against the Trustee personally that are not related to the
ownership or the administration of the Trust Estate or the transactions
contemplated by any documents to which the Trust is a party.
(e) SUCCESSOR TRUSTEE. Upon the resignation or
removal of the Trustee, the Managing Owner shall appoint a successor Trustee
by delivering a written instrument to the outgoing Trustee. Any successor
Trustee must satisfy the requirements of Section 3807 of the Act. 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 Declaration of Trust, with like effect as if
originally named as Trustee, and the outgoing Trustee shall be discharged of
its duties and obligations under this Declaration of Trust.
(f) LIABILITY OF THE TRUSTEE. Except as
otherwise provided in this Section 2, 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 Declaration of Trust and any
other agreement to which the Trust is a party shall look only to the Trust
Estate for payment or satisfaction thereof. The Trustee shall not be liable
or accountable hereunder or under any other agreement to which the Trust is a
party, except for the Trustee's own gross negligence or willful misconduct.
In particular, but not by way of limitation:
(i) the Trustee shall have no liability or responsibility
for the validity or sufficiency of this Declaration of Trust or for
the form, character, genuineness, sufficiency, value or validity of
the Trust Estate;
(ii) 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;
(iii) the Trustee shall not have any liability for the
acts or omissions of the Managing Owner;
(iv) the Trustee shall not be liable for its failure to
supervise the performance of any obligations of the Managing Owner,
any commodity broker, any selling agent or any additional selling
agent;
(v) no provision of this Declaration of Trust 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;
(vi) under no circumstances shall the Trustee be liable
for indebtedness evidenced by or other obligations of the Trust
arising under this Declaration of Trust or any other agreements to
which the Trust is a party;
(vii) the Trustee shall be under no obligation to exercise
any of the rights or powers vested in it by this Declaration of
Trust, or to institute, conduct or defend any litigation under this
Declaration of Trust or any other agreements to which the Trust is a
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party, at the request, order or direction of the Managing Owner or
any Unitholders unless the Managing Owner or such Unitholders 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
(viii) 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 (a) 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, (b) 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 (c) 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 by the Trustee of the transactions contemplated hereby.
(g) RELIANCE BY THE TRUSTEE AND THE MANAGING
OWNER; ADVICE OF COUNSEL. (i) In the absence of bad faith, the Trustee and
the Managing Owner may conclusively rely upon certificates or opinions
furnished to the Trustee or the Managing Owner and conforming to the
requirements of this Declaration of Trust 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,
resolution, request, consent, order, certificate, report, opinion, bond or
other document or paper which is believed to be genuine and believed 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 or the Managing Owner shall have examined any certificates or
opinions so as to determine compliance of the same with the requirements of
this Declaration of Trust. The Trustee or the Managing Owner 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 or the Managing Owner 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 or the Managing Owner for any
action taken or omitted to be taken by either of them in good faith in
reliance thereon.
(ii) In the exercise or administration of the trust
hereunder and in the performance of its duties and obligations under this
Declaration of Trust, the Trustee, at the expense of the Trust, (i) may act
directly or through its agents, attorneys, custodians or nominees pursuant to
agreements entered into with any of them, and the Trustee shall not be liable
for the conduct or misconduct of such agents, attorneys, custodians or
nominees if such agents, attorneys, custodians or nominees shall have been
selected by the Trustee with reasonable care and (ii) may consult with
counsel, accountants and other skilled professionals to be selected with
reasonable care by the Trustee; provided that the Trustee shall not allocate
any of its internal expenses or overhead to the account of the Trust. 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.
(h) NOT PART OF TRUST ESTATE. Amounts paid to
the Trustee from the Trust Estate, if any, pursuant to this Section 2 shall
not be deemed to be part of the Trust Estate immediately after such payment.
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3. PRINCIPAL OFFICE.
The address of the principal office of the Trust is c/o
the Managing Owner, 600 Steamboat Road, Greenwich, Connecticut 06830;
telephone: (203) 625-7554. The Trustee is located at Rodney Square North,
1100 North Market Street, Wilmington, Delaware 19890, Attention: Corporate
Trust Administration. 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.
4. BUSINESS.
The Trust's business and purpose is to engage in
speculative trading, buying, selling or otherwise acquiring, holding or
disposing of futures and forward contracts on currencies, interest rate,
energy and agricultural products, metals and stock indices, hybrid
instruments, swaps, any rights pertaining thereto and any options thereon or
on physical commodities, and to engage in all activities necessary,
convenient or incidental thereto. The objective of the Trust's business is
appreciation of its assets through speculative trading. The Trust shall have
the power to engage in all activities which are necessary, suitable,
desirable, convenient or incidental to the accomplishment to the foregoing
business and purposes. The Trust shall do so under the direction of the
Managing Owner.
5. TERM, DISSOLUTION, FISCAL YEAR AND NET ASSET
VALUE.
(a) TERM. The term of the Trust commenced on the
day on which the Certificate of Trust was filed with the Secretary of State
of the State of Delaware pursuant to the provisions of the Act and shall end
upon the first to occur of the following: (1) December 31, 2025; (2) receipt
by the Managing Owner of an approval to dissolve the Trust at a specified
time by Unitholders owning Units representing more than fifty percent (50%)
of the total number of outstanding Units then owned by Unitholders, notice of
which is sent by certified mail return receipt requested to the Managing
Owner not less than 90 days prior to the effective date of such dissolution;
(3) death, insanity, bankruptcy, retirement, resignation, expulsion,
withdrawal, insolvency or dissolution of the Managing Owner or any other
event that causes the Managing Owner to cease to be a managing owner unless,
(i) at the time of such event there is at least one remaining managing owner
of the Trust who carries on the business of the Trust (and each remaining
managing owner of the Trust is hereby authorized to carry on the business of
the Trust in such an event), or (ii) within 90 days after such event
Unitholders owning at least fifty percent (50%) of the total number of
outstanding Units then owned by Unitholders agree in writing to continue the
business of the Trust and to the appointment, effective as of the date of
such event, of one or more managing owners of the Trust pursuant to the terms
of Sections 18(b) and 18(c); (4) a decline in the aggregate Net Assets of the
Trust to less than $250,000; (5) a decline in the Net Asset Value per Unit to
$250 or less; (6) dissolution of the Trust pursuant hereto; or (7) any other
event which shall make it unlawful for the existence of the Trust to be
continued or shall require termination of the Trust.
(b) DISSOLUTION. Upon the occurrence of an event
causing the dissolution of the Trust, the Trust shall be dissolved and its
affairs wound up. Upon dissolution, the New Profits Memo Account will be
added to the Managing Owner's capital account.
Upon the dissolution of the Trust, the Managing Owner
(or, if the Managing Owner has withdrawn, such person as the Unitholders may,
by majority vote of the Units, select) shall wind up the Trust's affairs and,
in connection therewith, shall distribute the Trust's assets in the following
manner and order:
(i) FIRST TO payment and discharge of all claims of
creditors of the Trust (including creditors who are Unitholders);
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(ii) SECOND TO creation of any reserve that the
Managing Owner (or its successor), in its sole discretion, may consider
reasonably necessary for any losses, contingencies, liabilities or other
matters of or relating to the Trust; provided, however, that if and when the
cause for such reserve ceases to exist, the monies, if any, then in such
reserve shall be distributed in the manner hereinafter provided; and
(iii) THIRD TO distribution in cash of the remaining
assets to the Unitholders in proportion to their capital accounts, after
giving effect to the allocations pursuant to Section 8 hereof as if the date
of distribution were the end of a calendar year.
(c) FISCAL YEAR. The fiscal year of the Trust
shall begin on January 1 of each year and end on the following December 31.
(d) NET ASSET VALUE. The Net Assets of the Trust
are its assets less its liabilities determined in accordance with generally
accepted accounting principles. If a futures, forward or other contract
cannot be liquidated on the day with respect to which Net Assets are being
determined, the settlement price on the first subsequent day on which the
contract can be liquidated shall be the basis for determining the liquidating
value of such contract for such day, or such other value as the Managing
Owner may deem fair and reasonable. The liquidating value of a commodity
futures or option contract not traded on a United States commodity exchange
shall mean its liquidating value as determined by the Managing Owner on a
basis consistently applied for each different variety of contract. The
Trust's accrued liability to the Managing Owner for reimbursement of its
organizational and initial offering costs will not reduce Net Asset Value for
any purpose other than, and only if and to the extent required for, financial
reporting purposes; rather, reimbursement payments will reduce Net Asset
Value only as actually paid out in twenty-four (24) monthly installments
(unless such period is extended as described in Section 8(d) hereof).
The Brokerage Fee shall be charged (other than to the
Managing Owner's capital account) at the basic rate of 9.0% per annum of the
average month-end Net Assets of the Trust (prior to reduction for accrued but
unpaid fees) allocable to the Unitholders (but not to the Managing Owner's
capital account), and additional Units shall be allocated to Unitholders
subject to a 7.0% per annum Brokerage Fee as described in Section 8(a)(3)
hereof. Brokerage Fees, accrued as well as paid, shall reduce Net Asset Value.
Accrued Profit Shares (as described in Section 8 hereof)
shall reduce Net Asset Value, even though such Profit Shares may never, in
fact, be paid. Accrued Profit Shares shall be calculated on a basis which
reflects any aggregate New Trading Profit (as defined), accrued equally in
respect of all outstanding Units (except as necessary to reflect the
difference in the Brokerage Fees charged certain Unitholders) but not in
respect of the Managing Owner's capital account or the New Profits Memo
Account (see Section 8(a)).
6. NET WORTH OF MANAGING OWNER.
The Managing Owner agrees that at all times so long as
it remains managing owner of the Trust, it will maintain its Net Worth at an
amount not less than the greater of $50,000 or 5% of the total contributions
to the Trust and to all other entities of which it is managing owner or
general partner. In no event shall the Managing Owner be required to maintain
a net worth in excess of the greater of (i) $1,000,000 or (ii) the amount
which the Managing Owner is advised by counsel is necessary or advisable to
ensure that the Trust is taxed as a partnership for federal income tax
purposes.
7. CAPITAL CONTRIBUTIONS; UNITS; MANAGING OWNER'S
LIABILITY.
(a) The beneficial interests in the Trust shall
consist of two types: a general liability interest and limited liability
Units. The Managing Owner shall acquire the general liability interest, and
investors shall all acquire limited liability Units.
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(b) Upon the initial contribution by the Managing
Owner to the Trust, the Managing Owner became the holder of the general
liability interest of the Trust. The Managing Owner's general liability
interest shall be accounted for on a Unit-equivalent basis, but may receive
allocations on an aggregate basis so as to simplify the Trust's accounting.
The Managing Owner's general liability interest will not be subject to full
Brokerage Fees, but rather only to actual execution costs, nor shall it be
subject to Profit Shares.
(c) No certificates or other evidences of
beneficial ownership of the Units will be issued.
(d) Every Unitholder, by virtue of having
purchased or otherwise acquired Units, shall be deemed to have expressly
consented and agreed to be bound by the terms of this Declaration of Trust.
The Unitholders' respective capital contributions to the
Trust shall be as shown on the books and records of the Trust.
The Managing Owner shall have unlimited liability for
the repayment, satisfaction and discharge of all debts, liabilities and
obligations of the Trust to the full extent, and only to the extent, of the
Managing Owner's assets.
The Managing Owner shall be liable for the acts,
omissions, obligations and expenses of the Trust, to the extent not paid out
of the assets of the Trust, to the same extent that the Managing Owner would
be so liable if the Trust were a partnership under the Delaware Revised
Uniform Limited Partnership Act and the Managing Owner were a general partner
of such partnership. The obligations of the Managing Owner under this
paragraph shall be evidenced by its ownership of the general liability
interest.
The Managing Owner, so long as it is generally liable
for the obligations of the Trust, shall invest in the Trust, as a general
liability interest, no less than the lesser of (i) 1% of the total capital
contributions to the Trust (including the Managing Owner's contributions) or
(ii) $500,000, but in no event shall the Managing Owner invest less than 0.2%
of the total capital contributions to the Trust. The Managing Owner may
withdraw any interest it may have in excess of such requirement as of any
month-end on the same terms as any Unitholder.
Any Units acquired by the Managing Owner or any of its
affiliates will be non-voting, and will not be considered outstanding for
purposes of determining whether the majority approval of the outstanding
Units has been obtained.
The general liability interest in the Trust held by the
Managing Owner will be non-voting.
8. ALLOCATION OF PROFITS AND LOSSES.
(a) CAPITAL ACCOUNTS AND ALLOCATIONS. A capital
account shall be established for each Unit and for the Managing Owner. In
addition, a New Profits Memo Account shall be established on the books of the
Trust for bookkeeping purposes only. The initial balance of each capital
account shall be the amount contributed to the Trust in respect of a Unit or
by the Managing Owner. As of the close of business (as determined by the
Managing Owner) on the last day of each month, the following determinations
and allocations shall be made:
(1) The Net Assets of the Trust will be determined
without regard to Brokerage Fees or Profit Shares.
(2) Any increase or decrease in the Trust's Net
Assets (as determined pursuant to Paragraph 1 above), as compared to the last
such determination of Net Assets, shall then be credited or
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charged equally to the capital account of each Unit and PRO RATA to the
capital account of the Managing Owner and to the New Profits Memo Account.
(3) Brokerage Fees shall be charged equally to all
Units at the rate of 0.75 of 1% of the month-end Trust assets (prior to
reduction for any accrued but unpaid fees or Profit Shares) allocable to such
Units, not including the Managing Owner's capital account or the New Profits
Memo Account (a 9.0% annual rate). Such Brokerage Fees shall be paid out to
the Managing Owner; provided that in respect of Units which are subject to
Brokerage Fees of 7.0% per annum of the average month-end Trust assets
allocable to such Units, the difference between the 0.75 of 1% Brokerage Fees
charged and the 0.583 of 1% Brokerage Fee due as of the end of each month
shall not be paid out to the Managing Owner but shall instead be credited to
a Suspense Account which shall not be included in the Net Asset Value of the
Units, and shall be used solely as a means of efficiently accounting for the
reduction in the Brokerage Fee payable by such Unitholders while maintaining
a uniform Net Asset Value per Unit.
Brokerage Fees will not be charged to (or calculated on
a basis of average month-end Trust assets which include) either the Managing
Owner's capital account or the New Profits Memo Account. The capital account
of the Managing Owner and the New Profits Memo Account shall be charged for
their respective PRO RATA shares of the out-of-pocket brokerage commissions
paid by the Managing Owner on behalf of the Trust, but not for any Brokerage
Fees.
(4) The Managing Owner's Profit Share will equal
17.5% of any New Trading Profit (as defined in Section 8(c)). As of the end
of each month, the amount of any such Profit Share shall be calculated and
shall reduce the Net Asset Value per Unit. The amount of any such Profit
Share shall be deducted from each Unit's capital account and credited to the
New Profits Memo Account, as a bookkeeping entry only, as of the end of each
calendar quarter. The Managing Owner's capital account and the New Profits
Memo Account will not be subject to the Profit Share.
(5) The amounts credited to the Suspense Account
as provided in Paragraph 3 above as of the end of any month shall be reduced
by the 17.5% Profit Share if there is an accrued Profit Share in respect of
the Units as of the month-end that such amounts are so credited. If such
month-end is also a quarter-end, the amount of such Profit Share shall be
credited to the New Profits Memo Account, as a bookkeeping entry only, and
the remainder of the Suspense Account shall be reinvested in Units as of such
month-end, at Net Asset Value, for the benefit of the appropriate
Unitholders. If such month-end is not also a quarter-end, the Profit Share
accrual, as well as the remainder of the Suspense Account, shall be
reinvested in Units as of such month-end, at Net Asset Value, for the benefit
of the appropriate Unitholders.
(6) The Managing Owner's Profit Share with respect
to Units redeemed as of a month-end which is not the end of a calendar quarter
shall be computed as though such month-end were the end of a calendar quarter,
and the amount of the Profit Share so computed shall be deducted from the
redeemed Units' capital accounts and credited to the New Profits Memo Account,
as a bookkeeping entry only.
(7) When Units subject to the 7.0% per annum
Brokerage Fee are redeemed: (i) if a Profit Share is then accrued, the
difference between the 9.0% per annum and 7.0% per annum Brokerage Fee
attributable to such Units for the month-end of redemption shall be assessed
a 17.5% Profit Share which shall be credited to the New Profits Memo Account,
as a bookkeeping entry only; and (ii) the Profit Share, if any, due in
respect of such Units shall be calculated on the same basis as in respect of
all other Units, as set forth in Paragraph 4 above, and credited to the New
Profits Memo Account, as a bookkeeping entry only.
If no Profit Share is accrued as of the date of
redemption, then no New Profits Memo Account credits shall be made in respect
of any portion of the Units redeemed.
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(8) The amount of any distributions made in
respect of a Unit as of the end of such month and any amount (not reduced by
any early redemption charges) paid upon partial redemption of Units or upon
withdrawal of the Managing Owner's interest as of the end of such month shall
be charged against the capital account of such Unit or of the Managing Owner.
The capital account of any Unit fully redeemed shall be eliminated.
(9) Brokerage Fees shall be treated as if paid or
payable to a third party and shall not be credited to the capital account of
the general liability interest held by the Managing Owner.
(10) Persons who make a net capital investment in
the Trust, including both initial and subsequent investments and without
regard to profits or losses, of $1,000,000 or more shall be entitled to pay
Brokerage Fees of 7.0% per annum of the average month-end assets of their
respective capital accounts; provided that, if after any redemption of Units,
the aggregate Net Asset Value of an investor's Units is less than $1,000,000,
such Unitholder will no longer be eligible for 7.0% per annum, as opposed to a
9.0% Brokerage Fee. Should such person subsequently make an additional
subscription, if the amount of such subsequent subscription plus such
Unitholder's remaining net capital contributions (subscriptions less
redemptions, but assuming redemptions to be made first from accumulated net
profits, not capital contributions) equals $1,000,000 or more, reduced
Brokerage Fees will again apply.
Reduced Brokerage Fees apply to a Unitholder's entire
capital account, not just that part of such capital account corresponding to
capital contributions of $1,000,000 or more.
(b) ALLOCATION OF PROFIT AND LOSS FOR FEDERAL
INCOME TAX PURPOSES. Each of the parties hereto, by entering into this
Declaration of Trust, (i) expresses its intention that the Units will qualify
under applicable tax law as though the Units were interests in a partnership
which holds the Trust Estate for their benefit, (ii) agrees that it will file
its own federal, state and local income, franchise and other tax returns in a
manner that is consistent with the treatment of the Trust as though it were a
partnership in which each of the Unitholders 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
Unitholder with respect to the treatment of the Units as anything other than
interests in a partnership. As of the end of each fiscal year, income and
expense and capital gain or loss of the Trust shall be allocated among the
Unitholders pursuant to the following provisions of this Section 8(b) for
federal income tax purposes. Such allocations shall be PRO RATA from
short-term capital gain or loss and long-term capital gain or loss. For
purposes of this Section 8(b), capital gain and capital loss shall be
allocated separately and not netted.
(1) Items of ordinary income and expenses
attributable to the Trust (other than Brokerage Fees, which shall be
allocated as set forth in Section 8(b)(2)), shall be allocated equally among
all Units of the Trust outstanding as of the end of each calendar month
(including Units being then redeemed), and PRO RATA to the account of the
Managing Owner.
(2) Ordinary deductions attributable to Brokerage
Fees paid to the Managing Owner shall be allocated to each Unitholder and the
Managing Owner in the same manner as such Brokerage Fees are allocated for
financial purposes pursuant to Section 8(a).
(3) Capital Gain or Loss (as defined in Section
8(b)(3)(H)) shall be allocated as follows:
(A) There shall be established a tax account with respect
to each outstanding Unit and with respect to the Managing Owner. The
initial balance of each tax account shall be the net amount paid to
the Trust for each Unit and the amount contributed to the Trust by
the Managing Owner. Amounts reinvested in Units from the Suspense
Account, as described in Section 8(a) hereof, shall not increase the
aggregate tax basis of the affected Unitholders in their Units;
rather the Units acquired upon reinvestment will have an initial
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tax basis of $0. As of the end of each of the first twenty-four full
calendar months after the Trust begins operations (or, if longer, for
as long as the reimbursement payments continue), the balance of each
Unit's tax account shall be reduced by such Unit's allocable share of
the amount payable to the Managing Owner as reimbursement for the
organizational and initial offering costs incurred in connection with
the Trust, as described in the current prospectus of the Trust (the
"Prospectus"), provided that no tax basis account shall be reduced
below $0. The adjustment to reflect the reimbursement of
organizational and initial offering costs shall be made prior to the
allocations of capital gain or loss (and shall be taken into account
in making such allocations). As of the end of each fiscal year:
(i) Each tax account for the Units and the
Managing Owner shall be increased by the amount of income
or gain allocated to such tax account pursuant to Sections
8(b)(1), 8(b)(3)(B) and 8(b)(3)(D).
(ii) Each tax account for the Units shall be
decreased by the amount of expense or loss allocated to
each Unit pursuant to Sections 8(b)(1), 8(b)(2) and
8(b)(3)(F) and by the amount of any distributions paid out
with respect to such Units other than upon redemption.
(iii) When a Unit is redeemed, the tax account
attributable to such Unit (determined after making all
allocations described in this Section 8(b)) shall be
eliminated.
(B) The Managing Owner shall be allocated Capital Gain, if
any, up to the amount of any bookkeeping credit to the New Profits
Memo Account, including any credits made as of the end of the fiscal
year of allocation. To the extent any such tax allocation is made,
the balance in the New Profits Memo Account shall be reduced, and the
balance in the Managing Owner's capital account, for financial
purposes, correspondingly increased.
(C) Each Unitholder who redeems a Unit during a fiscal year
(including Units redeemed as of the end of the last day of such
fiscal year) shall be allocated Capital Gain, if any, up to the
amount of the excess, if any, of the amount received in respect of
the Units so redeemed over the sum of the tax accounts (determined
after making the allocation described in Sections 8(b)(1) and
8(b)(2), but prior to making the allocations described in this
Section 8(b)(3)(C)) allocable to such Units (an "Excess"). In the
event that the aggregate amount of Capital Gain available to be
allocated pursuant to this Section 8(b)(3)(C) is less than the
aggregate amount of Capital Gain required to be so allocated, the
aggregate amount of available Capital Gain shall be allocated among
all such Unitholders in the ratio which each such Unitholder's Excess
bears to the aggregate Excess of all such Unitholders.
(D) Capital Gain remaining after the allocation described
in Section 8(b)(3)(C) shall be allocated among all Unitholders who
hold Units outstanding as of the end of the applicable fiscal year
(other than Units redeemed as of the end of the last day of such
fiscal year) whose capital accounts with respect to such Units are in
excess of the related tax accounts (determined after making the
allocations described in Sections 8(b)(1) and 8(b)(2)) allocable to
such Units, in the ratio that each such Unitholder's Excess bears to
the aggregate Excess of all such Unitholders. Capital Gain remaining
after the allocation described in the preceding sentence shall be
allocated among all Unitholders described in said sentence in
proportion to their holdings of such Units.
(E) Each Unitholder who redeems a Unit during a fiscal year
(including Units redeemed as of the end of the last day of such
fiscal year) shall be allocated Capital Loss, if any, up to the
amount of the sum of the excess of the tax accounts (determined after
making the allocations
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described in Sections 8(b)(1) and 8(b)(2), but prior to making the
allocations described in this Section 8(b)(3)(E)) allocable to the
Units so redeemed over the amount received in respect of such Units
(a "Negative Excess"). In the event that the aggregate amount of
available Capital Loss required to be allocated pursuant to this
Section 8(b)(3)(E) is less than the aggregate amount required to be
so allocated, the aggregate amount of available Capital Loss shall be
allocated among all such Unitholders in the ratio that each such
Unitholder's Negative Excess bears to the aggregate Negative Excess
of all such Unitholders.
(F) Capital Loss remaining after the allocation described
in Section 8(b)(3)(E) shall be allocated among all Unitholders who
hold Units outstanding as of the end of the applicable fiscal year
(other than Units redeemed as of the end of the last day of such
fiscal year) whose tax accounts with respect to such Units are in
excess of their capital accounts (determined after making the
allocations described in Sections 8(b)(1) and 8(b)(2) with respect to
such Units, in the ratio that each such Unitholder's Negative Excess
bears to the aggregate Negative Excess of all such Unitholders.
Capital Loss remaining after the allocation described in the
preceding sentence shall be allocated among all Unitholders described
in such sentence in proportion to their holdings of such Units.
(G) For purposes of this Section 8(b), the Managing Owner's
interest in the Trust will be treated as if it were a single Unit.
(H) For purposes of this Section 8(b), "Capital Gain" or
"Capital Loss" shall mean gain or loss characterized as gain or loss
from the sale or exchange of a capital asset by the Code, including,
but not limited to, gain or loss required to be taken into account
pursuant to Section 1256 thereof.
(4) The allocation of profit and loss for federal income
tax purposes set forth herein allocates taxable profit and loss among the
Unitholders in the ratio and to the extent that financial profit and loss are
allocated to such Unitholders and so as to eliminate, to the maximum
practicable extent, any disparity between a Unit's capital account and its
tax account, consistent with principles set forth in Section 704 of the Code,
including without limitation a "Qualified Income Offset."
(5) The allocations of profit and loss to the
Unitholders in respect of their Units shall not exceed the allocations
permitted under Subchapter K of the Code, as determined by the Managing
Owner, whose determination shall be binding.
(c) PROFIT SHARE; NEW PROFITS MEMO ACCOUNT. The
Managing Owner's Profit Share will equal 17.5% of any cumulative trading
profits ("New Trading Profit"), not including interest income, after
deduction of all accrued but unpaid fees and expenses other than the Profit
Share itself ("Trading Profit"), over the highest level of such cumulative
Trading Profit as of any previous calendar quarter-end, or $0, if higher (the
"Profit Share High Water Mark"). Profit Shares will be calculated on Units
subject to a 7.0% per annum as well as on those subject to a 9.0% per annum
Brokerage Fee in the manner described in Section 8(a) hereof. Trading Profit
does not include profits allocable to the Managing Owner's capital account or
to the New Profits Memo Account.
New Trading Profit is not reduced by organizational and
initial offering cost reimbursement payments, but is reduced by routine
administrative expenses.
If Units are redeemed when there is a loss carryforward
for Profit Share calculation purposes (I.E., the current level of cumulative
Trading Profit is below the Profit Share High Water Mark), such loss
carryforward will be reduced in proportion to the proportion of the total
outstanding Units redeemed.
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Neither any Unitholder nor the Managing Owner shall have
any interest in the New Profits Memo Account, except as described in Section
5(b) hereof. However, as described in Section 8(b)(3)(B), bookkeeping entries
in the New Profits Memo Account shall be reduced, and the Managing Owner's
capital account correspondingly increased to the extent that priority
allocations of Capital Gain are made to the Managing Owner pursuant to said
Section 8(b)(3)(B).
In the event that the Net Asset Value per Unit is less
than $400 as of any calendar month-end, the balance of any bookkeeping
entries to the New Profits Memo Account then outstanding will be cancelled,
and an amount equal to such balance shall be allocated equally among all
outstanding Units, but not to the Managing Owner's capital account.
(d) EXPENSES; INTEREST INCOME. The Managing Owner
is being reimbursed for organizational and initial offering costs (excluding
selling commissions), in the amount of $600,000, incurred in connection with
the formation of the Trust and the initial offering of the Units in 24 equal
monthly installments ending September 30, 1997.
The Trust shall bear all of any taxes applicable to it.
The Trust shall pay the Managing Owner a Brokerage Fee equal to 0.75 of 1% (a
9.0% annual rate) of the month-end assets of the Trust (prior to reduction
for any accrued but unpaid Brokerage Fees and Profit Shares), not including
the Managing Owner's capital account; provided that in the case of
subscribers who invest $1,000,000 or more in the Trust, such Brokerage Fee
shall be reduced to 0.583 of 1% (a 7.0% annual fee) of such month-end assets
of the Trust attributable to each such Unitholder's capital account, as
contemplated by Section 8(a)(10) above.
The Managing Owner shall pay all routine charges
incidental to trading (including, without limitation, brokerage commissions,
exchange, clearinghouse, regulatory, floor brokerage and "give-up" fees). Any
extraordinary charges incidental to trading (for example, insurance or
delivery charges) will be paid by the Trust.
The Trust will pay its ongoing administrative expenses,
including the fees of the Trustee. All of the expenses which are for the
account of the Trust shall be billed directly to the Trust. The Trust shall
bear all of its own legal, accounting and administrative expenses, but none
of the Managing Owner's "overhead" expenses incurred in connection with the
administration of the Trust (including, but not limited to, salaries and
rent) shall be charged to the Trust.
Appropriate reserves may be created, accrued and charged
against the Net Assets for contingent liabilities, if any, as of the date any
such contingent liability becomes known to the Managing Owner. Such reserves
shall reduce Net Asset Value for all purposes.
Any goods and services provided to the Trust by the
Managing Owner shall be provided at rates and terms at least as favorable as
those which may be obtained from third parties in arm's-length negotiations.
In the event that the Trust shall be subject to taxation
by any state or local or by any foreign taxing authority, the Trust shall be
obligated to pay such taxes to such jurisdiction. In the event that the Trust
shall be required to make payments to any federal, state or local or any
foreign taxing authority in respect of any Unitholder's allocable share of
the Trust's income, the amount of such taxes shall be considered a loan by
the Trust to such Unitholder, and such Unitholder shall be liable for, and
shall pay to the Trust, any taxes so required to be withheld and paid over by
the Trust within ten (10) days after the Managing Owner's request therefor.
Such Unitholder shall also be liable for (and the Managing Owner shall be
entitled to redeem Units of such Unitholder as necessary to satisfy) interest
on the amount of taxes paid over by the Trust to the Internal Revenue Service
("IRS") or other taxing authority, from the date of the
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Managing Owner's request for payment to the date of payment or redemption, as
the case may be, at the rate of two percent (2%) per annum over the prime
rate charged from time to time by Chemical Bank, New York, New York. Any
amount payable by the Trust to such Unitholder shall be reduced by any
obligations owed to the Trust by the Unitholder, including, without
limitation, the amount of any taxes required to be paid over by the Trust to
the IRS or other taxing authority and interest thereon as aforesaid. Amounts,
if any, deducted by the Trust from any actual distribution or redemption
payment to such Unitholder shall be treated as an actual distribution to such
Unitholder for all purposes of this Declaration of Trust.
The Trust will receive all interest income earned on its
assets.
(e) LIMITED LIABILITY OF UNITHOLDERS. Each Unit,
when purchased in accordance with this Declaration of Trust, shall, except as
otherwise provided by law, be fully-paid and nonassessable. Any provisions of
this Declaration of Trust to the contrary notwithstanding, Unitholders
(including the Managing Owner, except to the extent otherwise provided
herein) shall be entitled to the same limitation on personal liability
extended to stockholders of private corporations for profit organized under
the General Corporation Law of the State of Delaware.
The Trust will indemnify, to the full extent permitted
by law, each Unitholder (other than the Managing Owner in the event that the
Managing Owner acquires Units) against any claims of liability asserted
against such Unitholder solely because such Unitholder is a beneficial owner
of the Trust (other than in respect of taxes due from such Unitholder as such
a beneficial owner).
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 any of the foregoing are not binding
upon the Unitholders individually but are binding only upon the assets and
property of the Trust, and that no resort shall be had to the Unitholders'
personal property for the satisfaction of any obligation or claim thereunder,
and appropriate references may be made to this Declaration of Trust and may
contain any further recital which the Managing Owner deems appropriate, but
the omission thereof shall not operate to bind the Unitholders individually
or otherwise invalidate any such note, bond, contract, instrument,
certificate or undertaking.
(f) RETURN OF CAPITAL CONTRIBUTIONS. No
Unitholder or subsequent assignee shall have any right to demand the return
of his or her capital contribution or any profits added thereto, except
through redeeming Units or upon dissolution of the Trust, in each case as
provided herein. In no event shall a Unitholder or subsequent assignee be
entitled to demand or receive property other than cash.
9. MANAGEMENT OF THE TRUST.
(a) AUTHORITY OF THE MANAGING OWNER. Pursuant to
Section 3806 of the Act, 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 Declaration of Trust.
The Managing Owner, to the exclusion of all other
Unitholders, shall control, conduct and manage the business of the Trust. The
Managing Owner shall have sole discretion in determining what distributions
of profits and income, if any, shall be made to the Unitholders (subject to
the allocation provisions hereof), shall execute various documents on behalf
of the Trust and the Unitholders pursuant to powers of attorney and shall
supervise the liquidation of the Trust if an event causing dissolution of the
Trust occurs.
The Managing Owner may, in furtherance of the business
of the Trust, cause the Trust to buy, sell, hold or otherwise acquire or
dispose of commodities, futures contracts and options traded on exchanges or
otherwise, arbitrage positions, repurchase agreements, interest-bearing
securities, deposit
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accounts and similar instruments and other assets, and cause the trading of
the Trust to be limited to only certain of the foregoing instruments.
The Managing Owner may take such other actions on behalf
of the Trust as the Managing Owner deems necessary or desirable to manage the
business of the Trust.
The Managing Owner is hereby authorized to perform all
duties imposed by Sections 6221 through 6232 of the Code on the Managing
Owner as the "tax matters partner" of the Trust.
(b) NOTIFICATION OF BASIC CHANGES. The Managing
Owner shall send to all Unitholders and assignees prior notice of any change
in the basic investment approach of the Trust and of any increase in its
charges. Such notifications shall contain a description of Unitholder's
voting and redemption rights and a description of any material effect of such
change or increase. The Managing Owner is hereby specifically authorized to
enter into, on behalf of the Trust, the Customer Agreements, the Escrow
Agreement, the Selling Agreements and the Additional Selling Agent Agreements
as described in the Prospectus.
(c) CERTAIN AGREEMENTS. In addition to any specific
contract or agreements described herein, the Trust, and the Managing Owner on
behalf of the Trust, may enter into any other contracts or agreements
specifically described in or contemplated by the Prospectus without any
further act, approval or vote of any Unitholder other than the Managing
Owner, notwithstanding any other provisions of this Declaration of Trust, the
Act or any applicable law, rule or regulations.
(d) FIDUCIARY DUTIES. The Managing Owner shall be
under a fiduciary duty to conduct the affairs of the Trust in the best
interests of the Trust, provided that the Managing Owner shall not be
obligated to engage in any conduct on behalf of the Trust to the detriment of
any other commodity pool to which the Managing Owner owes similar fiduciary
duties. The Unitholders will under no circumstances be deemed to have
contracted away the fiduciary obligations owed them by the Managing Owner
under the common law. The Managing Owner's fiduciary duty includes, among
other things, the safekeeping of all funds and assets of the Trust and the
use thereof for the benefit of the Trust. The Managing Owner shall at all
times act with integrity and good faith and exercise due diligence in all
activities relating to the conduct of the business of the Trust and in
resolving conflicts of interest. The Managing Owner will take no actions with
respect to the property of the Trust which do not benefit the Trust, and the
Managing Owner will not use the assets of the Trust as compensating balances
for the Managing Owner's exclusive benefit.
(e) BROKERAGE ARRANGEMENTS. The Trust's brokerage
arrangements shall be non-exclusive, and the brokerage commissions paid by
the Trust shall be competitive. The Trust shall seek the best price and
services available for its commodity transactions.
The Brokerage Fees paid by the Trust may not exceed the
amount permitted under applicable North American Securities Administrators
Association, Inc. Guidelines for the Registration of Commodity Pool Programs
("Blue Sky Guidelines") in effect as of the date hereof.
(f) PROHIBITED ACTIVITIES. The Trust shall make
no loans to any party, and the funds of the Trust will not be commingled with
the funds of any other person or entity (deposit of funds with a commodity
broker, clearinghouse or forward dealer or entering into joint ventures or
partnerships shall not be deemed to constitute "commingling" for these
purposes). The Managing Owner shall make no loans to the Trust.
The Trust shall not employ the trading technique
commonly known as "pyramiding." The Managing Owner taking into account the
Trust's open trade equity on existing positions in determining
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generally whether to acquire additional commodity positions on behalf of the
Trust will not be considered to be engaging in "pyramiding."
No person or entity may receive, directly or indirectly,
any advisory, management or incentive fees, or any profit-sharing allocation
from joint ventures, partnerships or similar arrangements in which the Trust
participates, for investment advice or management who shares or participates
in any per-trade commodity brokerage commissions paid by the Trust; no broker
may pay, directly or indirectly, rebates or give-ups to any trading advisor
or manager or to the Managing Owner or any of their respective affiliates;
and such prohibitions may not be circumvented by any reciprocal business
arrangements.
The maximum period covered by any contract entered into
by the Trust, except for the various provisions of the Selling Agreement
which survive, shall not exceed one year. Any material change in the basic
investment policies or structure of the Trust shall require the approval of
Unitholders owning Units representing more than fifty percent (50%) of the
total outstanding Units owned by Unitholders as of a record date established
for a vote thereon. Any agreements between the Trust and the Managing Owner
or any affiliate of the Managing Owner shall be terminable by the Trust upon
no more than 60 days' written notice.
(g) FREEDOM OF ACTION. The Managing Owner is
engaged, and may in the future engage, into other business activities and
shall not be required to refrain from any other activity nor forego any
profits from any such activity, whether or not in competition with the Trust.
The Trustee and the Unitholders may similarly engage in any such other
business activities. The Managing Owner shall devote to the Trust such time
as the Managing Owner may deem advisable to the conduct of the Trust's
business and affairs.
10. AUDITS AND REPORTS TO UNITHOLDERS.
The Trust's books shall be audited annually by an
independent certified public accountant. The Trust will use its best efforts
to cause each Unitholder to receive (i) within 90, but in no event later than
120 days, after the close of each fiscal year certified financial statements
for the fiscal year then ended, (ii) within 90 days of the end of each fiscal
year (but in no event later than March 15 of each year) such tax information
as is necessary for a Unitholder to complete his or her federal income tax
return and (iii) such other annual and monthly information as the Commodity
Futures Trading Commission may by regulation require. Unitholders or their
duly authorized representatives may inspect the books and records of the
Trust during normal business hours upon reasonable written notice to the
Managing Owner and obtain copies of such records upon payment of reasonable
reproduction costs; provided, however, that upon request by the Managing
Owner, the requesting Unitholder shall represent that the inspection and/or
copies of such records will not be used for commercial purposes unrelated to
such Unitholder's interest as an investor in the Trust.
The Managing Owner shall calculate the Net Asset Value
per Unit on a monthly basis and sell and redeem Units at Net Asset Value.
The Brokerage Fees and Profit Share may not be increased
without prior written notice to all Unitholders within sufficient time for
the exercise of their redemption rights prior to any such increase becoming
effective. The Brokerage Fees and the Profit Share may not be increased
during any period when a redemption charge is in effect with respect to any
Units.
The Managing Owner shall notify the Unitholders of (i)
changes to the trading method of the Managing Owner which the Managing Owner
believes to be material, (ii) changes in Brokerage Fees, Profit Share or
other fees paid by the Trust or (iii) material changes in the basic
investment policies or structure of the Trust. The Managing Owner shall so
notify Unitholders, by certified mail or other means of notification
providing for evidence of delivery, prior to any such change. Such
notification shall set forth
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the Unitholders' voting and redemption rights. The Managing Owner will send
written notice to each Unitholder within seven days of any decline in the Net
Asset Value per Unit to 50% or less of such value as of the previous
month-end. Any such notice shall contain a description of the Unitholders'
voting and redemption rights. The Managing Owner, not the Trust, shall pay
the cost of any notification delivered pursuant to this paragraph.
The Managing Owner shall prepare or cause to be prepared
and shall file on or before the due date (or any extension thereof) any
federal, state or local tax returns required to be filed by the Trust. The
Managing Owner shall cause the Trust to pay any taxes payable by the Trust;
provided, however, that such taxes need not be paid if the Managing Owner or
the Trust are in good faith and by appropriate legal proceedings contesting
the validity, applicability or amount thereof, and such contest does not
materially endanger any right or interest of the Trust.
The Managing Owner shall maintain and preserve all
required records relating to the Trust for a period of not less than six (6)
years from the receipt of such records.
In particular, and not by way of limitation, the
Managing Owner will retain all Subscription Agreement and Power of Attorney
Signature Pages submitted by persons admitted as Unitholders, and all other
records necessary to substantiate that Units are sold only to purchasers for
whom the Units are a suitable investment, for at least six (6) years after
Units are sold to such persons.
The Managing Owner shall seek the best price and
services for the Trust's trading, and will, with the assistance of the
Trust's commodity broker(s), make an annual review of the commodity brokerage
arrangements applicable to the Trust. In connection with such review, the
Managing Owner will ascertain, to the extent practicable, the commodity
brokerage rates charged to other major commodity pools whose trading and
operations are, in the opinion of the Managing Owner, comparable to those of
the Trust, in order to assess whether the rates charged the Trust are
reasonable in light of the services it receives and the terms upon which the
Trust was promoted to subscribers. If, as a result of such review, the
Managing Owner determines that such rates are unreasonable in light of the
services provided to the Trust and the terms upon which the Trust was
promoted, the Managing Owner will notify the Unitholders, setting forth the
rates charged to the Trust and several funds which are, in the Managing
Owner's opinion, comparable to the Trust. The Managing Owner shall also make
an annual review of the forward trading arrangements for the Trust in an
attempt to determine whether such arrangements are competitive with those of
other comparable pools in light of the circumstances.
11. ASSIGNABILITY OF UNITS.
Each Unitholder expressly agrees that he or she will not
assign, transfer or dispose of, by gift or otherwise, any of his or her Units
or any part or all of his or her right, title and interest in the capital or
profits of the Trust in violation of any applicable federal or state
securities laws or without giving written notice to the Managing Owner. No
assignment, transfer or disposition by an assignee of Units or of any part of
his or her right, title and interest in the capital or profits of the Trust
shall be effective against the Trust, the Trustee or the Managing Owner until
the Managing Owner receives the written notice of the assignment; the
Managing Owner shall not be required to give any assignee any rights
hereunder prior to receipt of such notice. The Managing Owner may, in its
sole discretion, waive any such notice. No such assignee, except with the
consent of the Managing Owner (such consent to be withheld only in the event
that such assignment could give rise to negative legal or tax consequences),
may become a substituted Unitholder, nor will the estate or any beneficiary
of a deceased Unitholder or assignee have any right to redeem Units from the
Trust except by redemption as provided in Section 12 hereof. Each Unitholder
agrees that with the consent of the Managing Owner any assignee may become a
substituted Unitholder without need of the further act or approval of any
Unitholder. If the Managing Owner withholds consent, an assignee shall not
become a substituted Unitholder, and shall not have any of the rights of a
Unitholder, except that the assignee shall be
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entitled to receive that share of capital and profits and shall have that
right of redemption to which his or her assignor would otherwise have been
entitled. No assignment, transfer or disposition of Units shall be effective
against the Trust, the Trustee or the Managing Owner until the first business
day of the calendar month following the month in which the Managing Owner
receives notice of such assignment, transfer or disposition. The Managing
Owner will send written confirmation to both the transferors and transferees
of Units that the transfers in question have been duly recorded on the
Trust's books and records.
12. REDEMPTIONS.
A Unitholder (including the Managing Owner except to the
extent that its power to redeem is limited by any other provision of this
Declaration of Trust) or any assignee of Units of whom the Managing Owner has
received written notice, may redeem all or any of his or her Units, effective
as of the close of business (as determined by the Managing Owner) on the last
business day of any calendar month, provided that (i) all liabilities,
contingent or otherwise, of the Trust (including the Trust's allocable share
of the liabilities, contingent or otherwise, of any entities in which the
Trust invests), except any liability to Unitholders on account of their
capital contributions, have been paid or there remains property of the Trust
sufficient to pay them and (ii) the Managing Owner shall have received a
redemption request at least ten business days prior to the date of
redemption, or such later time as shall be acceptable to the Managing Owner.
Unitholders who redeem Units on or prior to the end of the first and second
successive six-month periods after such Units are sold will be assessed
redemption charges of 4% and 3%, respectively (3% and 2%, respectively, in
the case of Unitholders who have invested $1,000,000 or more in the Trust),
of their Units' Net Asset Value as of the date of redemption. Units purchased
by the same Unitholder on different closing dates will be treated on a
"first-in, first-out" basis for purposes of calculating the foregoing
six-month periods. Additional Units issued to Unitholders subject to a 7.0%
rather than a 9.0% annual Brokerage Fee will be deemed all to have been
issued as of the date of the longest outstanding Units held by a particular
Unitholder. All redemption charges will be paid to the Managing Owner.
Any number of whole Units may be redeemed. Fractional
Units may only be redeemed upon redemption of a Unitholder's entire interest
in the Trust.
Redemption requests must be in writing unless the
Managing Owner determines otherwise.
The Managing Owner may declare additional redemption
dates upon notice to the Unitholders as well as to those assignees of whom
the Managing Owner has received notice as described above.
Redemption payments will be made (by mailing a check or
crediting a customer securities account) within 15 business days after the
date of redemption, except that under special circumstances, including, but
not limited to, inability to liquidate commodity positions or default or
delay in payments due from commodity brokers, banks or other persons or
entities, the Trust may in turn delay payment to Unitholders or assignees
requesting redemption of their Units of the proportionate part of the Net
Asset Value of such Units equal to that proportionate part of the aggregate
Net Asset Value of the Trust represented by the sums which are the subject of
such default or delay.
All redemptions will be made at Net Asset Value as of
the effective date of the redemption.
The Managing Owner may require a Unitholder to redeem
all or a portion of such Unitholder's Units if the Managing Owner considers
doing so to be desirable for the protection of the Trust, and will use its
best efforts to do so to the extent necessary to prevent the Trust from being
deemed to hold "plan assets" under the provisions of the Employee Retirement
Income Security Act of 1974, as amended ("ERISA"), or Section 4975 of the
Code with respect to any "employee benefit plan" as defined in and subject to
ERISA or with respect to any "plan" as defined in Section 4975 of the Code.
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If at the close of business (as determined by the
Managing Owner) on any business day, the Net Asset Value per Unit has
decreased to $500 or less, after adding back all distributions, the Trust
will liquidate all open positions as expeditiously as possible and suspend
trading. Within 10 business days after any such suspension of trading, the
Managing Owner shall declare a "Special Redemption Date." Such Special
Redemption Date shall be a business day within 30 business days from the date
of suspension of trading by the Trust, and the Managing Owner shall mail
notice of such date to each Unitholder and assignee of Units of whom it has
received written notice, by first class mail, postage prepaid, not later than
ten business days prior to such Special Redemption Date, together with
instructions as to the procedure such Unitholder or assignee must follow to
have such Unitholder's or assignee's interest (only entire, not partial,
interests may be so redeemed unless otherwise determined by the Managing
Owner) in the Trust redeemed on such date. Upon redemption pursuant to a
Special Redemption Date, a Unitholder or any other assignee of whom the
Managing Owner has received written notice, shall receive from the Trust an
amount equal to the Net Asset Value of such Unitholder's interest, determined
as of the close of business (as determined by the Managing Owner) on such
Special Redemption Date. No redemption charges shall be assessed on any such
Special Redemption Date. As in the case of a regular redemption, an assignee
shall not be entitled to redemption on any Special Redemption Date until the
Managing Owner has received written notice (see Section 11) of the
assignment, transfer or disposition under which the assignee claims an
interest in the Units to be redeemed. If, after such Special Redemption Date,
the Net Assets of the Trust are at least $250,000 and the Net Asset Value per
Unit is in excess of $250, the Trust may, in the discretion of the Managing
Owner, resume trading. If the preceding conditions are not met or the
Managing Owner determines not to resume trading, the Trust will be terminated.
The Managing Owner may declare additional Special
Redemption Dates upon notice to the Unitholders and assignees of whom the
Managing Owner has received notice. In the event the Managing Owner does, in
its discretion, declare a Special Redemption Date, the Managing Owner may, in
its notice of such Special Redemption Date modify the circumstances under
which the Managing Owner is again required to declare a Special Redemption
Date, as set forth in the preceding paragraph.
13. OFFERING OF UNITS.
The Managing Owner on behalf of the Trust shall (i)
cause to be filed from time to time a Registration Statement or Registration
Statements, and such amendments thereto as the Managing Owner may deem
advisable, with the Securities and Exchange Commission for the registration
and ongoing public offering of Units, (ii) use its best efforts to qualify
Units for sale from time to time under the securities laws of such states of
the United States or other jurisdictions as the Managing Owner shall deem
advisable and (iii) take such action with respect to the matters described in
(i) and (ii) as the Managing Owner shall deem advisable or necessary.
The Managing Owner shall not accept any subscriptions
for Units if doing so would cause the Trust to be considered to hold "plan
assets" for any purpose of ERISA or Section 4975 of the Code with respect to
any "employee benefit plan" as defined in and subject to ERISA or with
respect to any "plan" as defined in Section 4975 of the Code.
All Units subscribed for upon transfer of funds from a
subscriber's account (or receipt of a check in the subscription amount) are
issued subject to the collection of the funds represented by such transfer
(or check). In the event that a transfer (or check) of a subscriber is not
honored, the Trust shall cancel the Units issued to such subscriber in
consideration of such dishonored transfer (or check); provided that the
Managing Owner may waive such cancellation upon receipt of what it believes
to be reasonable assurances that such transfer (or check) will be honored or
replaced by another transfer (or check) which will be honored within 10
business days of original dishonor. Any losses or profits sustained by the
Trust in connection with its trading allocable to cancelled Units shall be
deemed an increase or decrease in the Net Assets of the Trust and allocated
as described above in Section 8, not a liability of the Managing Owner.
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Each subscriber agrees to reimburse the Trust for any expense or losses
incurred in connection with any such cancellation of Units issued to him or
her.
Units will be sold as of the first day of each calendar
month subject to the Managing Owner's discretion to hold intra-month closings
and to suspend or terminate the offering of Units.
Each Unitholder consents, by the act of purchasing
Units, to the Trust issuing to such Unitholder additional Units (in fractions
calculated up to three decimal places) in lieu of all interest earned on such
Unitholder's subscription while held pending investment in the Units.
14. SPECIAL POWER OF ATTORNEY.
Each Unitholder by virtue of having purchased or
otherwise acquired Units does hereby irrevocably constitute and appoint the
Managing Owner and each officer of the Managing Owner, with full power of
substitution, as his or her true and lawful attorney-in-fact, in his or her
name, place and stead, to execute, acknowledge, swear to (and deliver as may
be appropriate) on his or her behalf and file and record in the appropriate
public offices and publish (as may in the reasonable judgment of the Managing
Owner be required by law): (i) this Declaration of Trust, including any
amendments and/or restatements hereto duly adopted as provided herein; (ii)
certificates in various jurisdictions, and amendments and/or restatements
thereto; (iii) all conveyances and other instruments which the Managing Owner
deems appropriate to qualify or continue the Trust in the State of Delaware
and the jurisdictions in which the Trust may conduct business, or which may
be required to be filed by the Trust or the Unitholders under the laws of any
jurisdiction or under any amendments or successor statutes to the Act, to
reflect the dissolution or termination of the Trust or the Trust being
governed by any amendments or successor statutes to the Act or to reorganize
or refile the Trust in a different jurisdiction; and (iv) to file, prosecute,
defend, settle or compromise litigation, claims or arbitrations on behalf of
the Trust. The Power of Attorney granted herein shall be irrevocable and
deemed to be a power coupled with an interest (including, without limitation,
the interest of the other Unitholders in the Managing Owner being able to
rely on the Managing Owner's authority to act as contemplated by this Section
14) and shall survive and shall not be affected by the subsequent incapacity,
disability or death of a Unitholder.
15. WITHDRAWAL OF A UNITHOLDER.
The Trust shall be dissolved upon the death, insanity,
bankruptcy, retirement, resignation, expulsion, withdrawal, insolvency or
dissolution of the Managing Owner, or any other event that causes the
Managing Owner to cease to be the managing owner of the Trust, unless the
Trust is continued pursuant to the terms of Section 5(a)(3). In addition, the
Managing Owner may withdraw from the Trust, without any breach of this
Declaration of Trust, at any time upon 120 days' written notice by first
class mail, postage prepaid, to the Trustee, each Unitholder and each
assignee of whom the Managing Owner has notice. If the Managing Owner
withdraws from the Trust and the Trust's business is continued, the
withdrawing Managing Owner shall pay all expenses incurred as a result of its
withdrawal.
The Managing Owner may not assign its general liability
interest or its obligation to direct the trading of the Trust without the
consent of each Unitholder. The Managing Owner will notify all Unitholders of
any change in the principals of the Managing Owner.
The death, incompetency, withdrawal, insolvency or
dissolution of a Unitholder or any other event that causes a Unitholder to
cease to be a beneficial owner (within the meaning of the Act) in the Trust
shall not terminate or dissolve the Trust, and a Unitholder, his or her
estate, custodian or personal representative shall have no right to redeem or
value such Unitholder's interest except as provided in Section 12 hereof.
Each Unitholder expressly agrees that in the event of his or her death, he or
she waives on behalf of himself or herself and his or her estate, and directs
the legal representatives of his or her estate and any
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<PAGE>
person interested therein to waive, the furnishing of any inventory,
accounting or appraisal of the assets of the Trust and any right to an audit
or examination of the books of the Trust. Nothing in this Section 15 shall,
however, waive any right given elsewhere in this Declaration of Trust for a
Unitholder to be informed of the Net Asset Value of his or her Units, to
receive periodic reports, audited financial statements and other information
from the Managing Owner or the Trust or to redeem or transfer Units.
16. BENEFIT PLAN INVESTORS.
Each Unitholder that is an "employee benefit plan" as
defined in and subject to ERISA or a "plan" as defined in Section 4975 of the
Code (each such employee benefit plan and plan, a "Plan"), and each fiduciary
thereof who has caused the Plan to become a Unitholder (a "Plan Fiduciary"),
represents and warrants that: (a) the Plan Fiduciary has considered an
investment in the Trust for such Plan in light of the risks relating thereto;
(b) the Plan Fiduciary has determined that, in view of such considerations,
the investment in the Trust by such Plan is consistent with such Plan
Fiduciary's responsibilities under ERISA; (c) the investment in the Trust by
the Plan does not violate and is not otherwise inconsistent with the terms of
any legal document constituting the Plan or any trust agreement entered into
thereunder; (d) the Plan's investment in the Trust has been duly authorized
and approved by all necessary parties; (e) none of the Managing Owner, either
of Prudential Securities Incorporated or PaineWebber Incorporated
(collectively, the "Principal Selling Agents"), any Additional Selling Agent,
the Trustee, Chemical Bank, N.A., 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 the Plan used to purchase Units;
(ii) has authority or responsibility to or regularly gives investment advice
with respect to the assets of the Plan used to purchase Units 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 the Plan and that
such advice will be based on the particular investment needs of the Plan; or
(iii) is an employer maintaining or contributing to the Plan; and (f) the
Plan Fiduciary: (i) is authorized to make, and is responsible for, the
decision for the Plan to invest in the Trust, including the determination
that such investment is consistent with the requirement imposed by Section
404 of ERISA that Plan investments be diversified so as to minimize the risks
of large losses; (ii) is independent of the Managing Owner, both of the
Principal Selling Agents, any Additional Selling Agent, the Trustee, Chemical
Bank, N.A. and any of their respective affiliates; and (iii) is qualified to
make such investment decision.
17. STANDARD OF LIABILITY; INDEMNIFICATION.
(a) STANDARD OF LIABILITY FOR THE MANAGING OWNER.
The Managing Owner and its Affiliates, as defined below, shall have no
liability to the Trust or to any Unitholder for any loss suffered by the
Trust which arises out of any action or inaction of the Managing Owner or its
Affiliates, if the Managing Owner, in good faith, determined that such course
of conduct was in the best interests of the Trust, and such course of conduct
did not constitute negligence or misconduct of the Managing Owner or its
Affiliates.
(b) INDEMNIFICATION OF THE MANAGING OWNER BY THE
TRUST. To the fullest extent permitted by law, subject to this Section 17,
the Managing Owner and its Affiliates shall be indemnified by the Trust
against any losses, judgments, liabilities, expenses and amounts paid in
settlement of any claims sustained by them in connection with the Trust;
provided that such claims were not the result of negligence or misconduct on
the part of the Managing Owner or its Affiliates, and the Managing Owner, in
good faith, determined that such conduct was in the best interests of the
Trust; and provided further that Affiliates of the Managing Owner shall be
entitled to indemnification only for losses incurred by such Affiliates in
performing the duties of the Managing Owner and acting wholly within the
scope of the authority of the Managing Owner.
Notwithstanding anything to the contrary contained in
the preceding two paragraphs, the Managing Owner and its Affiliates and any
persons acting as selling agent for the Units shall not be
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<PAGE>
indemnified for any losses, liabilities or expenses arising from or out of an
alleged violation of federal or state securities laws unless (1) 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 indemnification of the litigation costs, or (2) 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
indemnification of the litigation costs, or (3) 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.
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
California Department of Corporations, the Massachusetts Securities Division,
the Pennsylvania Securities Commission, the Tennessee Securities Division,
the Texas Securities Board and any other state or applicable regulatory
authority with respect to the issue of indemnification for securities law
violations.
The Trust shall not bear the cost of that portion of any
insurance which insures any party against any liability the indemnification
of which is herein prohibited.
For the purposes of this Section 17, the term
"Affiliates" shall mean any person acting on behalf of or performing services
on behalf of the Trust who: (1) directly or indirectly controls, is
controlled by, or is under common control with the Managing Owner; or (2)
owns or controls 10% or more of the outstanding voting securities of the
Managing Owner; or (3) is an officer or director of the Managing Owner; or
(4) if the Managing Owner is an officer, director, partner or trustee, is any
entity for which the Managing Owner acts in any such capacity.
Advances from the funds of the Trust to the Managing
Owner or its Affiliates for legal expenses and other costs incurred as a
result of any legal action initiated against the Managing Owner by a
Unitholder are prohibited.
Advances from the funds of the Trust to the Managing
Owner or its Affiliates for legal expenses and other costs incurred as a
result of a legal action will be made only if the following three conditions
are satisfied: (1) the legal action relates to the performance of duties or
services by the Managing Owner or its Affiliates on behalf of the Trust; (2)
the legal action is initiated by a third party who is not a Unitholder; and
(3) the Managing Owner or its Affiliates undertake to repay the advanced
funds, with interest from the initial date of such advance, to the Trust in
cases in which they would not be entitled to indemnification under the
standard of liability set forth in Section 17(a).
In no event shall any indemnity or exculpation provided
for herein be more favorable to the Managing Owner or any Affiliate than that
contemplated by the Blue Sky Guidelines as in effect on the date of this
Declaration of Trust.
In no event shall any indemnification permitted by this
subsection (b) of Section 17 be made by the Trust unless all provisions of
this Section for the payment of indemnification have been complied with in
all respects. Furthermore, it shall be a precondition of any such
indemnification that the Trust receive a determination of qualified
independent legal counsel in a written opinion that the party which seeks to
be indemnified hereunder has met the applicable standard of conduct set forth
herein. Receipt of any such opinion shall not, however, in itself, entitle
any such party to indemnification unless indemnification is otherwise proper
hereunder. Any indemnification payable by the Trust hereunder shall be made
only as provided in the specific case.
In no event shall any indemnification obligations of the
Trust under this subsection (b) of Section 17 subject a Unitholder to any
liability in excess of that contemplated by subsection (e) of Section 8
hereof.
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<PAGE>
(c) INDEMNIFICATION BY THE UNITHOLDERS. In the
event that the Trust is made a party to any claim, dispute or litigation or
otherwise incurs any loss or expense as a result of or in connection with any
activities of a Unitholder, obligations or liabilities unrelated to the
business of the Trust or as a result of or in connection with a transfer,
assignment or other disposition or an attempted transfer, assignment or other
disposition by a Unitholder or an assignee of its Units or of any part of its
right, title and interest in the capital or profits of the Trust in violation
of this Declaration of Trust, such Unitholder shall indemnify and reimburse
the Trust for all loss and expense incurred, including reasonable attorneys'
fees.
18. AMENDMENTS; MEETINGS.
(a) AMENDMENTS WITH CONSENT OF THE MANAGING OWNER.
If at any time during the term of the Trust the Managing Owner shall deem it
necessary or desirable to amend this Declaration of Trust, the Managing Owner
may proceed to do so, provided that such amendment shall be effective only if
embodied in an instrument approved by the Managing Owner and, pursuant to a
vote called by the Managing Owner, by the holders of Units representing a
majority of the outstanding Units. Such vote shall be taken at least 30 but
not more than 60 days after delivery by the Managing Owner to each Unitholder
of record by certified mail of notice of the proposed amendment and voting
procedures. Notwithstanding the foregoing, the Managing Owner may amend this
Declaration of Trust without the consent of the Unitholders in order (i) to
clarify any clerical inaccuracy or ambiguity or reconcile any inconsistency
(including any inconsistency between this Declaration of Trust and the
Prospectus), (ii) to effect the intent of the allocations proposed herein to
the maximum extent possible in the event of a change in the Code or the
interpretations thereof affecting such allocations, (iii) to attempt to
ensure that the Trust is not treated as an association taxable as a
corporation for federal income tax purposes, (iv) to qualify or maintain the
qualification of the Trust as a trust in any jurisdiction, (v) to delete or
add any provision of or to this Declaration of Trust required to be deleted
or added by the Staff of the Securities and Exchange Commission or any other
federal agency or any state "Blue Sky" or similar official or in order to opt
to be governed by any amendment or successor statute to the Act, (vi) to make
any amendment to this Declaration of Trust which the Managing Owner deems
advisable, provided that such amendment is for the benefit of and not adverse
to the Unitholders or the Trustee, or that is required by law, (vii) to make
any amendment that is appropriate or necessary, in the opinion of the
Managing Owner, to prevent the Trust or the Managing Owner or its directors,
officers or controlling persons from in any manner being subjected to the
provisions of the Investment Company Act of 1940, as amended, and (viii) to
make any amendment that is appropriate or necessary, in the opinion of the
Managing Owner, to avoid causing the assets of the Trust from being
considered for any purpose of ERISA or Section 4975 of the Code to constitute
assets of any Plan.
(b) AMENDMENTS AND ACTIONS WITHOUT CONSENT OF THE
MANAGING OWNER. In any vote called by the Managing Owner or pursuant to
subsection (c) of this Section 18, upon the affirmative vote (which may be in
person or by proxy) of more than fifty percent (50%) of the Units then owned
by Unitholders, the following actions may be taken with respect to the Trust,
irrespective of whether the Managing Owner concurs: (i) this Declaration of
Trust may be amended, provided, however, that approval of all Unitholders
shall be required in the case of amendments changing or altering this Section
18, extending the term of the Trust, or materially changing the Trust's basic
investment policies or structure; in addition, reduction of the capital
account of any Unitholder or assignee or modification of the percentage of
profits, losses or distributions to which a Unitholder or an assignee is
entitled hereunder shall not be effected by any amendment or supplement to
this Declaration of Trust without such Unitholder's or assignee's written
consent; (ii) the Trust may be dissolved; (iii) the Managing Owner may be
removed and replaced; (iv) a new managing owner or managing owners may be
elected if the Managing Owner withdraws from the Trust; (v) the sale of all
or substantially all of the assets of the Trust may be approved; and (vi) any
contract with the Managing Owner or any affiliate thereof may be disapproved
and, as a result, terminated upon 60 days' notice.
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<PAGE>
(c) MEETINGS; OTHER. Any Unitholder upon request
addressed to the Managing Owner shall be entitled to obtain from the Managing
Owner, upon payment in advance of reasonable reproduction and mailing costs,
a list of the names and addresses of record of all Unitholders and the number
of Units held by each (which shall be mailed by the Managing Owner to the
Unitholder within ten days of the receipt of the request); provided, that the
Managing Owner may require any Unitholder requesting such information to
submit written confirmation that such information will not be used for
commercial purposes. Upon receipt of a written proposal, signed by
Unitholders owning Units representing at least 10% of all Units then owned by
Unitholders, that a meeting of the Trust be called to vote upon any matter
upon which the Unitholders may vote pursuant to this Declaration of Trust,
the Managing Owner shall, by written notice to each Unitholder of record sent
by certified mail within 15 days after such receipt, call a meeting of the
Trust. Such meeting shall be held at least 30 but not more than 60 days after
the mailing of such notice, and such notice shall specify the date of, a
reasonable place and time for, and the purpose of such meeting. Such notice
shall establish a record date for Units entitled to vote at the meeting,
which shall be not more than 15 days prior to the date established for such
meeting.
The Managing Owner may not restrict the voting rights of
Unitholders as set forth herein.
In the event that the Managing Owner or the Unitholders
vote to amend this Declaration of Trust in any material respect, the
amendment will not become effective prior to all Unitholders having an
opportunity to redeem their Units.
(d) CONSENT BY TRUSTEE. The Trustee's written
consent to any amendment of this Declaration of Trust shall be required, such
consent not to be unreasonably withheld; provided, however, that the Trustee
may, in its sole discretion, withhold its consent to any such amendment that
would adversely affect any right, duty or liability of, or immunity or
indemnity in favor of, the Trustee under this Declaration of Trust or any of
the documents contemplated hereby to which the Trustee is a party, or would
cause or result in any conflict with or breach of any terms, conditions or
provisions of, or default under, the charter documents or by-laws of the
Trustee or any document contemplated hereby to which the Trustee is a party;
provided further, that the Trustee may not withhold consent for any action
listed in subsections 18(b)(ii)-(vi). Notwithstanding anything to the
contrary contained in this Declaration of Trust, the Trustee may immediately
resign if, in its sole discretion, the Trustee determines that the
Unitholders' actions pursuant to subsections 18(b)(i)-(vi) would adversely
affect the Trustee in any manner.
19. GOVERNING LAW.
The validity and construction of this Declaration of
Trust shall be determined and governed by the laws of the State of Delaware
without regard to principles of conflicts of law; provided, that the
foregoing choice of law shall not restrict the application of any state's
securities laws to the sale of Units to its residents or within such state.
20. MISCELLANEOUS.
(a) NOTICES. All notices under this Declaration
of Trust shall be in writing and shall be effective upon personal delivery,
or if sent by first class mail, postage prepaid, addressed to the last known
address of the party to whom such notice is to be given, upon the deposit of
such notice in the United States mails.
(b) BINDING EFFECT. This Declaration of Trust
shall inure to and be binding upon all of the parties, their successors and
assigns, custodians, estates, heirs and personal representatives. For
purposes of determining the rights of any Unitholder or assignee hereunder,
the Trust and the Managing Owner may rely upon the Trust records as to who
are Unitholders and assignees, and all Unitholders and assignees agree that
their rights shall be determined and they shall be bound thereby.
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<PAGE>
(c) CAPTIONS. Captions in no way define, limit,
extend or describe the scope of this Declaration of Trust nor the effect of
any of its provisions. Any reference to "persons" in this Declaration of
Trust shall also be deemed to include entities, unless the context otherwise
requires.
21. CERTAIN DEFINITIONS.
This Declaration of Trust contains certain provisions
required by the Blue Sky Guidelines. The terms used in such provisions are
defined as follows (the following definitions are included VERBATIM from such
Guidelines and, accordingly, may not in all cases be relevant to this
Declaration of Trust):
ADMINISTRATOR. The official or agency administering the securities
laws of a state.
ADVISOR. 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.
AFFILIATE. An Affiliate of a Person means: (a) any Person directly or
indirectly owning, controlling or holding with power to vote 10% or
more of the outstanding voting securities of such Person; (b) any
Person 10% or more of whose outstanding voting securities are
directly or indirectly owned, controlled or held with power to vote,
by such Person; (c) any Person, directly or indirectly, controlling,
controlled by, or under common control of such Person; (d) any
officer, director or partner of such Person; or (e) if such Person is
an officer, director or partner, any Person for which such Person
acts in any such capacity.
CAPITAL CONTRIBUTIONS. The total investment in a Program by a
Participant or by all Participants, as the case may be.
COMMODITY BROKER. 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. 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.
CROSS REFERENCE SHEET. A compilation of the Guidelines sections,
referenced to the page of the prospectus, Program agreement, or other
exhibits, and justification of any deviation from the Guidelines.
NET ASSETS. The total assets, less total liabilities, of the Program
determined on the basis of generally accepted accounting principles.
Net Assets shall include any unrealized profits or losses on open
positions, and any fee or expense including Net Asset fees accruing
to the Program.
NET ASSET VALUE PER PROGRAM INTEREST. The Net Assets divided by the
number of Program Interests outstanding.
NET WORTH. 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 TRADING PROFITS. The excess, if any, of Net Assets at the end of
the period over Net Assets at the end of the highest previous period
or Net Assets at the date trading
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<PAGE>
commences, whichever is higher, and as further adjusted to eliminate
the effect on Net Assets resulting from new Capital Contributions,
redemptions, or capital distributions, if any, made during the period
decreased by interest or other income, not directly related to
trading activity, earned on Program assets during the period, whether
the assets are held separately or in a margin account.
ORGANIZATIONAL AND OFFERING EXPENSES. All expenses incurred by the
Program in connection with and in preparing a Program for
registration and subsequently offering and distributing it to the
public, including, but not limited to, total underwriting and
brokerage discounts and commissions (including fees of the
underwriters' attorneys), expenses for printing, engraving, mailing,
salaries of employees while engaged in sales activity, charges of
transfer agents, registrars, trustees, escrow holders, depositories,
experts, expenses of qualification of the sale of its Program
Interest under federal and state law including taxes and fees,
accountants' and attorneys' fees. (Organizational and Offering
Expenses as used in this Declaration of Trust does not include
selling commissions).
PARTICIPANT. The holder of a Program Interest.
PERSON. Any natural Person, partnership, corporation, association or
other legal entity.
PIT BROKERAGE FEE. Pit Brokerage Fee shall include floor brokerage,
clearing fees, National Futures Association fees, and exchange fees.
PROGRAM. A limited partnership, joint venture, corporation, trust or
other entity formed and operated for the purpose of investing in
Commodity Contracts.
PROGRAM BROKER. A Commodity Broker that effects trades in Commodity
Contracts for the account of a Program.
PROGRAM INTEREST. A limited partnership interest or other security
representing ownership in a Program.
PYRAMIDING. A method of using all or a part of an unrealized profit
in a Commodity Contract position to provide margin for any additional
Commodity Contracts of the same or related commodities.
SPONSOR. Any Person directly or indirectly instrumental in organizing
a Program or any Person who will manage or participate in the
management of a Program, including a Commodity Broker who pays any
portion of the Organizational and Offering Expenses of the Program,
and the general partner(s) and any other Person who regularly
performs or selects the Persons who perform services for the Program.
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.
VALUATION DATE. The date as of which the Net Assets of the Program
are determined.
VALUATION PERIOD. A regular period of time between Valuation Dates.
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Certain terms not defined herein are used with the
respective meanings set forth in the Prospectus.
22. NO LEGAL TITLE TO TRUST ESTATE.
The Unitholders shall not have legal title to any part of
the Trust Estate.
23. 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 (or the Trustee, if required by law) may cause legal title
to the Trust Estate of any portion thereof to be held by or in the name of
the Managing Owner or any other person as nominee.
24. CREDITORS.
No creditors of any Unitholders shall have any right to
obtain possession of, or otherwise exercise legal or equitable remedies with
respect to, the Trust Estate.
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IN WITNESS WHEREOF, the undersigned have duly executed
this Second Amended and Restated Declaration of Trust and Trust Agreement as
of the day and year first above written.
WILMINGTON TRUST COMPANY
as Trustee
By: /s/ Emmett R. Harmon
-----------------------------------------
Emmett R. Harmon
Vice President
MILLBURN RIDGEFIELD CORPORATION
as Managing Owner
By: /s/ Harvey Beker
-----------------------------------------
Harvey Beker
Co-Chief Executive Officer
All Unitholders now and hereafter admitted as
Unitholders of the Trust, pursuant to
powers of attorney now and hereafter
executed in favor of, and granted and
delivered to, the Managing Owner.
By: MILLBURN RIDGEFIELD CORPORATION
as Attorney-in-Fact
By: /s/ George E. Crapple
-----------------------------------------
George E. Crapple
Co-Chief Executive Officer
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<PAGE>
SCHEDULE A
CERTIFICATE OF TRUST
OF
THE MILLBURN WORLD RESOURCE TRUST
THIS Certificate of Trust of THE MILLBURN WORLD RESOURCE
TRUST (the "Trust"), dated June 7, 1995, is being duly executed and filed by
Wilmington Trust Company, a Delaware banking corporation, as trustee, to form
a business trust under the Delaware Business Trust Act (12 DEL.C. SECTION 3801
ET SEQ.).
1. NAME. The name of the business trust formed
hereby is THE MILLBURN WORLD RESOURCE TRUST.
2. DELAWARE TRUSTEE. The name and business address
of the trustee of the Trust in the State of Delaware is Wilmington Trust
Company, Rodney Square North, 1100 North Market Street, Wilmington, Delaware
19890, Attention: Corporate Trust Administration.
IN WITNESS WHEREOF, the undersigned, being the sole
trustee of the Trust, has executed this Certificate of Trust as of the date
first above written.
WILMINGTON TRUST COMPANY,
as Trustee
By: /S/ Norma P. Closs
-------------------------------
Norma P. Closs
Vice President
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<PAGE>
ANNEX
THE MILLBURN WORLD RESOURCE TRUST
REQUEST FOR REDEMPTION
THE MILLBURN WORLD RESOURCE TRUST ________________________________
C/O MILLBURN RIDGEFIELD CORPORATION DATE
MANAGING OWNER
CHICAGO MERCANTILE EXCHANGE CENTER
30 SOUTH WACKER DRIVE
SUITE 2114
CHICAGO, ILLINOIS 60606
Dear Sirs:
The undersigned (trust account number WR-_______) hereby requests
redemption subject to all the terms and conditions of the Declaration of
Trust and Trust Agreement (the "Declaration of Trust") of THE MILLBURN WORLD
RESOURCE TRUST (the "Trust") of _____ Units of Beneficial Interest ("Units")
in the Trust. (INSERT NUMBER OF WHOLE UNITS TO BE REDEEMED; SUBSCRIBERS MAY
REDEEM ANY NUMBER OF WHOLE UNITS, THEY NEED NOT REDEEM ALL OR ANY MINIMUM
NUMBER OF THEIR UNITS IN ORDER TO REDEEM CERTAIN OF THEIR UNITS; HOWEVER, IF
NO NUMBER IS INDICATED, ALL UNITS HELD OF RECORD BY THE UNDERSIGNED WILL BE
REDEEMED; FRACTIONAL UNITS MAY ONLY BE REDEEMED UPON COMPLETE REDEMPTION OF
THE UNDERSIGNED'S INTEREST IN THE TRUST.) Units are redeemed at the Net Asset
Value per Unit, as defined in the Declaration of Trust, less any applicable
redemption charge (see below). Redemption shall be effective as of the end of
the current calendar month; provided that this Request for Redemption is
received at least ten (10) business days prior to the end of such month.
Payment of the redemption price of Units will generally be made within
fifteen (15) business days of the date of redemption.
The undersigned hereby represents and warrants that the
undersigned is the true, lawful and beneficial owner of the Units to which
this Request for Redemption relates, with full power and authority to request
redemption of such Units. Such Units are not subject to any pledge or
otherwise encumbered in any fashion.
Redemption charges of 4% and 3% (3% and 2% in the case of
subscriptions for $1,000,000 or more) of the Net Asset Value of Units
redeemed on or before the end of the 6th and after the end of the 6th but on
or before the end of the 12th full calendar months, respectively, after the
undersigned has purchased the Units being redeemed will be deducted from the
redemption price of all such Units and paid to the Managing Owner. If the
undersigned has purchased Units at more than one closing, such Units will be
treated on a first-in/first-out basis for purposes of determining whether
redemption charges continue to be applicable to such Units.
-------------------
UNITED STATES UNITHOLDERS ONLY:
Under the penalties of perjury, the undersigned hereby certifies
that the Social Security Number or Taxpayer ID Number indicated on this
Request for Redemption is the undersigned's true, correct and complete Social
Security Number or Taxpayer ID Number and that the undersigned is not subject
to backup withholding under the provisions of Section 3406(a)(1)(C) of the
Internal Revenue Code.
NON-UNITED STATES UNITHOLDERS ONLY:
Under the penalties of perjury, the undersigned hereby certifies
that (a) the undersigned is not a citizen or resident of the United States or
(b) (in the case of an investor which is not an individual) the undersigned
is not a United States corporation, partnership, estate or trust.
SIGNATURES MUST BE IDENTICAL TO NAME(S) IN WHICH UNITS ARE REGISTERED
/ / Credit my customer securities account / / Send to the address below
- -------------------------------------------------------------------------------
Name Street City, State and Zip Code
Entity Unitholder Individual Unitholder(s)
(or assignee) (or assignee(s))
- --------------------------------- ---------------------------------
(Name of Entity)
---------------------------------
By:
------------------------------ ---------------------------------
(Authorized corporate officer, (Signature(s) of all Unitholder(s)
partner or trustee) or assignee(s))
Social Security or Taxpayer ID Number
--------------------------
RR-1
<PAGE>
EXHIBIT B
THE MILLBURN WORLD RESOURCE TRUST
SUBSCRIPTION REQUIREMENTS
By executing a Subscription Agreement and Power of Attorney
Signature Page for THE MILLBURN WORLD RESOURCE TRUST (THE "TRUST"), each
PURCHASER ("PURCHASER") of UNITS OF BENEFICIAL INTEREST ("UNITS") in the
Trust irrevocably subscribes for Units at the Net Asset Value per Unit, as
described in the Trust's PROSPECTUS DATED ________, 1998 (THE "PROSPECTUS").
The minimum initial subscription is $5,000; $2,000 for trustees or custodians
of employee benefit plans. Incremental subscriptions will be accepted in
multiples of $100 in excess of such minimums. Existing Unitholders may make
additional investments in the Trust in $1,000 minimums, also with $100
increments. Units are sold in fractions calculated to three decimal places.
Purchaser is herewith delivering to Purchaser's Selling Agent or
Additional Selling Agent (hereinafter, "Selling Agent") an executed
Subscription Agreement and Power of Attorney Signature Page and either (i)
delivering a check in the full amount of the Purchaser's subscription or (ii)
hereby authorizing such Selling Agent to debit Purchaser's customer
securities account maintained with such Selling Agent for the full amount of
Purchaser's subscrip tion in accordance with the procedures described under
"Plan of Distribution --Subscription Procedure" in the Prospectus. If
Purchaser's Subscription Agreement and Power of Attorney is accepted,
Purchaser agrees to contribute Purchaser's subscription to the Trust and to
be bound by the terms of the Trust's Declaration of Trust (Exhibit A to the
Prospectus). Purchaser agrees to reimburse the Trust and MILLBURN RIDGEFIELD
CORPORATION (THE "MANAGING OWNER") for any expense or loss incurred by either
as a result of the cancellation of Purchaser's Units due to a failure of the
Purchaser to deliver good funds in the amount of the subscription price of
any or all of such Units.
If Purchaser is acting on behalf of an "employee benefit plan," as
defined in and subject to the Employee Retirement Income Security Act of
1974, as amended ("ERISA"), or any "plan," as defined in Section 4975 of the
Internal Revenue Code of 1986, as amended (the "Code") (the subscribing
"employee benefit plan" or a "plan" being hereinafter referred to as the
"Plan"), Purchaser, as, or on behalf of, the fiduciary of the Plan
responsible for purchasing the Units (the "Plan Fiduciary") understands that:
the Plan Fiduciary must consider an investment in the Units in light of the
risks relating thereto; the Plan Fiduciary must determine that, in view of
such considerations, the Plan's investment in the Trust is consistent with
the Plan Fiduciary's responsibilities under ERISA; the Plan's investment in
the Trust must not violate and must not be otherwise inconsistent with the
terms of any legal document constituting the Plan or any trust agreement
thereunder; and the Plan Fiduciary (i) must be responsible for the decision
to invest in the Units, including the determination that such investment is
consistent with the requirement imposed by Section 404 of ERISA that Plan
investments be diversified so as to minimize the risks of large losses, (ii)
must be independent of the Managing Owner, any of the Trust's Selling Agents
or Additional Selling Agents, Wilmington Trust Company, Chemical Bank, N.A.
and any of their respective affiliates, (iii) must be qualified to make such
investment decision, and (iv) none of the Managing Owner, any of the Trust's
Selling Agents or Additional Selling Agents, Wilmington Trust Company,
Chemical Bank, N.A., any of their respective affiliates or any of their
respective agents or employees may either: (a) have investment discretion
with respect to the investment of the assets of the Plan used to purchase
Units; (b) have authority or responsibility to or regularly give investment
advice with respect to the assets of the Plan used to purchase Units 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 the Plan and that
such advice will be based on the particular investment needs of the Plan; or
(c) be an employer maintaining or contributing to the Plan. The undersigned
must, at the request of the Managing Owner, furnish the Managing Owner with
such information as the Managing Owner may reasonably require to establish
that the purchase of Units by the Plan does not violate any provision of
ERISA or the Code including, without limitation, those provisions relating to
"prohibited transactions" by "parties in interest" or "disqualified persons,"
as defined therein.
INVESTOR SUITABILITY
PURCHASER UNDERSTANDS THAT THE PURCHASE OF UNITS MAY BE MADE ONLY
BY PERSONS WHO, AT A MINIMUM, HAVE (I) A NET WORTH OF AT LEAST $150,000
(EXCLUSIVE OF HOME, FURNISHINGS AND AUTOMOBILES) OR (II) AN ANNUAL GROSS
INCOME OF AT LEAST $45,000 AND A NET WORTH (SIMILARLY CALCULATED) OF AT LEAST
$45,000. RESIDENTS OF THE FOLLOWING
SR-1
<PAGE>
STATES MUST MEET THE SPECIFIC REQUIREMENTS SET FORTH BELOW (NET WORTH IS, IN
ALL CASES, TO BE CALCULATED EXCLUSIVE OF HOME, FURNISHINGS AND AUTOMOBILES).
IN ADDITION, NO PURCHASER MAY INVEST MORE THAN 10% OF HIS OR HER NET WORTH
(EXCLUSIVE OF HOME, FURNISHINGS AND AUTOMOBILES) IN THE UNITS. NO ENTITY,
INCLUDING ERISA PLANS, MAY INVEST MORE THAN 10% OF ITS LIQUID NET WORTH
(READILY MARKETABLE SECURITIES) IN THE UNITS.
1. Arizona -- Net worth of at least $225,000 or a net worth of at
least $60,000 and annual taxable income of at least $60,000.
2. California -- Liquid net worth of at least $100,000 and an
annual taxable income of at least $50,000.
3. Iowa -- Net worth of at least $225,000 or a net worth of at
least $60,000 and an annual taxable income of at least $60,000. Minimum
purchase for individual retirement accounts and employee benefit plans in
Iowa is $2,500.
4. Massachusetts -- Net worth of at least $225,000 or a net worth
of at least $60,000 and annual taxable income of at least $60,000.
5. Michigan -- Net worth of at least $225,000 or a net worth of at
least $60,000 and taxable income during the preceding year of at least
$60,000.
6. Mississippi -- Net worth of at least $225,000 or a net worth of
at least $60,000 and annual taxable income of at least $60,000.
7. Missouri -- Net worth of at least $225,000 or a net worth of at
least $60,000 and annual taxable income of at least $60,000.
8. New Hampshire -- Net worth of at least $250,000 or a net worth
of at least $125,000 and an annual taxable income of at least $50,000.
9. North Carolina -- Net worth of at least $225,000 or a net worth
of at least $60,000 and annual taxable income of at least $60,000.
10. Pennsylvania -- Net worth of at least $175,000 or a net worth
of at least $100,000 and an annual income of at least $50,000.
11. South Carolina -- Net worth of at least $100,000 or a net
income in the preceding year some portion of which was subject to maximum
federal and state income tax.
12. South Dakota -- Net worth of at least $225,000 or a net worth
of at least $60,000 and annual taxable income of at least $60,000.
13. Tennessee -- Net worth of at least $250,000 or a net worth of
at least $65,000 and annual taxable income of at least $65,000.
14. Texas -- Net worth of at least $225,000 or a net worth of at
least $60,000 and annual taxable income of at least $60,000.
SR-2
<PAGE>
-------------------------
In the case of IRA and SEP plans, the foregoing suitability
standards are applicable to the beneficiary of the plan for whose account the
Units are being acquired.
THE FOREGOING SUITABILITY STANDARDS ARE REGULATORY MINIMUMS ONLY.
MERELY BECAUSE PURCHASER MEETS SUCH REQUIREMENTS DOES NOT NECESSARILY MEAN
THAT A HIGH RISK, SPECULATIVE AND ILLIQUID INVESTMENT SUCH AS THE UNITS IS,
IN FACT, SUITABLE FOR PURCHASER.
SR-3
<PAGE>
EXHIBIT C
THE EXECUTION COPY OF THE SUBSCRIPTION AGREEMENT AND POWER
OF ATTORNEY ACCOMPANIES THIS PROSPECTUS AS A SEPARATE DOCUMENT.
THE MILLBURN WORLD RESOURCE TRUST
UNITS OF BENEFICIAL INTEREST
---------------
BY EXECUTING THIS SUBSCRIPTION AGREEMENT AND POWER OF ATTORNEY
SUBSCRIBERS ARE NOT WAIVING ANY RIGHTS UNDER THE
SECURITIES ACT OF 1933 OR THE SECURITIES
EXCHANGE ACT OF 1934
---------------
SUBSCRIPTION AGREEMENT AND
POWER OF ATTORNEY
THE MILLBURN WORLD RESOURCE TRUST
C/O MILLBURN RIDGEFIELD CORPORATION
MANAGING OWNER
CHICAGO MERCANTILE EXCHANGE CENTER
30 SOUTH WACKER DRIVE
SUITE 2114
CHICAGO, ILLINOIS 60604
Dear Sirs:
1. SUBSCRIPTION FOR UNITS. I hereby subscribe for the dollar
amount of UNITS OF BENEFICIAL INTEREST ("UNITS") in THE MILLBURN WORLD
RESOURCE TRUST (the "Trust") set forth in the Subscription Agreement and
Power of Attorney Signature Page attached hereto (minimum $5,000; $2,000 for
trustees or custodians of employee benefit plans), at a purchase price per
Unit of Net Asset Value. Incremental subscriptions in excess of the foregoing
minimums are permitted in $100 multiples. Existing investors may subscribe
for additional Units in $1,000 minimums, also with $100 increments.
Fractional Units will be issued to three decimal places. The terms of the
offering of the Units are des cribed in the current Prospectus of the Trust
(the "Prospectus"). I have either (i) authorized my selling agent to debit my
customer securities account in the amount of my subscription or (ii)
delivered a check to my selling agent made out to "CHEMICAL BANK, AS ESCROW
AGENT FOR THE MILLBURN WORLD RESOURCE TRUST, ESCROW ACCOUNT NO. SE14791." If
I have chosen to subscribe by account debit, I acknowledge that I must have
my subscription payment in such account on but not before the settlement date
for my purchase of Units, which will occur no later than three (3) business
days after the acceptance of my subscription. My Registered Representative
shall inform me of such settlement date, on which date my account will be
debited and the amounts so debited will be transmitted, in the form of a
selling agent check or wire transfer made out to "CHEMICAL BANK, AS ESCROW
AGENT FOR THE MILLBURN WORLD RESOURCE TRUST, ESCROW ACCOUNT NO. SE14791,"
directly to the Escrow Agent. MILLBURN RIDGEFIELD CORPORATION (THE "MANAGING
OWNER") may, in its sole and absolute discretion, accept or reject this
subscription in whole or in part. SUBSCRIPTIONS ARE REVOCABLE FOR FIVE
BUSINESS DAYS AFTER SUBMISSION. ALL UNITS ARE OFFERED SUBJECT TO PRIOR SALE.
Subscriptions generally must be submitted no later than five
calendar days prior to the end of a month in order to be invested in the
Units as of the beginning of the immediately following month.
2. REPRESENTATIONS AND WARRANTIES OF SUBSCRIBER. I have received
the current Prospectus together with a recent Monthly Report of the Trust. I
understand that certain investor suitability standards must be met as a
condition of my investment in the Units. I acknowledge that I satisfy the
applicable requirements relating to net worth and annual income as set forth
in "Exhibit B -- Subscription Requirements" to the Prospectus. If subscriber
is an employee benefit
SA-1
<PAGE>
plan, the investment in the Units by such employee benefit plan is in
compliance with all federal laws relating to such plans. If subscriber is a
trust under an employee benefit plan, none of the Trustee, the Managing
Owner, any Selling Agent, Additional Selling Agent or the escrow 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 Units; (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 trust assets and that such advice will be based on the
particular investment needs of the trust; or (iii) is an employer maintaining
or contributing to the trust. If subscriber is not an individual, the person
signing the Subscription Agreement and Power of Attorney Signature Page on
behalf of subscriber is duly authorized to execute such Signature Page.
3. POWER OF ATTORNEY. In connection with my purchase of Units, I
do hereby irrevocably constitute and appoint the Managing Owner and its
successors and assigns, as my true and lawful Attorney-in-Fact, with full
power of substitution, in my name, place and stead, to (i) file, prosecute,
defend, settle or compromise litigation, claims or arbitrations on behalf of
the Trust and (ii) make, execute, sign, acknowledge, swear to, deliver,
record and file any documents or instruments which may be considered
necessary or desirable by the Managing Owner to carry out fully the
provisions of the Declaration of Trust of the Trust, including, without
limitation, the execution of the said Agreement itself, and the execution of
all amendments permitted by the terms thereof. The Power of Attorney granted
hereby shall be deemed to be coupled with an interest, shall be irrevocable,
shall survive, and shall not be affected by, my subsequent death, incapacity,
disability, insolvency or dissolution or any delivery by me of an assignment
of the whole or any portion of my Units.
4. GOVERNING LAW. Subscriber hereby acknowledges and agrees that
this Subscription Agreement and Power of Attorney shall be governed by and be
interpreted in accordance with the laws of the State of Delaware, without
regard to principles of conflicts of laws.
5. RISKS. These securities are speculative and involve a high
degree of risk. Risk factors relating to the Units include the following:
(i) INVESTORS MAY LOSE ALL OR SUBSTANTIALLY ALL OF THEIR
INVESTMENT; PAST PERFORMANCE IS NOT NECESSARILY INDICATIVE OF FUTURE RESULTS;
AN INVESTMENT IN THE TRUST IS SPECULATIVE AND INVOLVES A HIGH DEGREE OF RISK;
(ii) FUTURES AND FORWARD TRADING IS SPECULATIVE, VOLATILE AND LEVERAGED, AND
INVOLVES A HIGH DEGREE OF RISK; (iii) THE TRUST HAS TO DATE EXHIBITED, AND IS
EXPECTED TO CONTINUE TO EXHIBIT, CONSIDERABLE PERFORMANCE VOLATILITY; THE
UNITS ARE SUITABLE ONLY FOR A LIMITED PORTION OF THE RISK SEGMENT OF AN
INVESTMENT PORTFOLIO; (iv) THE TRUST HAS BEEN THE FIRST MILLBURN RIDGEFIELD
CLIENT ACCOUNT TO TRADE THE "WORLD RESOURCE PORTFOLIO" OF MARKETS; (v)
SINGLE-ADVISOR FUNDS SUCH AS THE TRUST ARE TYPICALLY CONSIDERED -- EVEN AMONG
SPECULATIVE MANAGED FUTURES FUNDS -- UNUSUALLY HIGH RISK; MOREOVER, THE TRUST
IS VULNERABLE TO ADVERSE CHANGES AFFECTING MILLBURN RIDGEFIELD WHICH COULD
DIRECTLY IMPACT THE TRUST'S ABILITY TO CONTINUE TRADING; (vi) THE TRUST IS
SUBJECT TO SUBSTANTIAL CHARGES, PAYABLE IRRESPECTIVE OF PROFITABILITY, AS
WELL AS TO QUARTERLY PROFIT SHARES; THE MANAGING OWNER ESTIMATES THAT THE
TRUST NEEDS TO ACHIEVE TRADING PROFITS IN THE FIRST TWELVE MONTHS AFTER A
UNIT IS ISSUED OF APPROXIMATELY 5.75% TO OFFSET EXPENSES AND OF APPROXIMATELY
8.85% TO OFFSET BOTH EXPENSES AND THE 3% REDEMPTION CHARGES DUE ON UNITS
REDEEMED AS OF THE END OF THE TWELFTH MONTH AFTER ISSUANCE, ASSUMING THE
TRUST CONTINUES TO EARN INTEREST ON IT ASSETS AT CURRENT RATES; (vii) THE
TRUST MAY BE ADVERSELY AFFECTED BY INCREASES IN THE AMOUNT OF FUNDS MANAGED
BY MILLBURN RIDGEFIELD; (viii) MILLBURN RIDGEFIELD IS ALMOST EXCLUSIVELY A
SYSTEMATIC, TREND-FOLLOWING TRADER; MARKET CONDITIONS IN WHICH STRONG PRICE
TRENDS DO NOT DEVELOP TYPICALLY RESULT IN SUBSTANTIAL LOSSES FOR
TREND-FOLLOWING TRADERS; (ix) UNLESS THE TRUST IS SUCCESSFUL, OF WHICH THERE
CAN BE NO ASSURANCE, IT CANNOT SERVE AS A BENEFICIAL DIVERSIFICATION FOR AN
INVESTOR'S PORTFOLIO.
See "Risk Factors" in the Prospectus beginning at page 11.
----------------
PLEASE COMPLETE THE SUBSCRIPTION AGREEMENT AND POWER OF ATTORNEY
SIGNATURE PAGE WHICH ACCOMPANIES THIS PROSPECTUS CAREFULLY, AND ENSURE THAT
YOUR REGISTERED REPRESENTATIVE KNOWS WHETHER YOU ARE SUBSCRIBING BY CHECK OR
ACCOUNT DEBIT.
SA-2
<PAGE>
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
Item 13. Other Expenses of Issuance and Distribution.
The following is an estimate of the costs incurred in connection
with preparing and filing this Registration Statement. The Trust pays all
such costs.
<TABLE>
<CAPTION>
APPROXIMATE
AMOUNT
-----------
<S> <C>
Securities and Exchange Commission Registration Fee...... $ 14,750*
National Association of Securities Dealers, Inc.
Filing Fee.............................................. 5,500*
Printing Expenses........................................ 50,000
Fees of Certified Public Accountants..................... 50,000
Blue Sky Expenses (Excluding Legal Fees)................. 10,000
Fees of Counsel.......................................... 50,000
Escrow Fees.............................................. 15,000
Miscellaneous Offering Costs............................. 20,000
---------
Total........................... $ 215,250
=========
</TABLE>
- -----------------
* Actual, not estimated.
------------------------
Item 14. Indemnification of Directors and Officers.
Section 17 of the Second Amended and Restated Declaration of Trust
and Trust Agreement (attached as Exhibit A to the Prospectus which forms a
part of this Registration Statement) provides for the indemnification of the
Managing Owner, certain of its affiliates and certain of its directors,
officers and controlling persons by the Registrant in certain circumstances.
Such indemnification is limited to claims sustained by such persons in
connection with the Registrant; provided that such claims were not the result
of negligence or misconduct on the part of a Managing Owner or its
affiliates, directors, officers and controlling persons. The Registrant is
prohibited from incurring the cost of any insurance covering any broader
indemnification than that provided above. Advances of Registrant funds to
cover legal expenses and other costs incurred as a result of any legal action
initiated against the Managing Owner by a Unitholder are prohibited.
Item 15. Recent Sales of Unregistered Securities.
The Initial Unitholder of the Trust acquired Units for $1,600 on
June 7, 1995 in order to permit the formation of the Trust. This amount was
returned to the Initial Unitholder, and its Units cancelled, when Units were
first sold to the public. No underwriter or selling agent was used in this
transaction, which was exempt from registration under Section 4(2) of the
Securities Act of 1933.
Item 16. Exhibits and Financial Statement Schedules.
The following documents (unless indicted) are filed herewith and
made a part of this Registration Statement.
(a) Exhibits.
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION OF DOCUMENT
- ------- -----------------------
<S> <C>
3.01 Second Amended and Restated Declaration of Trust and Trust Agreement
of the Registrant (included as Exhibit A to the Prospectus).
5.01(a) Opinion of Sidley & Austin relating to the legality of the Units.
5.01(b) Opinion of Richards, Layton & Finger relating to the legality of the Units.
8.01 Opinion of Sidley & Austin with respect to federal income tax consequences.
</TABLE>
S-1
<PAGE>
<TABLE>
<CAPTION>
<S> <C>
10.01 Form of Subscription Agreement and Power of Attorney (included as Exhibit C to
the Prospectus).
23.01 Consent of Sidley & Austin (contained in Exhibit 5.01(a) above).
23.02 Consent of Richards, Layton & Finger (contained in Exhibit 5.01(b) above).
23.03 Consent of Arthur F. Bell, Jr. & Associates, L.L.C.
23.04 Consent of Coopers & Lybrand L.L.P.
27.01 Financial Data Schedule
</TABLE>
The following exhibits are incorporated by reference herein from
the exhibits of the same description and number filed with Post-Effective
Amendment No. 1 to the Registrant's Registration Statement on Form S-1 (Reg.
No. 33-90756), as filed with the Commission on March 1, 1996.
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION OF DOCUMENT
- ------- -----------------------
<S> <C>
1.01 Selling Agreement among the Trust, the Managing Owner and the Principal Selling
Agents (includes form of Additional Selling Agent and Correspondent Selling
Agent Agreement).
10.02(a) Customer Agreement among the Trust, the Managing Owner and a Principal Selling
Agent, in its capacity as a futures commission merchant.
10.02(b) Customer Agreement among the Trust, the Managing Owner and a Principal Selling
Agent, in its capacity as a futures commission merchant.
10.05 Escrow Agreement between the Trust and Chemical Bank. N.A.
</TABLE>
The following exhibit is incorporated by reference herein from the
exhibit of the same description and number filed with Amendment No. 2 to
Registrant's Registration Statement on Form S-1 (Reg. No. 33-90756), as filed
with the Commission on July 11, 1995 and which became effective on July 12,
1995.
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION OF DOCUMENT
- ------- -----------------------
<S> <C>
10.01(a) Form of Subscription Agreement and Power of Attorney.
</TABLE>
The following exhibits are incorporated by reference herein from
the exhibits of the same description and number filed with Amendment No. 1 to
Registrant's Registration Statement on Form S-1 (Reg. No. 33-90756), as filed
with the Commission on June 27, 1995 and which became effective on July 12,
1995.
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION OF DOCUMENT
- ------- -----------------------
<S> <C>
3.02 Certificate of Trust of the Registrant.
99.03 Treatment of Delaware Business Trusts.
99.04 North American Securities Administrators Association, Inc. Guidelines for the
Registration of Commodity Pool Programs.
</TABLE>
The following exhibits are incorporated by reference herein from the
exhibits of the same description and number filed with Registrant's Registration
Statement on Form S-1 (Reg. No. 33-90756), as filed with the Commission on April
4, 1995 and which became effective on July 12, 1995.
S-2
<PAGE>
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION OF DOCUMENT
- ------- -----------------------
<S> <C>
99.01 Securities and Exchange Commission Release No. 33-6815 -- Interpretation and Request for
Public Comment -- Statement of the Commission Regarding Disclosure by Issuers of Interests
in Publicly Offered Commodity Pools. (54 Fed. Reg. 5600; February 6, 1989).
99.02 Commodity Futures Trading Commission -- Interpretive Statement and Request for Comments --
Statement of the Commodity Futures Trading Commission Regarding Disclosure by
Commodity Pool Operators of Past Performance Records and Pool Expenses and Requests for
Comments. (54 Fed. Reg. 5597; February 6, 1989).
</TABLE>
(b) Financial Statement Schedules.
No Financial Schedules are required to be filed herewith.
Item 17. Undertakings.
(a)(1) The undersigned Registrant hereby undertakes to file, during
any period in which offers or sales are being made, a post-effective amendment
to this registration statement:
(i) To include any prospectus required by Section
10(a)(3) of the Securities Act of 1933;
(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. Notwithstanding
the foregoing, any increase or decrease in volume of securities
offered (if the total dollar value of securities offered would not
exceed that which was registered) and any deviation from the low or
high and of the estimated maximum offering range may be reflected in
the form of prospectus filed with the Commission pursuant to Rule
424(b) if, in the aggregate, the changes in volume and price
represent no more than a 20 percent change in the maximum aggregate
offering price set forth in the "Calculation of Registration Fee"
table in the effective registration statement.
(iii) To include any material information with respect to
the plan of distribution not previously disclosed in the registration
statement or any material change to such information in the
registration statement.
(2) That, for the purpose of determining any liability under the
Securities Act of 1933, each such post-effective amendment shall be deemed to be
a new registration statement relating to the securities offered therein, and the
offering of such securities at that time shall be deemed to be the initial bona
fide offering thereof.
(3) 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.
(b) Insofar as indemnification for liabilities under the Securities
Act of 1933 may be permitted to directors, officers and controlling persons of
the Registrant pursuant to the provisions described in Item 14 above, or
otherwise, the Registrant had been advised that in the opinion of the Securities
and Exchange Commission such indemnification is against public policy as
expressed in the Securities Act of 1933 and is, therefore, unenforceable. In the
event that a claim for indemnification against such liabilities (other than the
payment by the Registrant of expenses incurred or paid by a director, officer or
controlling person of the Registrant in the successful defense of any such
action, suit or proceeding) is asserted by such director, officer or controlling
person in connection with the securities being registered, the 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.
S-3
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, the
Managing Owner of the Registrant has duly caused this Registration Statement
Amendment to be signed on its behalf by the undersigned, thereunto duly
authorized, in the City of New York in the State of New York on the 14th day of
April, 1998.
THE MILLBURN WORLD RESOURCE TRUST
By: Millburn Ridgefield Corporation
Managing Owner
By /s/ HARVEY BEKER
------------------------
Harvey Beker
President
Pursuant to the requirements of the Securities Act of 1933, this
Registration Statement Amendment has been signed below by the following persons
on behalf of Millburn Ridgefield Corporation, Managing Owner of the Registrant,
in the capacities and on the date indicated.
<TABLE>
<CAPTION>
<S> <C> <C>
/s/ GEORGE E. CRAPPLE Vice Chairman, Co-Chief Executive April 14, 1998
- ----------------------- Officer and Director (Principal
George E. Crapple Executive Officer)
/s/ HARVEY BEKER President, Co-Chief Executive Officer April 14, 1998
- ----------------------- and Director (Principal Financial
Harvey Beker and Accounting Officer)
- ----------------------- Chairman and Director April __, 1998
Malcolm H. Wiener
</TABLE>
(Being the principal executive officer, the principal financial and
accounting officer and a majority of the directors of Millburn Ridgefield
Corporation.)
MILLBURN RIDGEFIELD CORPORATION Managing Owner of Registrant
<TABLE>
<CAPTION>
<S> <C> <C>
By /s/ HARVEY BEKER
------------------------ April 14, 1998
Harvey Beker
President
</TABLE>
S-4
<PAGE>
EXHIBIT INDEX
EXHIBIT
NUMBER DESCRIPTION OF DOCUMENT
3.01 Second Amended and Restated Declaration of Trust and Trust
Agreement of the Registrant (included as Exhibit A to the
Prospectus)
5.01(a) Opinion of Sidley & Austin relating to the legality of the
Units.
5.01(b) Opinion of Richards, Layton & Finger relating to the
legality of the Units
8.01 Opinion of Sidley & Austin with respect to federal income
tax consequences.
10.01 Form of Subscription Agreement and Power of Attorney
(included as Exhibit C to the Prospectus).
23.01 Consent of Sidley & Austin (contained in Exhibit 5.01(a)
above).
23.02 Consent of Richards, Layton & Finger (contained in
Exhibit 5.01(b) above).
23.03 Consent of Arthur F. Bell, Jr. & Associates, L.L.C.
23.04 Consent of Coopers & Lybrand L.L.P.
27.01 Financial Data Schedule.
<PAGE>
EXHIBIT 5.01(a)
[SIDLEY & AUSTIN LETTERHEAD]
April 14, 1998
Millburn Ridgefield Corporation
Managing Owner of
The Millburn World Resource Trust
411 West Putnam Avenue
Greenwich, Connecticut 06830
Dear Madam or Sir:
We refer to the Registration Statement on Form S-1, filed by The
Millburn World Resource Trust, a Delaware business trust (the "Trust"), with
the Securities and Exchange Commission under the Securities Act of 1933, as
amended (the "Act"), on or about April 14, 1998 (the "Registration
Statement"), relating to the registration under the Act of $63,461,000 of
Units of Beneficial Interest in the Trust ("Units").
We are familiar with the proceedings to date with respect to the
proposed issuance and sale of the Units and have examined such records,
documents and questions of law, and satisfied ourselves as to such matters of
fact, as we have considered relevant and necessary as a basis for this
opinion.
For purposes of rendering this opinion, we have assumed the genuineness
of all signatures, the legal capacity of natural persons, the authenticity of
all documents submitted to us as originals, the conformity to originals of
all documents submitted to us as certified or photostatic copies, and the
authenticity of the originals of such copies.
Based upon the foregoing, we are of the opinion that:
1. Millburn Ridgefield Corporation (the "Managing Owner") is duly
organized, validly existing and in good standing as a corporation under the
laws of the State of Delaware and is in good standing and qualified to do
business in each other jurisdiction in which the failure to so qualify might
reasonably be expected to result in material adverse consequences to the
Trust.
<PAGE>
[SIDLEY & AUSTIN LETTERHEAD]
Millburn Ridgefield Corporation
April 14, 1998
Page 2
2. The Managing Owner has taken all corporate action required to be
taken by it to authorize the issue and sale of Units to the Unitholders and to
authorize the admission to the Trust of the Unitholders as beneficial owners
of the Trust.
We do not find it necessary for the purposes of this opinion to cover,
and accordingly we express no opinion as to, the application of the securities
or blue sky laws of the various states (including the state of Delaware) to
the sale of the Units.
This opinion is limited to the laws of the United States, the States of
California, Delaware (general corporation law only), Illinois, New York, Texas
and the District of Columbia.
This opinion speaks as of the date hereof, and we assume no obligation to
update this opinion as of any future date. We hereby consent to the filing of
this opinion as an Exhibit to the Registration Statement and to all references
to our firm included in or made a part of the Registration Statement. This
opinion shall not be used by any other person for any purpose without our
written consent.
Very truly yours,
SIDLEY & AUSTIN
<PAGE>
EXHIBIT 5.01(B)
(AMENDED)
[LETTERHEAD OF RICHARDS, LAYTON & FINGER]
April 14, 1998
Millburn Ridgefield Corporation,
Managing Owner of The Millburn
World Resource Trust
411 West Putnam Avenue
Greenwich, Connecticut 06830
Re: THE MILLBURN WORLD RESOURCE TRUST
Ladies and Gentlemen:
We have acted as special Delaware counsel for The Millburn World Resource
Trust, a Delaware business trust (the "Trust"), in connection with the matters
set forth herein. At your request, this opinion is being furnished to you.
For purposes of giving the opinions hereinafter set forth, our
examination of documents has been limited to the examination of executed or
conformed counterparts, or copies otherwise proved to our satisfaction, of the
following:
(a) The Certificate of Trust of the Trust, dated June 7, 1995 (the
"Certificate"), as filed in the office of the Secretary of State of the State
of Delaware (the "Secretary of State") on June 7, 1995;
(b) The Declaration and Agreement of Trust of the Trust, dated as of June
7, 1995;
(c) A registration statement (the "Registration Statement") on Form S-1,
to be filed by the Trust with the Securities and Exchange Commission on or
about April 15, 1998, including a related prospectus (the "Prospectus");
<PAGE>
(d) The Second Amended and Restated Declaration of Trust and
Trust Agreement of the Trust (the "Agreement"), dated as of May 1, 1996,
attached to the Prospectus as Exhibit "A";
(e) A form of Subscription Agreement and Power of Attorney,
including a Subscription Agreement and Power of Attorney Signature Page of
the Trust (the "Subscription Agreement"), attached to the Prospectus as
Exhibit "C"; and
(f) A Certificate of Good Standing for the Trust, dated April 14,
1998, obtained from the Secretary of State.
Initially capitalized terms used herein and not otherwise defined are
used as defined in the Agreement.
For purposes of this opinion, we have not reviewed any documents other
than the documents listed above, and we have assumed that there exists no
provision in any document not listed above that bears upon or is
inconsistent with the opinions stated herein. We have conducted no
independent factual investigation of our own, but rather have relied
solely upon the foregoing documents, the statements and information set
forth therein and the additional matters recited or assumed herein, all
of which we have assumed to be true, complete and accurate in all
material respects.
With respect to all documents examined by us, we have assumed that (i)
all signatures on documents examined by us are genuine, (ii) all documents
submitted to us as originals are authentic, and (iii) all documents
submitted to us as copies conform with the original copies of those documents.
For purposes of this opinion, we have assumed (i) the due
authorization, execution and delivery by all parties thereto of all
documents examined by us, including, without limitation, the Agreement by
each beneficial owner of the Trust and the Trustee, the Certificate by
the Trustee and the Subscription Agreement by each Unitholder (as defined
below), (ii) that after the issuance and sale of beneficial interests
of the Trust (the "Units") under the Registration Statement and the
Agreement, the dollar amount of the Units issued by the Trust will equal
or exceed the minimum, and the dollar amount of the Units issued and
reserved for issuance by the Trust will not exceed the maximum, dollar
amount of the Units which may be issued by the Trust under the
Registration Statement and the Agreement, (iii) that the Agreement
constitutes the entire agreement among the parties thereto with respect
to the subject matter thereof, including with respect to the admission of
beneficial owners to, and the creation, operation and termination of,
the Trust, and that the Agreement and the Certificate are in full
force and effect, have not been amended and no amendment of the Agreement
or the Certificate is pending or has been proposed, and (iv) except for
the due creation and valid existence in good standing of the Trust as a
business trust under the Delaware Business Trust Act (12 DEL. C. ss. 3801,
ET SEQ.) (the "Act"), the due creation, organization or formation, as the
case may be, and valid existence in good standing of each party to the
documents examined by us under the laws of the jurisdiction
<PAGE>
governing its creation, organization or formation and the capacity of persons
and entities who are parties to the documents examined by us. Insofar as the
opinions expressed herein relate to the Units and persons and entities to be
admitted to the Trust as beneficial owners of the Trust in connection with
the Registration Statement (the "Unitholders"), the opinions expressed herein
relate solely to the Unitholders and the Units to be issued in connection
with the Prospectus. We have not participated in the preparation of the
Registration Statement and assume no responsibility for its contents.
This opinion is limited to the laws of the State of Delaware (excluding
the securities laws of the State of Delaware), and we have not
considered and express no opinion on the laws of any other jurisdiction,
including federal laws and rules and regulations relating thereto. Our
opinions are rendered only with respect to Delaware laws and rules,
regulations and orders thereunder which are currently in effect.
Based upon the foregoing, and upon our examination of such questions of
law and statutes of the State of Delaware as we have considered
necessary or appropriate, and subject to the assumptions, qualifications,
limitations and exceptions set forth herein, we are of the opinion that:
1. The Trust has been duly created and is validly existing in good
standing as a business trust under the Act.
2. Assuming (i) that the Managing Owner has taken all corporate
action required to be taken by it to authorize the issuance and sale of
Units to the Unitholders and to authorize the admission to the Trust of the
Unitholders as beneficial owners of the Trust, (ii) the due
authorization, execution and delivery to the Managing Owner of a
Subscription Agreement by each Unitholder, (iii) the due acceptance by the
Managing Owner of each Subscription Agreement and the due acceptance by the
Managing Owner of the admission of the Unitholders as beneficial owners of
the Trust to the Trust, (iv) the payment by each Unitholder to the
Trust of the full consideration due from it for the Units subscribed to
by it, (v) the due authorization, execution and delivery by all parties
thereto, including the Unitholders as beneficial owners of the Trust, of the
Agreement, (vi) that the books and records of the Trust set forth all
information required by the Agreement and the Act, including all
information with respect to all persons and entities to be admitted as
Unitholders and their contributions to the Trust, and (vii) that the Units
are offered and sold as described in the Registration Statement and the
Agreement, the Units to be issued to the Unitholders will be validly
issued and, subject to the qualifications set forth herein, will be
fully paid and nonassessable beneficial interests in the Trust, as to which
the Unitholders, as beneficial owners of the Trust, will be entitled to the
same limitation of personal liability extended to stockholders of private
corporations for profit organized under the General Corporation Law of
the State of Delaware, subject to the obligation of a Unitholder to
make payments provided for in Sections 8(d), 8(e) and 17(c) of the Agreement
and to repay any funds wrongfully distributed to it from the Trust.
<PAGE>
We understand that you will file this opinion with the Securities
and Exchange Commission as an exhibit to the Registration Statement to be
filed by you under the Securities Act of 1933, as amended. In
connection with the foregoing, we hereby consent to the filing of this
opinion with the Securities and Exchange Commission. This opinion is
rendered solely for your benefit in connection with the foregoing. We
hereby consent to the use of our name under the heading "Legal Matters" in
the Prospectus. In giving the foregoing consents, we do not thereby admit
that we are in the category of persons whose consent is required under
Section 7 of the Securities Act of 1933, or the rules and regulations
of the Securities and Exchange Commission thereunder. Except as stated
above, without our prior consent, this opinion may not be furnished or
quoted to, or relied upon by, any other person or entity for any purpose.
Very truly yours,
/s/ Richards, Layton & Finger
<PAGE>
EXHIBIT 8.01
April 14, 1998
Millburn Ridgefield Corporation
Managing Owner of
The Millburn World Resource Trust
411 West Putnam Avenue
Greenwich, Connecticut 06830
Re: REGISTRATION STATEMENT ON FORM S-1
Dear Madam or Sir:
We have acted as your counsel in connection with the preparation and
filing with the Securities and Exchange Commission under the Securities Act of
1933, as amended, of the Registration Statement on Form S-1 filed with the
Securities and Exchange Commission on or about April 14, 1998, (the
"Registration Statement") relating to Units of Beneficial Interest ("Units") of
The Millburn World Resource Trust (the "Trust"), a business trust organized
under the Delaware Business Trust Act.
We have reviewed such data, documents, questions of law and fact
and other matters as we have deemed pertinent for the purpose of this
opinion. Based upon the foregoing, we hereby confirm our opinion expressed
under the caption "Federal Income Tax Aspects" in the Prospectus (the
"Prospectus") constituting a part of the Registration Statement that: (i) the
Trust will be treated as a partnership for federal income tax purposes
(assuming that substantially all of the gross income of the Trust will
constitute "qualifying income" within the meaning of section 7704(d) of the
Internal Revenue Code of 1986, as amended)(the "Code")); and (ii) the
allocations of profits and losses made when Unitholders redeem their Units
should be upheld for federal income tax purposes; (iii) based upon the
contemplated trading activities of the Trust, the Trust should be treated as
engaged in the conduct of a trade or business for federal income tax
purposes, and, as a result, the ordinary and necessary business expenses
incurred by the Trust in conducting its commodity futures trading business
should not be subject to limitation under section 67 or section 68 of the
Code; (iv) the Profit Share should be respected as a distributive share of
the Trust's income allocable to Millburn Ridgefield Corporation; and (v) the
contracts traded by the Trust, as described in the Prospectus, should satisfy
the commodities trading safe harbor as described in section 864(b) of the
Code.
We also advise you that in our opinion the description set forth under
the caption "Federal Income Tax Aspects" in the Prospectus correctly describes
(subject to the uncertainties referred to therein) the material aspects of the
United States
<PAGE>
Millburn Ridgefield Corporation
April 14, 1998
Page 2
federal income tax treatment to United States individual investors, as of the
date hereof, of an investment in the Trust.
This opinion speaks as of the date hereof, and we assume no
obligation to update this opinion as of any future date. This opinion shall
not be used for any purpose without our written consent. We hereby consent
to the filing of this opinion as an Exhibit to the Registration Statement and
to all references to our firm included in or made a part of the Registration
Statement.
Very truly yours,
SIDLEY & AUSTIN
<PAGE>
EXHIBIT 23.03
CONSENT OF ARTHUR F. BELL, JR. & ASSOCIATES, L.L.C.
We consent to the use in this Registration Statement of The Millburn World
Resource Trust of our report dated March 31, 1998 on the statement of
financial condition of the Millburn Ridgefield Corporation as of December 31,
1997 appearing in the Prospectus, which is part of the Registration
Statement. We also consent to the reference to our firm under the heading
"Experts" in such Prospectus.
ARTHUR F. BELL, JR. & ASSOCIATES, L.L.C.
Lutherville, Maryland
April 14, 1998
<PAGE>
EXHIBIT 23.04
CONSENT OF INDEPENDENT ACCOUNTANTS
_______________________________
We consent to the inclusion in this Registration Statement on Form S-1 of The
Millburn World Resource Trust of our report dated January 26, 1998, on our
audits of the financial statements of The Millburn World Resource Trust as of
December 31, 1997. We also consent to the reference to our firm under the
heading "Experts" in such Prospectus.
COOPERS & LYBRAND L.L.P.
New York, New York
April 13, 1998
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM STATEMENTS
OF FINANCIAL CONDITION, STATEMENTS OF OPERATIONS AND STATEMENTS OF CHANGES IN
TRUST CAPITAL AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL
STATEMENTS.
</LEGEND>
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-START> JAN-01-1997
<PERIOD-END> DEC-31-1997
<CASH> 12,050,364
<SECURITIES> 57,499,754
<RECEIVABLES> 0
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 74,862,554
<PP&E> 0
<DEPRECIATION> 0
<TOTAL-ASSETS> 74,862,554
<CURRENT-LIABILITIES> 1,291,651
<BONDS> 0
0
0
<COMMON> 0
<OTHER-SE> 73,570,903
<TOTAL-LIABILITY-AND-EQUITY> 74,862,554
<SALES> 0
<TOTAL-REVENUES> 8,641,644
<CGS> 0
<TOTAL-COSTS> 6,057,327
<OTHER-EXPENSES> 1,041,140
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 0
<INCOME-PRETAX> 1,543,177
<INCOME-TAX> 0
<INCOME-CONTINUING> 0
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 1,543,177
<EPS-PRIMARY> 32.29
<EPS-DILUTED> 32.29
</TABLE>
