<PAGE>
AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON APRIL 19, 1999
Registration No. 333-50209
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
___________________
POST-EFFECTIVE
AMENDMENT NO. 1
TO
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.
___________________
THE REGISTRANT HEREBY AMENDS THIS REGISTRATION STATEMENT ON SUCH DATE
OR DATES AS MAY BE NECESSARY TO DELAY ITS EFFECTIVE DATE UNTIL THE REGISTRANT
SHALL FILE A FURTHER AMENDMENT WHICH SPECIFICALLY STATES THAT THIS REGISTRATION
STATEMENT SHALL THEREAFTER BECOME EFFECTIVE IN ACCORDANCE WITH SECTION 8(A) OF
THE SECURITIES ACT OF 1933 OR UNTIL THIS REGISTRATION STATEMENT SHALL BECOME
EFFECTIVE ON SUCH DATE AS THE COMMISSION, ACTING PURSUANT TO SAID SECTION 8(A),
MAY DETERMINE.
<PAGE>
THE MILLBURN WORLD RESOURCE TRUST
$56,100,000
UNITS OF BENEFICIAL INTEREST
THE TRUST
THE MILLBURN WORLD RESOURCE 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.
The primary objective of the Trust is substantial appreciation of its
assets over time. An investment in the Trust offers a potentially valuable
means of diversifying a traditional portfolio of stocks and bonds.
THE MANAGING OWNER
MILLBURN RIDGEFIELD CORPORATION, a professional commodity trading advisor
and fund manager, is the Managing Owner 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. As of March 31, 1999,
Millburn Ridgefield had approximately $830 million under management in these
markets.
THE UNITS
PaineWebber Incorporated, the Principal Selling Agent, along with
Additional Selling Agents offer the Trust's Units of beneficial interest for
sale, as of the first day of each month, at Net Asset Value. As of March 31,
1999, the Net Asset value of a Unit initially sold for $1,000 as of September
13, 1995, when the Trust began trading, was $1,164.62.
The Selling Agents use their best efforts to sell the Units but are not
required to sell any number or dollar amount of Units. There is no scheduled
termination date for this offering. The proceeds from the sale of Units are
held in escrow at Chase Manhattan Bank, or remain in the investor's client
securities account, until they are released to the Trust as of the first day of
the month of investment. There are no sales commissions payable by investors or
the Trust. If the total amount of this offering, $56,100,000, is sold, the
proceeds to the Trust will be $56,100,000.
Units may 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 apply through the end of the twelfth month after a Unit has been sold.
The minimum initial investment is $5,000; $2,000 for trustees or custodians
of eligible employee benefit plans and individual retirement accounts. Existing
Unitholders may subscribe in $1,000 minimums.
THE RISKS
THESE ARE SPECULATIVE SECURITIES. READ THIS PROSPECTUS BEFORE YOU
DECIDE TO INVEST. SEE " THE RISKS YOU FACE" BEGINNING ON PAGE 7.
- - You may lose all or substantially all of your investment in the Trust.
- - The Trust is a speculative leveraged investment and involves a high degree
of risk. The Trust generally employs leverage of up to six times its
total equity.
- - The performance of the Trust to date has been volatile. The Net Asset
Value of the Units has fluctuated as much as 16% in a single month.
- - Single-advisor funds such as the Trust are typically considered -- even
among speculative managed futures funds -- unusually high risk.
- - The Trust is subject to substantial charges regardless of profitability, as
well as to quarterly Profit Shares. The Managing Owner estimates that the
Trust needs to earn trading profits in the first twelve months after a Unit
is issued of approximately 6.70% to offset expenses, or approximately 9.80%
if redemption charges apply, assuming the Trust continues to earn interest
on its assets at current rates.
- - The Units are not liquid as no secondary market exists for the Units and
redemption rights are limited.
INVESTORS ARE REQUIRED TO MAKE REPRESENTATIONS AND WARRANTIES IN
CONNECTION WITH THEIR INVESTMENT IN THE TRUST. INVESTORS ARE ENCOURAGED TO
DISCUSS THEIR INVESTMENT DECISION WITH THEIR FINANCIAL, TAX AND LEGAL ADVISORS.
NEITHER THE SECURITIES AND EXCHANGE COMMISSION NOR ANY STATE SECURITIES
COMMISSION HAS APPROVED OR DISAPPROVED OF THESE SECURITIES OR PASSED UPON THE
ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS
A CRIMINAL OFFENSE.
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.
THE DATE OF THIS PROSPECTUS IS __________, 1999
<PAGE>
COMMODITY FUTURES TRADING COMMISSION
RISK DISCLOSURE STATEMENT
YOU SHOULD CAREFULLY CONSIDER WHETHER YOUR FINANCIAL CONDITION PERMITS YOU
TO PARTICIPATE IN A COMMODITY POOL. IN SO DOING, YOU SHOULD BE AWARE THAT
FUTURES AND OPTIONS TRADING CAN QUICKLY LEAD TO LARGE LOSSES AS WELL AS GAINS.
SUCH TRADING LOSSES CAN SHARPLY REDUCE THE NET ASSET VALUE OF THE POOL AND
CONSEQUENTLY THE VALUE OF YOUR INTEREST IN THE POOL. IN ADDITION, RESTRICTIONS
ON REDEMPTIONS MAY AFFECT YOUR ABILITY TO WITHDRAW YOUR PARTICIPATION IN THE
POOL.
FURTHER, COMMODITY POOLS MAY BE SUBJECT TO SUBSTANTIAL CHARGES FOR
MANAGEMENT, AND ADVISORY AND BROKERAGE FEES. IT MAY BE NECESSARY FOR THOSE
POOLS THAT ARE SUBJECT TO THESE CHARGES TO MAKE SUBSTANTIAL TRADING PROFITS TO
AVOID DEPLETION OR EXHAUSTION OF THEIR ASSETS. THIS DISCLOSURE DOCUMENT
CONTAINS A COMPLETE DESCRIPTION OF EACH EXPENSE TO BE CHARGED THIS POOL AT PAGES
30 TO33 AND A STATEMENT OF THE PERCENTAGE RETURN NECESSARY TO BREAK EVEN, THAT
IS, TO RECOVER THE AMOUNT OF YOUR INITIAL INVESTMENT, AT PAGE 6.
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 7 TO 11.
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.
___________________________________
THIS PROSPECTUS DOES NOT INCLUDE ALL OF THE INFORMATION OR
EXHIBITS IN THE TRUST'S REGISTRATION STATEMENT. YOU CAN READ AND COPY THE
ENTIRE REGISTRATION STATEMENT AT THE PUBLIC REFERENCE FACILITIES MAINTAINED BY
THE SECURITIES AND EXCHANGE COMMISSION (THE "SEC") IN WASHINGTON, D.C.
THE TRUST FILES QUARTERLY AND ANNUAL REPORTS WITH THE SEC. YOU
CAN READ AND COPY THESE REPORTS AT THE SEC PUBLIC REFERENCE FACILITIES IN
CHICAGO, NEW YORK OR WASHINGTON, D.C. PLEASE CALL THE SEC AT 1-800-SEC-0300 FOR
FURTHER INFORMATION.
THE TRUST FILINGS ARE POSTED ON THE SEC WEBSITE AT
HTTP://WWW.SEC.GOV.
-1-
<PAGE>
THE MILLBURN WORLD RESOURCE TRUST
ORGANIZATIONAL CHART
[CHART]
NONE OF THE ENTITIES INDICATED IN THIS ORGANIZATIONAL CHART ARE RELATED.
SEE "CONFLICTS OF INTEREST" BEGINNING ON PAGE 41. NO LOANS HAVE BEEN, ARE OR
WILL BE MADE BETWEEN MILLBURN RIDGEFIELD OR ANY PRINCIPAL OF MILLBURN RIDGEFIELD
AND THE TRUST. DESCRIPTIONS OF THE DEALINGS BETWEEN THE MILLBURN RIDGEFIELD,
THE TRUST AND INVESTORS ARE SET FORTH UNDER "CHARGES" BEGINNING ON PAGE 30.
MILLBURN RIDGEFIELD CORPORATION
411 West Putnam Avenue
Greenwich, Connecticut 06830
(203) 625-7554
MANAGING OWNER
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<PAGE>
THE MILLBURN WORLD RESOURCE TRUST
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PROSPECTUS SECTION PAGE
- ------------------ ----
<S> <C>
SUMMARY. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4
THE RISKS YOU FACE . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .7
INVESTMENT FACTORS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 11
PERFORMANCE OF THE TRUST . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 15
QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK . . . . . . . . . . . . 20
MILLBURN RIDGEFIELD CORPORATION. . . . . . . . . . . . . . . . . . . . . . . . . . 24
USE OF PROCEEDS. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 29
CHARGES. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 30
REDEMPTIONS; NET ASSET VALUE . . . . . . . . . . . . . . . . . . . . . . . . . . . 33
THE CLEARING BROKERS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 34
CONFLICTS OF INTEREST. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 41
THE TRUST AND THE TRUSTEE. . . . . . . . . . . . . . . . . . . . . . . . . . . . . 44
FEDERAL INCOME TAX ASPECTS . . . . . . . . . . . . . . . . . . . . . . . . . . . . 47
THE FUTURES AND FORWARD MARKETS. . . . . . . . . . . . . . . . . . . . . . . . . . 49
PURCHASES BY EMPLOYEE BENEFIT PLANS. . . . . . . . . . . . . . . . . . . . . . . . 50
PLAN OF DISTRIBUTION . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 51
LEGAL MATTERS. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 53
EXPERTS. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 54
REPORTS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 54
ADDITIONAL INFORMATION . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 54
INDEX TO FINANCIAL STATEMENTS. . . . . . . . . . . . . . . . . . . . . . . . . . . 55
ANNUAL RATES OF RETURN SINCE INCEPTION
OF THE MILLBURN RIDGEFIELD CLIENT
FUNDS. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 73
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
</TABLE>
THE EXECUTION COPY OF THE SUBSCRIPTION AGREEMENT AND
POWER OF ATTORNEY ACCOMPANIES THIS PROSPECTUS.
-3-
<PAGE>
THE MILLBURN WORLD RESOURCE TRUST
SUMMARY
GENERAL
The Millburn World Resource Trust offers investors a means to participate
in the global futures and forward currency markets. Specifically, the Trust
trades a portfolio of futures, commodity options and forward contracts on
currencies, interest rates, energy and agricultural products, metals and stock
indices. If it is successful, the Trust can improve the risk/reward profile of
a traditional portfolio of stocks and bonds by providing profits and performance
unrelated to the general stock and bond markets.
Millburn Ridgefield Corporation, a Delaware corporation (the "Managing
Owner" or "Millburn Ridgefield"), acts as the managing owner, commodity pool
operator and trading advisor of the Trust. Units of beneficial interest in the
Trust are continuously offered, at Net Asset Value, pursuant to the terms of
this Prospectus.
The Trust began trading September 13, 1995 with an initial Net Asset Value
of $15,297,069. Through March 31, 1999, the Trust's performance has been
profitable. As of March 31, 1999, the Net Asset Value of the Trust was
$65,065,930, the Net Asset Value of a Unit initially sold for $1,000 was
$1,614.62, and the compound annual rate of return of the Trust since it began
trading was 4.4%. However, past performance is not necessarily indicative of
future results.
OVERVIEW
The Trust trades, under the direction of Millburn Ridgefield, in a wide
range of domestic and international markets. Compared to Millburn Ridgefield's
other client accounts, the Trust trades with an increased emphasis on
traditional commodity markets -- agriculture, energy and metals -- but maintains
significant positions in financial futures and currency forward contracts as
well. The Trust's primary objective is to achieve substantial capital
appreciation with controlled volatility while offering investors the advantages
of limited liability in a highly leveraged trading vehicle and the
administrative convenience of professional management.
The performance of the Trust is not dependent upon any single
nation's economy or currency. 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. Additionally, because it can
take short positions as well as long positions, the Trust is as likely to be
profitable or unprofitable in falling markets as in rising markets. If it is
successful, the Trust offers investors a valuable component of diversification
to traditional portfolios of stocks and bonds. To date, the performance of the
Trust has been significantly non-correlated with the general United States debt
and equity markets.
In addition to its potential to profit from its trading activities,
the Trust earns interest on approximately 90% of its daily Net Assets.
MAJOR RISKS OF THE TRUST
Investors must be prepared to lose all or substantially all of their
investment in the Units.
Futures and forward trading is speculative and uses substantial
leverage which magnifies the impact of profits and losses. The Trust leverages
its trading generally up to six times and possibly up to ten times or more of
its total equity.
The performance of the Trust is volatile. The Net Asset Value of a
Unit has fluctuated as much as 16% in a single month. The Units are suitable
only for a limited portion of the risk segment of an investment portfolio.
Single-advisor funds such as the Trust are typically considered --
even among speculative managed futures funds -- unusually high risk. The use of
a single trading advisor trading one program reduces diversification and
increases the risk of loss relative to a fund using multiple advisors trading
different programs.
The Trust is subject to substantial charges, regardless of
profitability, as well as to quarterly Profit Shares. During the first year
of an
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<PAGE>
investor's participation in the Trust, the Trust must earn trading profits of
approximately 6.70%, or 9.80% if the 3% redemption charge applies, to break even
after all fees and expenses, assuming the Trust continues to earn interest on
its assets at current rates.
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.
An investment in the Trust is not liquid as no secondary market exists for
the Units and the Units may be redeemed only as of a month-end.
CERTAIN INVESTMENT CONSIDERATIONS
Millburn Ridgefield has been managing client funds in the futures and
forward markets for over 25 years. As of March 31, 1999, the Managing Owner was
directing the trading of approximately $830 million of client and proprietary
capital, approximately $111 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 employs a highly systematic, trend-following trading
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 it does in managing its other accounts, the allocation of the
Trust's trading commitments -- referred to by Millburn Ridgefield as the
"World Resource Portfolio" -- among the various markets places greater
emphasis on the non-financial markets 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.
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 next few
years 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.
An investment in the Trust can, BUT ONLY IF THE TRUST ITSELF IS
SUCCESSFUL, improve the reward/risk profile of a traditional portfolio of stocks
and bonds.
The Trust should be considered a medium- to long-term investment (2 to
3 years).
THE OFFERING
You may purchase Units at Net Asset Value per Unit as of the first
business day of each calendar month. Millburn Ridgefield may, from time to time,
also permit certain intra-month closings.
The minimum investment is $5,000; $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 mini
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<PAGE>
mums, also with $100 increments. Units are sold in fractions calculated to
three decimal places.
To subscribe, you must complete and sign the Subscription Agreement and
Power of Attorney Signature Page which accompanies this Prospectus and
deliver it to your Selling Agent. SEE EXHIBIT B -- SUBSCRIPTION REQUIREMENTS
AND EXHIBIT C -- SUBSCRIPTION AGREEMENT AND POWER OF ATTORNEY. YOU SHOULD
REVIEW THIS ENTIRE PROSPECTUS CAREFULLY BEFORE DECIDING WHETHER TO INVEST IN
THE UNITS.
REDEMPTIONS
No market exists for the Units. However, you may redeem your Units as
of the end of any calendar month, upon 10 business days' prior written notice
to the Managing Owner. A redemption charge of 4% of Net Asset Value applies
to Units redeemed during the first six month period after they are sold. A
redemption charge of 3% of Net Asset Value applies to Units redeemed during
the second six month period after they are sold. In the case of
subscriptions of $1,000,000 or more, redemption charges are reduced to 3% and
2% for the applicable six month periods. 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 are
deposited into escrow.
CHARGES
The Trust pays substantial charges. Annual Brokerage Fees, Profit
Shares and administrative expenses together are estimated to total
approximately 10.50% of the Trust's average month-end Net Assets. 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 are greater than the interest it earns on its assets. 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 following breakeven table shows the
approximate amount of trading profit the Trust must earn, during the first
twelve months after a Unit is sold, to offset its costs.
<TABLE>
<CAPTION>
BREAKEVEN TABLE
DOLLAR RETURN
PERCENTAGE REQUIRED
RETURN ($5,000 INITIAL
REQUIRED INVESTMENT)
FIRST TWELVE FIRST TWELVE
MONTHS OF MONTHS OF
ROUTINE EXPENSES INVESTMENT INVESTMENT
- ---------------- ---------- ----------
<S> <C> <C>
Brokerage Fees 9.00% $ 450.00
Administrative Expenses* 0.75% $ 37.50
Profit Share* 0.75% $ 50.00
Redemption Charge* 3.10% $ 155.00
Less Interest Income* (3.80)% $(190.00)
TWELVE-MONTH 9.80% $ 502.50
"BREAKEVEN" WITH
REDEMPTION CHARGE
TWELVE-MONTH 6.70% $ 347.50
"BREAKEVEN" WITHOUT
redemption charge
</TABLE>
- --------------
*Estimated.
The Profit Share is 17.5% of any New Trading Profit and is paid quarterly.
Consequently, a Profit Share could be paid in a breakeven or losing year.
The Breakeven Table assumes a constant $5,000 Net Asset Value and a breakeven
year. See "Charges" beginning on page 30.
FEDERAL INCOME TAX ASPECTS
The Trust is treated as a partnership for federal income tax
purposes. As a result, the Trust itself does not pay federal income tax.
However, investors in the trust are required to report on their individual
income tax returns their share of the Trust's income, gain, loss or
deduction, whether or not they redeem any of their Units and whether or not
the Trust makes any distributions.
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<PAGE>
You may be required to pay taxes on your portion of the Trust's interest income
even if the Trust suffers trading losses.
You 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." 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.
IS THE TRUST A SUITABLE INVESTMENT FOR YOU?
You should consider investing in the Trust if you are interested in its
potential to produce enhanced returns over the long-term that are generally
unrelated to the returns of the traditional debt and equity markets and you are
prepared to risk significant losses. The Trust is a diversification opportunity
for an investor's entire investment portfolio, not a complete investment
program. No one should invest more than 10% of his or her liquid net worth in
the Trust.
____________________
THESE ARE SPECULATIVE SECURITIES. YOU MAY LOSE ALL OR SUBSTANTIALLY ALL OF YOUR
INVESTMENT IN THE TRUST.
THE RISKS YOU FACE
SET FORTH BELOW ARE THE PRINCIPAL RISKS ASSOCIATED WITH AN INVESTMENT IN
THE TRUST. YOU SHOULD CONSIDER THESE RISKS WHEN MAKING YOUR INVESTMENT
DECISION.
YOU COULD LOSE YOUR ENTIRE INVESTMENT IN THE TRUST
The success of the Trust is entirely speculative. You could lose all
or substantially all of your investment in the Trust.
THE TRUST IS A HIGHLY LEVERAGED INVESTMENT
The Trust generally holds positions with a face value of as much as
six, and possibly as much as ten or more, times its total equity. Consequently,
small adverse movements in the prices of the Trust's open positions can cause
significant losses.
THE PERFORMANCE OF THE TRUST IS VOLATILE
The Performance of the Trust to date has been highly volatile. For
example, in December 1995, the Trust recognized a gain of 16.02%, whereas the
Trust incurred a 12.30% loss in February 1996. Volatile performance indicates
that the Trust may suffer sudden and substantial losses from time to time and
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.
THE MANAGING OWNER ALONE DIRECTS THE TRUST'S TRADING
The Trust is a single-advisor fund. The application of a single
program to the leveraged and volatile futures and forward markets involves
greater risk of loss than the diversified, multi-advisor approach employed by
many futures funds, often specifically for risk control purposes. In addition,
if the management services of Millburn Ridgefield were to become unavailable for
any reason, the Trust would terminate. Furthermore, were Millburn Ridgefield to
lose the services of any of its principals, Millburn Ridgefield could decide to
dissolve the Trust, possibly causing it to realize losses.
Although Millburn Ridgefield applies highly systematic strategies,
these strategies retain certain discretionary aspects. Decisions, for example,
regarding which contracts to trade,
-7-
<PAGE>
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 TRUST'S EXPENSES WILL CAUSE LOSSES UNLESS OFFSET BY PROFITS AND INTEREST
INCOME
The Trust pays annual Brokerage Fees equal to 9.0% of its average month-end
Net Assets. The Trust also pays its ongoing administrative expenses. The Trust
must earn trading profits and interest income at least equal to these Brokerage
Fees and ongoing administrative expenses to avoid losses. Assuming that the
Trust earns interest on 90% of its assets at a 4.2% annual rate, the Managing
Owner estimates that the Trust must achieve trading profits of approximately
6.70%, or 9.80% if redemption charges apply, 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. See "Summary -- Breakeven Table" at page 6.
LACK OF PRICE TRENDS OR OF THE TYPE OF PRICE
TRENDS MILLBURN RIDGEFIELD CAN IDENTIFY WILL CAUSE LOSSES
The Trust cannot trade profitably unless there are major price trends in at
least some of the markets it trades. Moreover, the price trends must be of a
type Millburn Ridgefield's systems are designed to identify. In the past there
have been sustained periods without such price trends occurring, and Millburn
Ridgefield expects such periods to recur.
THE TRUST ANTICIPATES ITS PERFORMANCE TO BE NON-CORRELATED TO STOCKS AND BONDS,
NOT NEGATIVELY CORRELATED
Historically, managed futures have been generally non-correlated to the
performance of other asset classes such as stocks and bonds. Non-correlation
means that there is no statistically valid relationship between the past
performance of futures and forward contracts on the one hand and stocks or bonds
on the other hand. Non-correlation should not be confused with negative
correlation, where the performance of two asset classes would be exactly
opposite. Because of this non-correlation, the Trust cannot be expected to be
automatically profitable during unfavorable periods for the stock market, or
VICE VERSA. the futures and forward markets are fundamentally different from
the securities markets in that for every gain in futures and forward trading,
there is an equal, off-setting loss. If the Trust does not perform in a manner
non-correlated with the general financial markets or does not perform
successfully, you will obtain no diversification benefits by investing in the
Units and Trust may have no gains to offset your losses from other investments.
AN INVESTMENT IN THE TRUST IS NOT LIQUID
An investment in the Trust is not a liquid investment as there is no
secondary market for the Units. You may redeem your Units at Net Asset Value
only as of the close of business on the last day of a calendar month, and you
must give the Trust at least 10 business days' notice of your intent to redeem.
In addition, you will pay early redemption charges if you redeem Units through
the end of the first year you own them.
UNITS MAY BE SUBJECT TO PROFIT SHARES DESPITE HAVING DECLINED IN VALUE
Investors will purchase Units at different times and will,
accordingly, recognize different amounts of profit and loss on their
investments. However, Profit Shares are calculated on the basis of the
cumulative trading profits recognized by the Trust as a whole and will reduce
the Net Asset Value of all Units equally. Consequently, certain Units could
have their Net Asset Value reduced by a Profit Share despite having actually
declined in value since their date of purchase. Additionally, Units may incur
losses generating a loss carryforward for purposes of calculating subsequent
Profit Shares. The benefit of any such loss carryforward will be diluted by the
admission of new Unitholders. Similarly, Units purchased
-8-
<PAGE>
during a calendar quarter at a Net Asset Value reduced by accrued incentive
fees will benefit from any reversal of such accruals, and the benefit of such
reversals to Units outstanding at the time of such intra-quarter purchase
will be diluted.
THE PERFORMANCE OF THE TRUST MAY BE AFFECTED BY THE LACK OF INFLATION
More so than other Millburn Ridgefield trading portfolios, the World
Resource Portfolio traded by the Trust emphasizes non-financial commodities.
This Emphasis may cause it to miss profit opportunities or to incur losses. If
there is little inflation in the next few years, the profit potential of the
World Resource Portfolio could be significantly diminished compared to other
Millburn Ridgefield Trading portfolios. Currently, the leading market indicators
appear to suggest that it is doubtful that the United States economy will
experience any significant inflation in the near future.
THE MANAGING OWNER'S INCREASED EQUITY UNDER MANAGEMENT COULD LEAD TO LOWER
RETURNS FOR INVESTORS
Millburn Ridgefield has not agreed to limit the amount of money it may
manage and is actively seeking additional accounts. The more money Millburn
Ridgefield manages, the more difficult it may become for Millburn Ridgefield to
trade profitably for the Trust because of the difficulty of trading larger
positions without negatively affecting prices and performance.
In addition, the Trust conducts approximately 16% of its trading in
agricultural markets. The agricultural markets tend to be less liquid than the
financial markets, and daily speculative position limits apply to the
agricultural markets. Consequently, the adverse effects of accepting additional
money for management may be more pronounced in the World Resource Portfolio than
in other Millburn Ridgefield programs.
INCREASED COMPETITION AMONG TREND-FOLLOWING TRADERS COULD REDUCE MILLBURN
RIDGEFIELD'S PROFITABILITY
There has been a dramatic increase over the past 10 to 15 years in the
use of technical trading systems, particularly trend-following systems, like
Millburn Ridgefield's systems. As the amount of money under the management of
trading systems based on the same general principles increases, the competition
for the same positions increases, making the positions more costly and more
difficult to acquire.
LACK OF MARKET LIQUIDITY COULD MAKE IT IMPOSSIBLE FOR THE TRUST TO
REALIZE PROFITS OR LIMIT LOSSES
Futures and forward positions cannot always be initiated or liquidated
at the desired price. In illiquid markets, the Trust could be unable to close
out positions to limit losses or to take positions in order to follow trends.
There are too many different factors which can contribute to market illiquidity
to predict when or where illiquid markets may occur.
Unexpected market illiquidity has caused major losses in recent years
in such market sectors as emerging markets and mortgage-backed securities.
There can be no assurance that the same will not happen in the Markets traded by
the Trust. In addition, the large size of the position which the Trust may take
in certain Markets increases the risk of illiquidity by both making its
positions more difficult to liquidate and increasing the losses incurred while
trying to do so.
TRADING ON FOREIGN EXCHANGES PRESENTS GREATER RISK THAN TRADING ON U.S.
EXCHANGES
The Trust trades on commodity exchanges outside the United States.
Trading on foreign exchanges is not regulated by any United States governmental
agency and may involve certain risks which do not arise when trading on United
States exchanges. For example, the Trust could suffer losses when valuing its
non-U.S. positions in dollars because of changes in the exchange rates between
the United States dollar and the currencies in which those positions are
settled. Trading on foreign exchanges also presents the additional risks of
exchange controls, expropriation, taxation and government disruptions.
-9-
<PAGE>
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: (1) the Managing
Owner has agreed to use the Principal Selling Agent as a Clearing Broker for the
Trust because it is marketing the Units; (2) the compensation which the Selling
Agents receive give them an incentive to promote the sale of Units as well as to
discourage redemptions; (3) 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; (4)
the Managing Owner has significant financial incentives both to promote the sale
of the Units and to discourage their redemption; and (5) 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.
YOU WILL BE TAXED EACH YEAR ON YOUR SHARE OF TRUST PROFITS
You will be taxed each year on your share of Trust income or gain for the
year, regardless of whether or not you redeem Units or receive distributions
from the Trust.
Furthermore, because a substantial portion of the Trust's open positions
are "marked-to-market" at the end of each year, some of your tax liability will
be based on unrealized gains which the Trust may, in fact, never realize.
YOU WILL BE TAXED ON THE TRUST'S INTEREST INCOME EVEN IF THE TRUST SUFFERS
TRADING LOSSES
Losses on the Trust's trading are almost exclusively capital losses.
Non-corporate investors may use capital losses to offset up to $3,000 of
ordinary income each year. So, for example, if your share of the Trust's
trading (I.E., capital) loss was $10,000 in a given fiscal year and your
share of interest income was $5,000, you would incur a net loss in the Net
Asset Value of your Units equal to $5,000, but would nevertheless recognize
taxable income of $2,000.
LIMITATIONS ON THE DEDUCTIBILITY OF "INVESTMENT ADVISORY FEES"
The Managing Owner does not treat the ordinary expenses of the Trust or the
Profit Share 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, and you
would pay increased taxes in respect of your investment in the Trust. In fact,
were the ordinary expenses of the Trust recharacterized as "investment advisory
fees," you could actually recognize taxable income despite having incurred a
financial loss.
"SYNDICATION EXPENSES" ARE NOT TAX DEDUCTIBLE
Neither you nor the Trust are entitled to any tax deduction for
"syndication expenses." The IRS could contend that a portion of the Brokerage
Fee paid to the Managing Owner constitutes a non-deductible "syndication
expense." Your after-tax returns could be significantly decreased if a portion
of the Brokerage Fee were treated as a "syndication expense."
THE IRS COULD AUDIT BOTH THE TRUST AND INDIVIDUAL UNITHOLDERS
The IRS could audit the Trust's tax returns and require the Trust to adjust
such returns. If an audit results in an adjustment, you could be audited and
required to pay additional taxes, plus interest and possibly penalties. The tax
consequences of an investment may be different for different investors and may
have a material effect on the net economic consequences of owning Units. See
"Federal Income Tax Aspects" at page 47.
THE BANKRUPTCY OF A CLEARING BROKER OR CURRENCY DEALER COULD CAUSE LOSSES
If one of the Trust's Clearing Brokers or foreign currency counterparties
becomes bankrupt, the Trust will be limited to recovering only its PRO RATA
share of all available customer funds segregated by the Clearing Broker or
counterparty.
-10-
<PAGE>
THE TRUST TRADES IN UNREGULATED MARKETS
The Trust conducts a substantial portion of its currency options and
forward trading in unregulated markets. There is no way to determine fair
pricing or prevent trading abuses in such markets. The absence of regulation
in such markets could expose the Trust to significant losses.
Various national governments have expressed concern regarding the
disruptive effects of speculative trading in the currency markets and the
need to regulate the "derivatives" markets in general. There is a possibility
that future regulatory changes will limit the Trust's ability to trade in
certain markets.
POSSIBLE EFFECTS OF THE EUROPEAN MONETARY UNION
The January 1, 1999 conversion of most major European currencies to a
single euro currency or reaction to that conversion or to any nation's
withdrawal from the European Monetary Union, could adversely affect the trading
opportunities or results of currency traders in general, including the Trust.
Millburn Ridgefield has reviewed its currency trading strategies in anticipation
of the conversion to the euro currency and believes that this event will not
have a material adverse effect on the performance of the Trust. However, the
conversion to a single euro currency is a very significant and novel political
and economic event and there can be no certainty about its direct or indirect
future affect on currency markets. Investors should be aware that a risk exists
that unforeseen effects of European Monetary Union could lessen the favorable
performance of or cause losses in the Trust's trading.
YOU 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.
INVESTMENT FACTORS
AN INVESTMENT IN THE TRUST IS SPECULATIVE AND INVOLVES A HIGH DEGREE OF
RISK. ALTHOUGH THERE CAN BE NO ASSURANCE THAT MILLBURN RIDGEFIELD WILL TRADE
SUCCESSFULLY ON BEHALF OF THE TRUST OR THAT THE TRUST WILL AVOID SUBSTANTIAL
LOSSES, IF THE TRUST IS SUCCESSFUL, AN INVESTMENT IN THE TRUST OFFERS INVESTORS
THE FOLLOWING POTENTIAL ADVANTAGES.
PERFORMANCE POTENTIAL
The Trust offers investors access to a trading portfolio which places
a greater emphasis on non-financial markets than Millburn Ridgefield's other
trading portfolios. 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 trades extensively in the currency and financial
instruments markets, in which Millburn Ridgefield accounts have achieved
substantial profits in the past. INVESTORS SHOULD NOTE, HOWEVER, THAT PAST
PERFORMANCE IS NOT NECESSARILY INDICATIVE OF FUTURE RESULTS, PARTICULARLY IN THE
SPECULATIVE MARKETS IN WHICH THE TRUST TRADES. FURTHER, IT IS IMPOSSIBLE TO
PREDICT WHETHER INFLATIONARY PERIODS WILL DEVELOP DURING THE NEXT FEW YEARS. IF
SUCH PERIODS DO NOT DEVELOP, THE EFFECT ON THE PERFORMANCE OF THE TRUST COULD BE
NEGATIVE.
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,
together with 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. The
Trust provides investors the opportunity to place capital under the management
of a trading advisor with one of the longest continuous trading records of any
active manager.
-11-
<PAGE>
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. An investment in the Trust
can provide a valuable element of diversification to a portfolio of traditional
investments such as stocks, bonds and real estate. The Managing Owner believes
that the profit potential of the Trust does not depend upon favorable general
economic conditions. Rather, the Managing Owner believes that the Trust is just
as likely to be profitable or unprofitable during periods of declining stock,
bond and real estate markets as at any other time.
Rapid changes 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 create substantial opportunities for
profit. These factors may make a diversifying investment in a vehicle such as
the Trust particularly timely. The Trust's flexibility to take either long or
short positions -- whereas traditional investment portfolios consist primarily
of long positions -- can be an important advantage in times of economic
uncertainty. Allocating a small portion of an investment portfolio to a managed
futures investment, such as the Trust, can potentially enhance the performance
of the portfolio. Modern portfolio theory suggests that a diverse portfolio
with assets that have little or no correlation with each other should have
higher returns and lower risk than a less diversified portfolio: the Nobel
Prize for Economics in 1990 was awarded to Dr. Harry Markowitz for demonstrating
that the total return can increase, and/or risks can be reduced, when portfolios
have positively performing asset categories that are essentially non-correlated.
Historically, managed futures investments have had very little correlation
to the stock and bond markets. The performance of the Trust to date has
exhibited a substantial degree of non-correlation with the general equity and
debt markets. Non-correlated performance is not, however, negatively correlated
performance. Non-correlation means only that the Trust's performance likely has
no relation to the performance of stocks and bonds. Millburn Ridgefield
believes that certain factors which affect equity and debt prices may affect the
Trust differently and that certain factors which affect the Trust may not affect
equity or debt prices. The net asset value per Unit may decline or increase
more or less than stocks or bonds during both rising and falling markets.
Non-correlation will not provide any diversification advantages unless the
non-correlated assets are performing positively. There can be no assurance that
the Trust will perform positively or avoid losses. Additionally, managed
futures funds are not a hedging mechanism and there is no guarantee that managed
futures funds will appreciate during periods of stock and bond market declines.
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, allocating a portion of one's
overall portfolio to the Trust can actually increase the portfolio's overall
returns while decreasing the overall volatility of the portfolio. 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. To be a successful investment, the
Trust must trade profitably. There can be no assurance whatsoever that it will
be able to do so.
MARKET DIVERSIFICATION
The Trust trades in over 50 markets, though not necessarily in all markets
at all times. Market allocations within the World Resource Portfolio are under
continuous review and are adjusted from time to time.
Futures contracts on non-financial/traditional commodities have not been a
primary area of interest for many futures traders in recent years. Many of the
underlying commodities themselves are today at historically low price levels 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 of
commodities. While these fundamentals are transforming the supply side of the
equation, economic recovery from the recent market turmoil experienced in Asia,
the former
-12-
<PAGE>
Soviet Union and Latin America, may help to spur growth in the global
economy. While it is impossible to know how this scenario will unfold, Millburn
Ridgefield believes that many of the non-financial markets warrant a larger
allocation than they have enjoyed in the 1980s and 1990s. Millburn Ridgefield
believes that there will be increased demand for both financial and hard
resources as emerging economies recover from the financial shocks of the third
and fourth quarters of 1998.
The following depicts the market allocations as of March 31, 1999 of the
World Resource Portfolio.
[PIE CHART]
<TABLE>
<CAPTION>
<S> <C>
Interest Rates 19%
Currencies 23%
Stock Indicies 12%
Metals 11%
Energy 19%
Agriculture 16%
</TABLE>
THE WORLD RESOURCE PORTFOLIO
The World Resource Portfolio is not a distinct trading system or
program, but rather 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 Managing Owner believes
that profit opportunities will remain over the medium-to long-term in the
financial and currency markets, but that there is also good profit potential
in increasing exposure to other market sectors at this time. The Managing
Owner believes that the Trust should be well positioned to achieve its
objectives if price trends of the type its systems are designed to follow
develop in the non-financial commodities markets. Investors should note,
however, that 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 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.
World Resource Portfolio markets currently include:
<TABLE>
<CAPTION>
AGRICULTURAL COMMODITIES
- ---------------------------------------------------
<S> <C>
Cocoa Soybeans
Coffee Soy Meal
Corn Soy Oil
Cotton Sugar
Orange Juice Wheat
METALS ENERGY
Aluminum Crude Oil
Copper Gas Oil
Gold Heating Oil
Nickel Natural Gas
Palladium Unleaded Gas
Silver
Zinc
CURRENCIES
- ---------------------------------------------------
MAJOR SECONDARY
- ------ ---------
British Pound Canadian Dollar
Euro currency Danish Krone
Japanese Yen Dollar Index
Swiss Franc European Currency Unit
Hong Kong Dollar
Indonesian Rupiah
Korean Won
Malaysian Ringgit
Mexican Peso
Norwegian Krone
South African Rand
Singapore Dollar
Thai Baht
</TABLE>
CROSSES
- --------
Canadian Dollar - Japanese Yen
Euro - Japanese Yen
Euro - Swiss Franc
Euro - Norwegian Krone
-13-
<PAGE>
<TABLE>
<CAPTION>
INTEREST RATES
- --------------
<S> <C>
Australian Bonds Italian BondCanadian
Bonds London Short
Rates Eurodollars Spanish Bonds
Euro Yen Tiffe Euro-Yen
French Bond Tokyo Yen Bond
French Pibor U.S. Treasury
BondsGerman Bunds U.S. Treasury Notes
</TABLE>
STOCK INDICES
- -------------
Australian All Ordinaries
Hong Kong Hang Seng
London FT-SE
Nikkei Dow
S&P 500
Topix Index
THE TRUST HAS NOT, IN ITS OPERATIONS TO DATE, TRADED IN ALL OF THE MARKETS
LISTED ABOVE . AT CERTAIN TIMES, MILLBURN RIDGEFIELD MAY ENTIRELY WITHDRAW FROM
ONE OR MORE SUCH MARKETS.
OPPORTUNITY TO PROFIT IN RISING AS WELL AS IN DECLINING MARKETS
The futures markets offer the ability to trade either the long or the short
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. The Trust may
realize positive or negative returns in both rising and declining markets.
It is potentially advantageous for investors to own investments which can
appreciate during a period of generally declining prices, financial
disruption or economic instability.
INTEREST ON TRUST ASSETS
The Trust receives all of the interest income earned on its assets.
Approximately 90% of the Trust's assets are invested in deposit accounts,
United States Treasury bills or notes or in similar securities issued by
foreign governments. The interest earned on the Trust's assets can offset a
portion, though no all, of its routine costs. The Trust's interest income
represents a source of revenue entirely independent of the success or failure
of its futures and forward trading. However, the Trust's interest income is
subject to the risk of trading losses.
SMALL MINIMUM INVESTMENT; SMALLER MINIMUM ADDITIONAL INVESTMENT
Millburn Ridgefield typically manages 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; $2,000 in
the case of trustees or custodians of eligible employee benefit plans and
individual retirement accounts. Existing Unitholders may make additional
investments in minimums of only $1,000. 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.
LIMITED LIABILITY
An investor who opens an individual futures account is generally liable for
all losses incurred in the account, and may lose substantially more than such
investor committed to the account. However, an investor in the Trust cannot
lose more than his or her investment plus undistributed profits.
ADMINISTRATIVE CONVENIENCE
The Trust is structured to eliminate for investors the administrative
burden associated with direct trading in the futures and forward markets.
Millburn Ridgefield is responsible for all aspects of the Trust's operation.
Unitholders receive monthly unaudited and annual audited 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.
-14-
<PAGE>
PERFORMANCE OF THE TRUST
THE MILLBURN WORLD RESOURCE TRUST
(SEPTEMBER 13, 1995 - MARCH 31, 1998)
TYPE OF POOL: Single-Advisor/Publicly-Offered/No Principal Protection
INCEPTION OF TRADING: September 13, 1995
AGGREGATE SUBSCRIPTIONS: $95,305,566
CURRENT CAPITALIZATION: $65,065,930
WORST MONTHLY DRAWDOWN (MONTH/YEAR): (12.30)% (2/96)
WORST PEAK-TO-VALLEY DRAWDOWN (MONTH/YEAR): (15.03)% (12/95-5/96)
<TABLE>
<CAPTION>
- -----------------------------------------------------------------------------------
MONTHLY RATES OF RETURN
Month 1999 1998 1997 1996 1995
- -----------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
January (7.51)% 3.07% 4.24% (0.36)% --
- -----------------------------------------------------------------------------------
February 2.45% (1.19)% 7.17% (12.30)% --
- -----------------------------------------------------------------------------------
March (0.43)% (1.73)% (4.29)% 2.94% --
- -----------------------------------------------------------------------------------
April (7.27)% (4.63)% 2.55% --
- -----------------------------------------------------------------------------------
May 6.64% 3.02% (7.88)% --
- -----------------------------------------------------------------------------------
June 3.04% (1.73)% 6.64% --
- -----------------------------------------------------------------------------------
July (4.42)% 2.95% (0.36)% --
- -----------------------------------------------------------------------------------
August 8.88% (10.22)% 1.49% --
- -----------------------------------------------------------------------------------
September 0.54% 0.84% 4.01% (6.62)%
- -----------------------------------------------------------------------------------
October (7.76)% 0.74% 8.09% (1.92)%
- -----------------------------------------------------------------------------------
November (0.44)% (0.77)% 4.10% 0.92%
- -----------------------------------------------------------------------------------
December 6.94% 6.45% 0.42% 16.02%
- -----------------------------------------------------------------------------------
Compound (5.65)% 7.23%
Rate of Return (3 mos.) 4.39% 2.39% 7.69% (31/2 mos.)
</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 $1,183.35 $1,097.33 $1,165.75 $1,201.17 $1,148.03 $1,249.93 $1,256.63 $1,159.29 $1,154.22 $1,234.38
1999 $1,141.72 $1,169.64 $1,169.62
</TABLE>
PAST PERFORMANCE IS NOT NECESSARILY INDICATIVE OF FUTURE RESULTS.
"WORST MONTHLY DRAWDOWN" IS 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" IS THE GREATEST PERCENTAGE DECLINE IN THE
NET ASSET VALUE PER UNIT, WITHOUT SUCH NET ASSET VALUE PER UNIT BEING
SUBSEQUENTLY EQUALED OR EXCEEDED. FOR EXAMPLE, IF THE NET ASSET VALUE PER UNIT
DROPPED BY 1% IN EACH OF JANUARY AND FEBRUARY, ROSE 1% IN MARCH AND DROPPED
AGAIN BY 2% IN APRIL, A "PEAK-TO-VALLEY DRAWDOWN" WOULD BE STILL CONTINUING AT
THE END OF APRIL IN THE AMOUNT OF APPROXIMATELY (3)%, WHEREAS IF THE NET ASSET
VALUE PER UNIT HAD RISEN BY APPROXIMATELY 2% OR MORE IN MARCH, THE DRAWDOWN
WOULD HAVE ENDED AS OF THE END OF FEBRUARY AT THE (2)% LEVEL.
MONTHLY RATE OF RETURN IS THE ACTUAL MONTHLY 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 IS INCLUDED
UNDER "ANNUAL RATES OF RETURN SINCE INCEPTION OF THE MILLBURN RIDGEFIELD CLIENT
FUNDS" ON PAGE 73.
-15-
<PAGE>
SELECTED FINANCIAL INFORMATION
THE FOLLOWING SELECTED FINANCIAL INFORMATION IS TAKEN FROM THE FINANCIAL
STATEMENTS OF THE TRUST AUDITED BY PRICEWATERHOUSECOOPERS LLP. SEE "INDEX TO
FINANCIAL STATEMENTS" AT PAGE 55.
_________________________
<TABLE>
<CAPTION>
SEPTEMBER 13, 1995
JANUARY 1, 1998 JANUARY 1, 1997 JANUARY 1, 1996 (COMMENCEMENT OF
TO TO TO TRADING OPERATIONS) TO
INCOME STATEMENT DATA DECEMBER 31, 1998 DECEMBER 31, 1997 DECEMBER 31, 1996 DECEMBER 31, 1995
- ---------------------- ------------------ ----------------- ----------------- ----------------------
<S> <C> <C> <C> <C>
Realized gains (losses)
Futures and forwards $ 5,390,695 $4,123,599 $7,778,511 $ 551,797
Options 1,114,879 (486,783) 750,368 (98,084)
----------- ---------- ---------- -----------
Total realized gain (loss) 6,505,574 3,636,816 8,528,879 453,713
Increase (decrease) in unrealized
appreciation Futures and forwards 764,120 1,548,085 489,201 2,716,040
Options (163,054) (73,486) 123,713 112,827
----------- ---------- ---------- -----------
Total increase (decrease) in 601,066 1,474,599 612,914 2,828,867
unrealized appreciation
----------- ---------- ---------- -----------
Gross trading results 7,106,640 5,111,415 9,141,793 3,282,580
Less, Brokerage Fees 6,528,321 6,057,327 3,998,675 548,790
----------- ---------- ---------- -----------
Total trading results 578,319 (945,912) 5,143,118 2,733,790
Interest income 3,810,780 3,467,544 2,115,972 303,229
Foreign exchange gain (loss) (198,930) 62,685 (72,910) (9,539)
----------- ---------- ---------- -----------
Total income (loss) 4,190,169 2,584,317 7,186,180 3,027,480
----------- ---------- ---------- -----------
Expenses:
Profit Share 695,667 829,081 460,840
Administrative expenses 581,101 345,473 519,753 59,492
----------- ---------- ---------- -----------
Total expenses 581,101 1,041,140 1,348,834 520,332
----------- ---------- ---------- -----------
Net income (loss) $ 3,609,068 $1,543,177 $5,837,346 $2,507,148
----------- ---------- ---------- -----------
----------- ---------- ---------- -----------
</TABLE>
<TABLE>
<CAPTION>
BALANCE SHEET DATA*
AS OF DECEMBER 31 1998 1997 1996 1995
------------ ------------ -------------- --------------
<S> <C> <C> <C> <C>
Aggregate Net
Asset Value $73,820,637 $73,570,903 $56,365,318 $26,457,277
Net Asset Value
per Unit $1,234.38 $1,182.43 $1,154.81 $1,072.34
</TABLE>
_________________________
*BALANCE SHEET DATA FOR 1995 AND 1996 IS BASED ON REDEMPTION VALUES
WHICH DIFFER FROM NET ASSET VALUES DETERMINED UNDER GENERALLY ACCEPTED
ACCOUNTING PRINCIPALS. AFTER SEPTEMBER 30, 1997, WHEN THE TRUST MADE ITS
FINAL ORGANIZATIONAL AND OFFERING COST REIMBURSEMENT PAYMENT, REDEMPTION
VALUE AND NET ASSET VALUE DETERMINED UNDER GAAP ARE IDENTICAL.
-16-
<PAGE>
MANAGING OWNER'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
RESULTS OF OPERATIONS
GENERAL
The Trust's success depends on the Managing Owner's ability to recognize
price trends in different sectors of the world economy. The Millburn Ridgefield
trading systems do not predict price movements, nor do they rely on fundamental
economic supply or demand analysis or on macroeconomic assessments of the
relative strengths of different national economies or economic sectors.
Instead, the systems apply proprietary computer models to analyzing past market
data, and from this data alone attempt to determine whether market prices are
trending. Technical traders such as Millburn Ridgefield base their strategies
on the theory that market prices reflect the collective judgment of numerous
different traders and are, accordingly, the best and most efficient indication
of market movements. However, there are frequent periods during which
fundamental factors external to the market dominate prices.
If Millburn Ridgefield's models identify a trend, they signal positions
which follow it. When these models identify the trend as having ended or
reversed, these positions are either closed out or reversed. Due to their
trend-following character, the Millburn Ridgefield systems do not predict either
the commencement or the end of a price movement. Rather, their objective is to
identify a trend early enough to profit from it and to detect its end or
reversal in time to close out the Trust's positions while retaining most of the
profits made from following the trend.
In analyzing the performance of Millburn Ridgefield's trend-following
systems, economic conditions, political events, weather factors, etc., are not
directly relevant because Millburn Ridgefield uses only market data in
developing its systems. Additionally, in general there is no direct connection
between particular market conditions and price trends. There are so many
influences on the markets that the same general type of economic event may lead
to a price trend in some cases but not in others. Further, even if significant
price trends do occur, if these trends are not comprised of the type of price
movements which the systems are designed to identify, Millburn Ridgefield may
not position the Trust to profit from or avoid losses due to the trend.
Moreover, there have been prolonged periods in the futures markets without
significant price movements, as well as 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.
The performance summary set forth below is an outline description of how
the Trust performed in the past trading in a wide variety of markets. The
Trust's futures and currency forward contract prices are marked-to-market every
trading day, and the Trust's trading accounts are credited or debited with its
daily gains or losses. Accordingly, there is no material economic distinction
between realized gains or losses on closed positions and unrealized gains or
losses on open positions. The Trust's past performance is not necessarily
indicative of how it will perform in the future.
PERFORMANCE SUMMARY
1998
During 1998, the trust was profitable. Against a low inflation
background, trading in interest rate futures was highly profitable,
particularly during the third quarter when "flight to quality" produced
sizable gains on long positions in U.S., European and Japanese interest rate
futures. Short positions in Japanese government bond futures near year-end
were also very profitable when the bond yield rebounded from an historically
low level. Energy trading was also very profitable as short positions in
crude oil, heating oil, London gas oil and unleaded gas benefited from the
declining energy prices that reflected continuing slack demands worldwide
combined with lack of production restraint from both OPEC and non-OPEC
producers. Grain trading was fractionally profitable. Currency trading,
while registering mixed results in various sectors, was slightly unprofitable
overall. Trading on both sides of dollar/yen produced excellent results, but
these gains were more than offset by losses on trading the European
currencies against the dollar. Meanwhile, gains from trading exotic
currencies were offset by losses in cross rate trading. Stock index trading
lost money as gains in Hong Kong and U.S. index positioning fell short of
losses in trading Japanese and Australian indices. Volatile, non-trending
price action in copper futures resulted in losses in metal trading. In the
softs sector, volatile swings in coffee and cocoa prices generated losses
that overwhelmed the significant gains that were made in short sugar
positions.
-17-
<PAGE>
1997
During 1997, the Trust was profitable. For the year, trading in
interest rates, currencies, and stock indices was profitable. However, the
Trust suffered substantial losses trading in 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 as was 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 the Trust suffered sizable losses in sugar, orange juice and
cocoa trading. However, gains from coffee trading 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.
1996
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, sustained a loss of (7.88)%, 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. In each of the
following five months, August through December, the Trust traded profitably
as major trends occurred in the interest rate and currency markets.
1995
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. The Trust continued to suffer losses October and made a small
gain in November during generally trendless markets. In December 1995,
however, the Trust achieved major profits in the energy sector as a
combination of cold weather, depleted inventories and pipeline capacity
constraints resulted in soaring natural gas prices. The Trust's Stock index,
interest rate and agricultural trading was also profitable.
LIQUIDITY CAPITAL RESOURCES
The Trust raises additional capital only through the sale of Units and
trading profits (if any) and does not engage in borrowing. The Trust sells
no securities other than the Units.
The Trust's assets are held primarily in U.S. Treasury bills or other
high-quality, readily marketable securities, as well as in cash.
Accordingly, except in very unusual circumstances, the Trust should be able
to close out any or all of its open trading positions and liquidate any
securities positions quickly and at market prices. This permits the Managing
Owner to limit losses as well as reduce market exposure on short notice. In
addition, because there is a readily available market value for the Trust's
positions and assets, the Trust's monthly Net Asset Value calculations are
precise.
The value of the Trust's cash and financial instruments is not materially
affected by inflation. Changes in interest rates, which are often associated
with inflation, could cause the value of certain of the Trust's debt securities
to decline, but only to a limited extent. More important, changes in interest
rates could cause periods of strong up or down market price trends, during which
the Trust's profit potential generally increases. However, inflation can also
give rise to markets which have numerous short price trends followed by rapid
reversals, markets in which the Trust is likely to suffer losses.
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
-18-
<PAGE>
(credit risk). Market risk is generally measured by the face amount of the
positions acquired and the volatility of the markets traded. The Managing
Owner seeks to control market risk through real-time monitoring of open
positions, market diversification inherent in the World Resource Portfolio
and by limiting the Trust's margin-to-equity ratio to a range of
approximately 15% to 30%.
The credit risk from counterparty non-performance is the net unrealized
gain, if any, on open positions plus the value of the margin or collateral
held by the counterparty . Credit risk associated with exchange-traded
contracts is generally considered to be quite low because exchanges typically
provide clearinghouse arrangements in which the collective credit 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
collateral in the over-the-counter markets. The Managing Owner seeks to
minimize credit risk associated with the Trust's over-the-counter
transactions by transacting only with large, well capitalized financial
institutions.
THE YEAR 2000 COMPUTER ISSUE
Many existing computer systems use only two digits to refer to a year.
This technique can cause the systems to treat the year 2000 as 1900, an
effect commonly known as the "Year 2000 Problem." The Trust, like other
financial and business organizations, depends on the smooth functioning of
computer systems and could be adversely affected if the computer systems on
which it relies do not properly process and calculate date-related
information concerning dates on or after January 1, 2000.
The Managing Owner administers the business of the Trust through various
systems and processes maintained by the Managing Owner. The Managing Owner's
modifications for Year 2000 compliance are proceeding and are expected to be
completed, with respect to mission-critical systems, by the end of June,
1999, and, with respect to other systems, by the end of July, 1999. The
expenses incurred to date by the Managing Owner in preparing for Year 2000
compliance have not had a material adverse impact on the Managing Owner's
financial position, and the expenses to be incurred in becoming fully Year
2000 compliant are not expected to have a material adverse impact on the
Managing Owner's financial position. The Trust itself has no systems or
information technology applications relevant to its operations and, thus, has
no expenses related to addressing the Year 2000 Problem.
In addition to the Managing Owner, the Trust is dependent on the
capability of the various exchanges, Clearing Brokers and other third parties
with which the Trust has material relationships to prepare adequately for the
Year 2000 Problem and its impact on their systems and processes. The major
U.S. futures exchanges participated in the Futures Industry Association Y2K
Beta Test during September 1998 and will participate in the Futures Industry
Association Y2K industry-wide test for Year 2000 compliance during the first
and second quarters of 1999. The Futures Industry Association Y2K Tests are
to test links with outside entities. The Clearing Brokers are addressing
their Year 2000 issues and will participate in the Futures Industry
Association Y2K industry-wide test for Year 2000 compliance during the first
and second quarters of 1999. The Managing Owner is currently implementing
procedures to monitor the progress of the Clearing Brokers, exchanges and
other third parties with which the Trust has a material relationship in
addressing their Year 2000 issues.
The most likely and most significant risk to the Trust associated with
the lack of Year 2000 readiness is the failure of third parties, including
the Clearing Brokers, exchanges, foreign exchange counterparties and various
regulators to resolve their Year 2000 issues in a timely manner . This risk
could involve the temporary inability to transfer funds electronically or to
determine the Net Asset Value of the Trust, in which case it could become
impossible for the Trust to continue trading activities and sales could be
suspended and/or redemption payments delayed until the Trust's assets could
be valued and/or funds could be transferred. If the Managing Owner believes,
prior to December 31, 1999, that any third party has failed to resolve a Year
2000 issue likely to have a material adverse impact on the Trust, the
Managing Owner will attempt to close any Trust positions carried by such
third party or exposed to such third party's failure to resolve its Year 2000
issue
-19-
<PAGE>
and to cease trading with or through such third party until such issue is
resolved.
QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
INTRODUCTION
PAST RESULTS ARE NOT NECESSARILY INDICATIVE OF FUTURE PERFORMANCE
The Trust is a speculative commodity pool. Unlike an operating company,
the risk of market sensitive instruments is integral, not incidental, to the
Trust's main line of business.
Market movements result in frequent changes in the fair market value of the
Trust's open positions and, consequently, in its earnings and cash flow. The
Trust's market risk is influenced by a wide variety of factors, including the
level and volatility of interest rates, exchange rates, equity price levels, the
market value of financial instruments and contracts, the diversification effects
among the Trust's open positions and the liquidity of the markets in which it
trades.
The Trust can rapidly acquire and/or liquidate both long and short
positions in a wide range of different markets. Consequently, it is not
possible to predict how a particular future market scenario will affect
performance, and the Trust's past performance is not necessarily indicative of
its future results.
Value at Risk is a measure of the maximum amount which the Trust could
reasonably be expected to lose in a given market sector. However, the inherent
uncertainty of the Trust's speculative trading and the recurrence in the markets
traded by the Trust of market movements far exceeding expectations could result
in actual trading or non-trading losses far beyond the indicated Value at Risk
or the Trust's experience to date (I.E., "risk of ruin"). In light of the
foregoing as well as the risks and uncertainties intrinsic to all future
projections, the inclusion of the quantification included in this section should
not be considered to constitute any assurance or representation that the Trust's
losses in any market sector will be limited to Value at Risk or by the Trust's
attempts to manage its market risk.
QUANTIFYING THE TRUST'S TRADING VALUE AT RISK
QUANTITATIVE FORWARD-LOOKING STATEMENTS
THE FOLLOWING QUANTITATIVE DISCLOSURES REGARDING THE TRUST'S MARKET RISK
EXPOSURES CONTAIN "FORWARD-LOOKING STATEMENTS" WITHIN THE MEANING OF THE SAFE
HARBOR FROM CIVIL LIABILITY PROVIDED FOR SUCH STATEMENTS BY THE PRIVATE
SECURITIES LITIGATION REFORM ACT OF 1995 (SET FORTH IN SECTION 27A OF THE
SECURITIES ACT AND SECTION 21E OF THE SECURITIES EXCHANGE ACT OF 1934). ALL
QUANTITATIVE DISCLOSURES IN THIS SECTION ARE DEEMED TO BE FORWARD-LOOKING
STATEMENTS FOR PURPOSES OF THE SAFE HARBOR, EXCEPT FOR STATEMENTS OF HISTORICAL
FACT.
The Trust's risk exposure in the various market sectors traded by the
Managing Owner is quantified below in terms of Value at Risk. Due to the
Trust's mark-to-market accounting, any loss in the fair value of the Trust's
open positions is directly reflected in the Trust's earnings (realized or
unrealized) and cash flow (at least in the case of exchange-traded contracts in
which profits and losses on open positions are settled daily through variation
margin).
Exchange maintenance margin requirements have been used by the Trust as the
measure of its Value at Risk. Maintenance margin requirements are set by
exchanges to equal or exceed 95-99% of the maximum one-day losses in the fair
value of any given contract incurred during the time period over which
historical price fluctuations are researched for purposes of establishing margin
levels. The maintenance margin levels are established by dealers and exchanges
using historical price studies as well as an assessment of current market
volatility (including the implied volatility of the options on a given futures
contract) and economic fundamentals to provide a probabilistic estimate of the
maximum expected near-term one-day price fluctuation.
In the case of market sensitive instruments which are not exchange traded
(almost exclusively currencies in the case of the Trust), dealers' margins have
been used as Value at Risk.
The fair value of the Trust's futures and forward positions does not have
any optionality component. However, the Managing Owner also trades commodity
options on behalf of the Trust. The Value at Risk associated with options is
reflected in the following table as the margin requirement attributable to the
instrument underlying each option.
-20-
<PAGE>
In quantifying the Trust's Value at Risk, 100% positive correlation in the
different positions held in each market risk category has been assumed.
Consequently, the margin requirements applicable to the open contracts have
simply been aggregated to determine each trading category's aggregate Value at
Risk. The diversification effects resulting from the fact that the Trust's
positions are rarely, if ever, 100% positively correlated have not been
reflected.
THE TRUST'S TRADING VALUE AT RISK IN DIFFERENT MARKET SECTORS
The following table indicates the trading Value at Risk associated with the
Trust's open positions by market category as of December 31, 1998. As of
December 31, 1998, the Trust's total capitalization was approximately $73.8
million.
<TABLE>
<CAPTION>
DECEMBER 31, 1998
-----------------------------
MARKET SECTOR
CAPITALIZATION VALUE AT RISK % OF TOTAL
- --------------------- -------------- ----------
<S> <C> <C>
Financial Instruments $ 2.9 million 3.9%
Currencies $ 4.4 million 5.9%
Stock Indices $ 2.3 million 3.1%
Metals $ 1.9 million 2.6%
Agricultural $ 1.7 million 2.3%
Energy $ 1.9 million 2.6%
-------------- ---------
Total $ 15.1 million 20.4%
-------------- ---------
-------------- ---------
</TABLE>
MATERIAL LIMITATIONS ON VALUE AT RISK
AS AN ASSESSMENT OF MARKET RISK
The face value of the market sector instruments held by the Trust is
typically many times the applicable maintenance margin requirement (maintenance
margin requirements generally ranging between approximately 1% and 10% of
contract face value) as well as many times the capitalization of the Trust. The
magnitude of the Trust's open positions creates a "risk of ruin" not typically
found in most other investment vehicles. Because of the size of its positions,
certain market conditions -- unusual, but historically recurring from time to
time -- could cause the Trust to incur severe losses over a short period of
time. The foregoing Value at Risk table -- as well as the past performance of
the Trust -- give no indication of this "risk of ruin."
NON-TRADING RISK
The Trust has non-trading market risk on its foreign cash balances not
needed for margin. However, these balances (as well as any market risk they
represent) are immaterial.
The Trust also has non-trading cash flow risk as a result of holding a
substantial portion (approximately 88%) of its assets in U.S. Treasury bills and
other short-term debt instruments (as well as any market risk they represent)
for margin and cash management purposes. Although the Managing Owner does not
anticipate that, even in the case of major interest rate movements, the Trust
would sustain a material mark-to-market loss on its securities positions, if
short-term interest rates decline so will the Trust's cash management income.
The Trust also maintains a portion (approximately 3%) of its assets in cash in
interest-bearing bank accounts. These cash balances are also subject (as well
as any market risk they represent) to cash flow risk, which is not material.
QUALITATIVE DISCLOSURES REGARDING PRIMARY TRADING RISK EXPOSURES
THE FOLLOWING QUALITATIVE DISCLOSURES REGARDING THE TRUST'S MARKET RISK
EXPOSURES -- EXCEPT FOR (I) THOSE DISCLOSURES THAT ARE STATEMENTS OF HISTORICAL
FACT AND (II) THE DESCRIPTIONS OF HOW THE MANAGING OWNER MANAGES THE TRUST'S
PRIMARY MARKET RISK EXPOSURES -- CONSTITUTE FORWARD-LOOKING STATEMENTS WITHIN
THE MEANING OF SECTION 27A OF THE SECURITIES ACT AND SECTION 21E OF THE
SECURITIES EXCHANGE ACT. THE TRUST'S PRIMARY MARKET RISK EXPOSURES AS WELL AS
THE STRATEGIES USED AND TO BE USED BY THE MANAGING OWNER FOR MANAGING SUCH
EXPOSURES ARE SUBJECT TO NUMEROUS UNCERTAINTIES, CONTINGENCIES AND RISKS, ANY
ONE OF WHICH COULD CAUSE THE ACTUAL RESULTS OF THE TRUST'S RISK CONTROLS TO
DIFFER MATERIALLY FROM THE OBJECTIVES OF SUCH STRATEGIES. GOVERNMENT
INTERVENTIONS, DEFAULTS AND EXPROPRIATIONS, ILLIQUID MARKETS, THE EMERGENCE OF
DOMINANT FUNDAMENTAL FACTORS, POLITICAL UPHEAVALS, CHANGES IN HISTORICAL PRICE
RELATIONSHIPS, AN INFLUX OF NEW MARKET PARTICIPANTS, INCREASED REGULATION AND
MANY OTHER FACTORS COULD RESULT IN MATERIAL LOSSES AS WELL AS IN MATERIAL
CHANGES TO THE RISK EXPOSURES AND THE RISK MANAGEMENT STRATEGIES OF THE TRUST.
THERE CAN BE NO ASSURANCE THAT THE TRUST'S CURRENT MARKET EXPOSURE AND/OR RISK
MANAGEMENT STRATEGIES WILL NOT CHANGE MATERIALLY OR THAT ANY SUCH STRATEGIES
WILL BE EFFECTIVE IN EITHER THE SHORT- OR LONG-TERM. INVESTORS
-21-
<PAGE>
MUST BE PREPARED TO LOSE ALL OR SUBSTANTIALLY ALL OF THEIR INVESTMENT IN THE
TRUST.
The following were the primary trading risk exposures of the Trust as of
December 31, 1998, by market sector.
FINANCIAL INSTRUMENTS. Interest rate risk is the principal market exposure
of the Trust. Interest rate movements directly affect the price of the
sovereign bond positions held by the Trust and indirectly the value of its stock
index and currency positions. Interest rate movements in one country as well as
relative interest rate movements between countries materially impact the Trust's
profitability. The Trust's primary interest rate exposure is to interest rate
fluctuations in the United States and the other G-7 countries. However, the
Trust also takes positions in futures contracts on the government debt of
smaller nations -- E.G., Spain. The Managing Owner anticipates that G-7
interest rates will remain the primary market exposure of the Trust for the
foreseeable future. The changes in interest rates which have the most effect on
the Trust are changes in long-term, as opposed to short-term, rates. Most of
the speculative positions held by the Trust are in medium- to long-term
instruments. Consequently, even a material change in short-term rates would
have little effect on the Trust were the medium- to long-term rates to remain
steady.
CURRENCIES. The Trust's currency exposure is to exchange rate
fluctuations, primarily fluctuations which disrupt the historical pricing
relationships between different currencies and currency pairs. These
fluctuations are influenced by interest rate changes as well as political and
general economic conditions. The Trust trades in a large number of currencies,
including cross-rates -- I.E., positions between two currencies other than the
U.S. dollar. However, the Trust's major exposures have typically been in the
dollar/yen, dollar/mark and dollar/pound positions. The Managing Owner does not
anticipate that the risk profile of the Trust's currency sector will change
significantly in the future, although it is difficult at this point to predict
the effect of the introduction of the Euro on the Managing Owner's currency
trading strategies.
STOCK INDICES. The Trust's primary equity exposure is to equity price risk
in the G-7 countries. The stock index futures traded by the Trust are by law
limited to futures on broadly based indices. As of December 31, 1998, the
Trust's primary exposures were in the Simex (Singapore), Nikkei (Japan) and
Hang Sang (Hong Kong) stock indices. The Trust is primarily exposed to the
risk of adverse price trends or static markets in the major U.S., European and
Asian indices. (Static markets would not cause major market changes but would
make it difficult for the Trust to avoid numerous small losses.)
METALS. The World Resource program used for the Trust trades precious and
base metals. The Trust's primary metals market exposure is to fluctuations in
the price of gold aluminum, copper and zinc.
AGRICULTURAL. The Trust's primary commodities exposure is to agricultural
price movements, which are often directly affected by severe or unexpected
weather conditions. Grains, coffee, sugar, cotton and cocoa accounted for the
substantial bulk of the Trust's commodities exposure as of December 31, 1998.
In the past, the Trust has had material market exposure to live cattle, orange
juice and the soybean complex and may do so again in the future. However, the
Trust will maintain an emphasis on grains, coffee, sugar, cotton and cocoa, in
which the Trust has historically taken its largest commodity positions.
ENERGY. The Trust's primary energy market exposure is to gas and oil price
movements, often resulting from political developments in the Middle East.
Although the Managing Owner trades natural gas, oil is the dominant energy
market exposure of the Trust. Oil prices are currently depressed, but they can
be volatile and substantial profits and losses have been and are expected to
continue to be experienced in this market.
QUALITATIVE DISCLOSURES REGARDING NON-TRADING RISK EXPOSURE
The following were the only non-trading risk exposures of the Trust as of
December 31, 1998.
FOREIGN CURRENCY BALANCES. The Trust's primary foreign currency balances
are in Japanese yen, German marks, British pounds and Canadian and Hong Kong
dollars. The Trust controls the non-trading risk of these balances by regularly
converting these balances back into dollars (no less frequently than twice a
month).
-22-
<PAGE>
SECURITIES POSITIONS. The Trust's only market exposure in instruments held
other than for trading is in its securities portfolio. The Trust holds only
cash or interest-bearing, credit risk-free, short-term paper -- typically U.S.
Treasury instruments with durations no longer than 1 year. Violent fluctuations
in prevailing interest rates could cause immaterial mark-to-market losses on the
Trust's securities, although substantially all of these short-term instruments
are held to maturity.
QUALITATIVE DISCLOSURES REGARDING MEANS OF MANAGING RISK EXPOSURE
The Managing Owner attempts to control risk through the systematic
application of its trading method, which includes a multi-system approach to
price trend recognition, an analysis of market volatility, the application of
certain money management principles, which may be revised from time to time, and
adjusting leverage or portfolio size. In addition, the Managing Owner limits
its trading to markets which it believes are sufficiently liquid in respect of
the amount of trading it contemplates conducting.
The Managing Owner develops trading systems using various classes of
quantitative models and data such as price, volume and interest rates, and tests
those systems in numerous markets against historical data to simulate trading
results. the Managing Owner then analyses the profitability of the systems
looking at such features as the percentage of profitable trades, the worst
losses experienced, the average giveback of maximum profits on profitable trades
and risk adjusted returns. The performance of all systems in the market are
then 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.
The Managing Owner also attempts to assess market volatility as a means of
monitoring and evaluating risk. In doing so, the Managing Owner uses a
volatility overlay system which measures the risk in a 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. The Managing Owner's volatility
overlay maintains overall portfolio risk and distribution of risk across markets
within designated ranges.
The Managing Owner's risk management also focuses on money management
principles applicable to a portfolio as a whole rather than to individual
markets. The first principle is reducing overall portfolio volatility through
diversification among markets. The Managing Owner seeks a portfolio in which
returns from trading in different markets are not highly correlated, that is, in
which returns are not all positive or negative at the same time. Additional
money management principles include limiting the assets committed as margin or
collateral, generally within a range of 15% to 35% of an account's net assets;
avoiding the use of unrealized profits in a particular market as margin for
additional positions in the same market; and changing the equity used for
trading an account solely on a controlled periodic basis, not automatically due
to an increase in equity 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 over the past five or ten years to determine the worst case
experienced by the portfolio in the simulation period. The worst case or
peak-to-trough drawdown, 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. If the Managing Owner considers the drawdown too severe, it
reduces the leverage or portfolio size.
The Managing Owner determines asset allocation among markets and position
size on the basis of the money management principals and trading data research
discussed above and the market experience of the Managing Owner's principals.
From time to time the Managing Owner may adjust the size of a position, long or
short, in any given market. Decisions to make such adjustments 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.
-23-
<PAGE>
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 December 31, 1998, Millburn Ridgefield, together with its affiliate
ShareInVest Research L.P., was managing approximately $2 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 THE CFTC 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 that 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 trading process is
facilitated by the use of computers in 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.
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 45. 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 54. Mr. Crapple is Co-Chief Executive Officer and
a Director of Millburn Ridgefield, 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
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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.
GREGG R. BUCKBINDER, AGE 40. Mr. Buckbinder is Senior Vice President and
Chief Operating Officer of Millburn Ridgefield and The Millburn Corporation. He
graduated CUM LAUDE from Pace University in 1980 with a B.B.A. in accounting and
received an M.S. in taxation from Pace in 1988. He joined Millburn in January
1998 from Odyssey Partners, L.P. where he was responsible for the operation,
administration and accounting of the firm's merchant banking and managed account
businesses. Mr. Buckbinder was employed by Tucker Anthony, a securities broker
and dealer, from 1985 to 1990 where he was First Vice President and Controller,
and from 1983 to 1984 where he designed and implemented various operations and
accounting systems. He was with the public accounting firm of Ernst & Whinney
from 1984 to 1985 as a manager in the tax department and from 1980 to 1983 as a
senior auditor, with an emphasis on clients in the financial services business.
He is a Certified Public Accountant and a member of the American Institute of
Certified Public Accountants.
MARK B. FITZSIMMONS, AGE 51. 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 41. 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 47. 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 47. 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
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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 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 63. Mr. Wiener is the founder 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 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 transactions 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 15 and in "Annual Rates of Return Since
Inception of the Millburn Ridgefield Client Funds" at page 73.
As of March 31, 1999, Millburn Ridgefield's interest in the Trust was
valued at $839,397.
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 that 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 relies primarily on trading
programs or models which generate trading signals. The systems used to generate
trading signals themselves may be changed from time to time, but the trading
instructions generated by the systems are followed without significant
additional analysis or interpretation. Discretionary traders on the other
hand -- while they may use 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 on the basis of whether
they are systematic or discretionary traders, 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 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.
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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 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. In contrast, market forecasters attempt to predict
future price levels without relying on such trends to point the way, scalpers
attempt to make numerous small profits on short-term trades, and arbitrage
traders attempt to capture temporary price imbalances 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 successfully identifying
and following 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, 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.
Millburn Ridgefield limits its trading to markets that it believes are
sufficiently liquid in respect of the amount of trading it contemplates
conducting.
The first step in the trading methodology is developing intermediate- to
long-term trading systems which generate 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. Millburn Ridgefield tests the full range of the systems 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. It then calculates the
profitability of the systems as well as a number of statistics designed to
identify high as quality profits such as the percentage of profitable trades,
the worst losses experienced, the 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
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positions will be light or flat, but when all systems agree on the trend,
Millburn Ridgefield will trade maximum positions. In certain markets,
Millburn Ridgefield also uses short-term systems based on intra-day price
data. Millburn Ridgefield uses minute-by-minute prices to identify "quiet"
as opposed to "noisy" periods, and may initiate trades 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
buy/sell signals being accurate, and thus profitable, increases. Millburn
Ridgefield initiates trades by buying at-the-money or slightly out-of-the-money
options. The nature of options is such that leverage increases as a position
becomes profitable and decreases as a position becomes unprofitable.
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 uses 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 the systematic strategies described above. A secondary benefit of
the volatility overlay can be timely profit taking. Because markets tend to
become more volatile after a profitable trend has been long underway, 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, that is, in which returns are not all positive or negative at the
same time.
Additional money management principles applicable to the portfolio as a
whole include: (1) limiting the assets committed as margin or collateral,
generally within a range of 15% to 35% of an account's net assets, though the
amount may any time be substantially higher; (2) prohibiting pyramiding -- that
is, using unrealized profits in a particular market as margin for additional
positions in the same market; and (3) changing the equity used for trading by an
account solely on a controlled periodic basis, not automatically due to an
increase in equity 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 or
peak-to-trough drawdown, 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. If Millburn Ridgefield considers the drawdown too severe, it
reduces the leverage or portfolio size.
Millburn Ridgefield bases its decisions whether to trade a particular
market on various factors, including the liquidity of the market, its role in
achieving the desired degree of portfolio diversification or concentration,
and its assessed profit potential. These decisions 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.
Millburn Ridgefield determines asset allocation among markets and position
size on the basis of the
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money management principals and trading data research discussed above and the
market experience of Millburn Ridgefield's principals. From time to time
Millburn Ridgefield may adjust the size of a position, long or short, in any
given market. Decisions to make such adjustments 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.
USE OF PROCEEDS
The entire proceeds of this continuous offering of the Units are used by
the Trust to engage in its trading activities and as reserves to support that
trading.
The Trust deposits its assets in cash with the Trust's Clearing Brokers to
be used as margin, in trust accounts established in the name of the Trust at
major money-center United States banks and with its foreign exchange
counterparties. 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," as required by the Commodity Exchange Act and
CFTC regulations. In general, approximately 7% to 13% of the Trust's assets are
held in customer segregated funds and approximately 5% to 11% are held 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 non-U.S. sovereign debt instruments. 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 are invested in
U.S. Treasury bills or notes.
The Trust also trades in the forward currency markets. The Trust deposits
assets with its currency forward counterparties in order to initiate and
maintain its currency forward contracts. Such assets are held in instruments
authorized by the CFTC for the investment of "customer segregated funds" or in
cash, for which the Trust receives an interest credit at short-term rates. The
foreign exchange counterparties, including the Clearing Brokers, may receive a
benefit as a result of the deposit of such cash in the format of a reduction in
their outstanding overnight borrowings, despite such cash belonging to the
Trust, not the Clearing Brokers. Approximately 3% to 6% of the Trust's assets
are held in unregulated accounts in the United States, with the Clearing Brokers
as well as with other counterparties.
On an ongoing basis, Millburn Ridgefield anticipates that the Trust will be
able to earn interest on approximately 95% of its daily Net Assets.
Under current margin requirements, the Trust's average margin to equity
ratio, including collateral held by foreign exchange counterparties, is
approximately 15% to 35% of the Trust's assets. However, margin requirements
vary from time to time.
The Trust will not lend 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 in violation of law.
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CHARGES
Millburn Ridgefield believes that investors should consider the charges to
which the Trust is subject when making their investment decisions.
CHARGES 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
Owner 1% of the Trust's month-end Net
Assets prior to accruals for 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. This reduction
has no effect on other investors.
Forward "Bid-ask" spreads Unquantifiable because the spreads
Counterparties are a part of the forward contract
price.
Managing Quarterly Profit Share 17.5% of any New Trading Profit,
Owner excluding interest income and after
reduction for Brokerage Fees and
administrative costs.
Others Trustee fees, legal, As incurred; estimated at no more
accounting, printing, than 0.75 of 1% of average month-end
postage and adminis- Net Assets annually.
trative costs
Others Extraordinary charges Actual payments to third parties;
expected to be negligible; none
paid to date.
</TABLE>
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. These costs include brokerage commissions
paid to the Clearing Brokers and NFA transaction fees of $0.20 per round-turn
trade of a futures contract and $0.10 for each trade of a commodity option
executed on a United States exchange. The Trust's Brokerage Fee is not affected
by the number of transactions actually executed by Millburn Ridgefield on behalf
of the Trust. The Trust will pay any extraordinary costs associated with its
trading -- for example, insurance or delivery expenses.
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The Managing Owner has negotiated brokerage rates with the Clearing Brokers
ranging from approximately $7.75 to approximately $15.00 per round-turn trade,
including all related exchange and regulatory fees. Commissions on certain
foreign exchanges are somewhat higher. At these rates, Millburn Ridgefield
estimates the Trust's aggregate execution and clearing costs at approximately 2%
of average month-end Net Assets per year. The Managing Owner pays these costs
from the Brokerage Fees it receives from the Trust. The Clearing Brokers also
retain any economic benefit they derive from holding approximately 5% of the
Fund's Net Assets in cash rather than in Treasury Bills in the name of the
Trust.
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.
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.
During 1998, the Trust Brokerage Fees of $6,528,321 a rate of approximately
$44 per round-turn trade, not including "bid-ask" spreads on the Trust's forward
currency transactions.
"BID-ASK" SPREADS
The Trust trades currency contracts in the forward markets, in which no
brokerage commissions are charged. Instead, currency dealers trade with a
spread between the price at which they are prepared to buy or sell a particular
currency. These "bid-ask" spreads cannot be quantified, but Millburn Ridgefield
believes that they will be at prevailing market prices. The Trust, not Millburn
Ridgefield, pays such spreads.
BROKERAGE FEE DIFFERENTIALS
Units held by investors with subscriptions of $1,000,000 or more pay a 7.0%
Brokerage Fee not a 9% Brokerage Fee. In order to maintain a uniform Net Asset
Value per Unit across all Units, the Trust determines the Net Asset Value of
each investor's capital account as of the end of each month based on each
investor's share of the Trust's overall Net Asset Value. The Trust then divides
that Net Asset Value by the Net Asset Value per Unit of the Units that 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 a 7.0%, rather than a 9.0%,
Brokerage Fee and a somewhat higher Profit Share as a result of the lower
Brokerage Fee. Units issued as adjustments reflecting the different 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 determined
by taking into account the net capital invested by Unitholders, without regard
to profits or losses.
An Investor will cease to qualify for reduced Brokerage Fees if,
immediately following a redemption by such investor, the aggregate Net Asset
Value of all Units held by such investor equals less than $1,000,000. A
subsequent investment by such investor will again qualify the
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investor for reduced Brokerage Fees if the amount of such investment, plus
the amount of such investor's remaining net capital contributions -- that
is, subscriptions minus redemptions, assuming redemptions to be made first
from profits, not capital contributions -- equals or exceeds $1,000,000.
17.5% PROFIT SHARE BASED ON "HIGH WATER MARK" NEW TRADING PROFIT
The Trust pays Millburn Ridgefield 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. New Trading Profit is any cumulative Trading Profit in
excess of the highest level - the "High Water Mark" - of cumulative Trading
Profit as of any previous calendar quarter-end. Trading Profit includes (1)
realized trading profit (loss) plus or minus (2) the change in unrealized
trading profit (loss) on open positions as of the previous calendar
quarter-end. New Trading Profit is calculated after payment of the monthly
Brokerage Fee and ongoing administrative expenses. Trading Profit does not
include interest earned on the Trust's assets. Profit Shares previously paid
do not reduce New Trading Profit. That is, Millburn Ridgefield does not have
to "earn back" its Profit Shares in order to produce New Trading Profit.
For example, assume that at the end of the first full calendar quarter
of trading the Trust had, after payment of 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 and 17.5%, or $35,000, would be allocated as a Profit
Share. Assume that during the second calendar quarter, again after payment of
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 ($200,000 + $60,000 - $50,000), and 17.5% of $10,000, or $1,750,
would be allocated as a Profit Share. Now assume that during the third
quarter, again after payment of 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)
($210,000 - $150,000 -$100,000), and no Profit Share would be paid. Millburn
Ridgefield would retain the $36,750 already paid as Profit Shares 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.
The Trust paid no Profit Shares during 1998.
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. Such costs are generally
expected not to exceed approximately 0.75 of 1% of the Trust's average month-end
Net Assets in any given year.
In 1998, the trust incurred administrative expenses of $581,101,
approximately 0.79 of 1% of the Trust's Month-end Net Assets for the year.
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EXTRAORDINARY EXPENSES
The Trust is responsible for the taxes, if any, imposed on the Trust
itself. No taxes have been imposed on the Trust to date. The Trust is
required to pay any extraordinary charges incidental to its trading. The
Trust has incurred no extraordinary charges to date.
CHARGES PAID BY THE MANAGING OWNER
SELLING COMMISSIONS AND ONGOING COMPENSATION
The Managing Owner pays, from its own funds, all costs incurred in
connection with the sale and distribution of the Units.
In 1998, Millburn Ridgefield paid (or accrued) to the Selling Agents a
total of $554,032 in selling commissions and $2,102,684 in ongoing compensation
(ongoing compensation only began to accrue once the Units initially sold in
September 1995 had been outstanding for twelve full months).
CHARGES PAID BY CERTAIN INVESTORS
REDEMPTION CHARGES
Redemption charges of up to 4% of the Net Asset Value of Units redeemed
apply through the first twelve months after a Unit is issued. Redemption
charges are paid to the Managing Owner and reduce the amount of redemption
proceeds paid to the redeeming Unitholder. In 1998, the Managing Owner
received, paid or accrued, a total of $30,864 in redemption charges.
REDEMPTIONS; NET ASSET VALUE
REDEMPTION PROCEDURE
The Trust is intended as a medium- to long-term investment, which the
Managing Owner construes to mean at least a 2-3 year period. 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. Unitholders intending to
redeem Units must give at least 10 business days' prior written notice to the
Managing Owner of their intent to redeem.
Unitholders 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. In the case of subscriptions of $1,000,000 or more, the
redemption charges are 3% and 2%, respectively. 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 periods
to which redemption charges apply.
All additional Units issued to subscribers who invest $1,000,000 or more in
the Trust in order to reflect such subscribers 7.0% annual Brokerage Fee shall,
for redemption purposes, be deemed to have been issued as of the date on which
each such Unitholder first acquired Units. 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.
Fractional Units may be redeemed only 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 month-end redemption date. 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.
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Units purchased by the Managing Owner, other than Units representing its
required investment in 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, the liquidating value, or
cost of liquidation, 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 next day on which the contract can be liquidated shall
be the basis for determining the liquidating value of such contract, or such
day, or such other value as the Managing Owner may deem fair and reasonable.
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 a portion of the Trust's trades corresponding to the percentage of
outstanding Units which were sold through PaineWebber and its correspondents;
all other such trades are cleared at Prudential Securities.
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 five 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
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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 damages of not less than
three times compensatory damages, treble damages with respect to the RICO
count, pre-judgment 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 District 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
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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 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 was scheduled for
late September.
A series of purported class actions concerning PaineWebber sale and
sponsorship of various limited partnership investments have been filed against
PaineWebber and PaineWebber Group Inc. (together hereinafter, "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
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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, breach 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 interests 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.
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 those 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 PAINE WEBBER GROUP ("THE COMPANY") IN AUGUST
1997. IN CONNECTION WITH THE ACQUISITION, THE SELLER AND ITS PARENT GENERAL
ELECTRIC COMPANY AGREED TO INDEMNIFY PAINE WEBBER GROUP FOR ALL LOSSES RELATING
TO THIS MATTER.
Kidder Peabody & Co. Incorporated ("Kidder, Peabody"), a subsidiary of the
Company, 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
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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
state securities bylaws, 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 a 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 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
ticket 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
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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 ordered 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 representations 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.
On June 9, 1998, the Kansas Securities Commissioner brought an
administrative action alleging that during the period approximately May 1993
through February 1994, a registered representative who was terminated by the
firm, recommended certain securities transactions that were not suitable for
certain clients and PaineWebber failed to reasonably supervise its former
employee.
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 did not sponsor the Trust and is not responsible for
the activities of Millburn Ridgefield. Prudential Securities has not passed on
the adequacy or accuracy of this Prospectus and investors should not rely on
Prudential Securities in deciding whether to invest in the Trust or to retain
their Units. Prudential Securities acts only as one of the Trust's commodity
brokers.
Prudential Securities, in its capacity as commodities broker for the Trust,
is registered as a broker-dealer with 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
Trust.
On March 10, 1994, Prudential Securities agreed to the entry of a Consent
Order issued by the State of Missouri, Commissioner of Securities. The
allegations against Prudential Securities were that the firm failed to supervise
a former registered representative, in violation of Missouri securities laws.
Without admitting or denying the
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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's new account packages mailed to Missouri residents; (c) for a
period of three years from the date of the Consent Order, to annually provide
a notice to Prudential Securities's Missouri customers which details the
procedures for filing a complaint with Prudential Securities and the
applicable regulatory authorities. In addition, Prudential Securities agreed
to pay a fine in the amount of $175,000.
On June 8, 1994, the Business Conduct Committee of the New York Mercantile
Exchange ("NYMEX" or "Exchange") accepted an Offer of Settlement submitted by
Prudential Securities concerning allegations that Prudential Securities violated
NYMEX rules regarding pre-arranged trades and wash trades. Without admitting or
denying the allegations, Prudential Securities consented to a finding by the
Exchange that it had violated NYMEX Rule 8.55(A)(18) relating to conduct
substantially detrimental to the interest of the welfare of the Exchange; agreed
to cease and desist from future violations of Rule 8.55; and agreed to pay a
fine in the amount of $20,000.
On September 19, 1994, Prudential Securities consented to the entry of an
Agreement and Order issued by the State of Idaho, Department of Finance,
Securities Bureau ("Idaho"). The allegations against Prudential Securities were
that the firm failed to supervise certain employees in connection with
securities and options trading activities entered into on behalf of Idaho
clients, in violation of the Idaho Securities Act . It was further alleged that
Prudential Securities failed to amend the Forms U-4 for certain employees.
Prudential Securities agreed to a number of sanctions and remedial measures
including, but not limited to, the following: (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 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 Idaho's ongoing
investigation and to comply with all provisions of the 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 deferring prosecution of charges contained in a
criminal complaint. The complaint alleged that Prudential Securities committed
fraud in connection with the sale of certain oil and gas limited partnership
interests between 1983 and 1990 in violation of federal securities laws. The
terms of the agreement were complied with in full and accordingly the complaint
was dismissed without prejudice in October, 1997.
On June 19, 1995, Prudential Securities entered into a settlement with the
Commodity Futures Trading Commission ("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
directing that a review of certain of the firm's commodity compliance and
supervisory policies and procedures be conducted and a report be submitted to
the CFTC, as well as a report to the CFTC on the actions taken as a result of
the review.
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On February 29, 1996, the State of New Mexico Securities Division issued a
final order, subject to a settlement whereby Prudential Securities neither
admitted nor denied any allegations that Prudential Securities failed to
supervise two former employees and a Branch Office Manager of its Phoenix
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.
Stemming from final settlement agreements and consent orders in a United
States District Court for the Southern District of Florida, on December 10,
1996, the Department of Labor ("DOL") issued a final order imposing a statutory
civil penalty against Prudential Securities in the amount of $61,250. The DOL
assessed the above referenced automatic penalty under ERISA section 502(l) based
upon allegations that Prudential Securities acted as a fiduciary under ERISA
with respect to the Metacor, Inc. Profit Sharing and Retirement Savings Plan and
knowingly facilitated certain transfers of funds out of the Plan's account to a
corporate account that Metacor maintained in one or more banks. Prudential
Securities neither admitted nor denied the DOL's allegations.
On May 20, 1997, the CFTC filed a complaint against Prudential Securities,
Kevin Marshburn (a former Prudential Securities Financial Advisor) and two of
Marshburn's sales assistants. The complaint alleges, in essence, that during
the period from May 1993 through March 1994: (i) Marshburn fraudulently
allocated trades among his personal account and certain customer accounts; (ii)
Prudential Securities 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.
On December 23, 1998, Prudential Securities was one of twenty-eight market
making firms that reached a settlement with the SEC in the matter titled, IN
THE MATTER OF CERTAIN MARKET MAKING ACTIVITIES ON NASDAQ. As part of the global
settlement of that matter, Prudential Securities, without admitting or denying
the factual allegations, agreed to an order which requires that the firm cease
and desist from committing or causing any violations of Sections 15 (c)(1) and
(2) of the Exchange Act and Rules 15C1-2 and 15C2-7 thereunder, pay a civil
penalty of $1,000,000 and disgorgement of $1,361 and submit certain policies and
procedures for review by an independent consultant.
----------------------
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 losses for the Trust.
PROSPECTIVE INVESTORS SHOULD BE AWARE THAT MILLBURN RIDGEFIELD WILL 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
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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 receiving the Brokerage Fees from
the Trust.
Millburn Ridgefield receives the difference between (1) the amount paid out
to the Selling Agents plus the amount paid out for executing the Trust's trades
and (2) the Brokerage Fee received by the Managing Owner from the Trust. Thus,
Millburn Ridgefield 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.
Millburn Ridgefield directs the trading for clients other than the Trust.
Millburn Ridgefield and its principals may have incentives (financial or
otherwise) to favor such other accounts 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.
Millburn Ridgefield has agreed to treat the Trust equitably with Millburn
Ridgefield's other accounts. However, Millburn Ridgefield trades different
portfolios for other accounts and there can be no assurance whatsoever that such
other portfolios will not outperform the Trust.
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 assessing the Trust higher brokerage
commission rates and forward contract "bid-ask" spreads than other clients.
These commission rates and forward contract pricing arrangements for the Trust
may not have been negotiated at arm's length. 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.
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 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 ongoing compensation or installment selling
commissions based on Units sold by them which remain outstanding longer than
twelve months. Consequently, the Selling Agents have a
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disincentive to advise clients to redeem their Units even when doing so is 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 financial
incentives to discourage its clients from redeeming Units. See "The Clearing
Brokers," above at page 34.
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.
FIDUCIARY DUTY AND REMEDIES
In evaluating the foregoing conflicts of interest, a prospective investor
should be aware that Millburn Ridgefield, a Managing Owner, has a responsibility
to Unitholders to exercise good fath and fairness in all dealings affecting the
Trust. The fiduciary responsibility of the Managing Owner is comparable to that
of a general partner of a limited partnership. Fiduciary responsibility is a
rapidly developing and changing area of the law and Unitholders who have
questions concerning the duties of the Managing Owner should consult with their
counsel.
In the event that a Unitholder believes that Millburn Ridgefield has
violated its fiduciary duty to the Unitholders, the Unitholder may seek legal
relief individually or on behalf of the Trust under applicable laws to
recover damages from or require an accounting by Millburn Ridgefield. The
Declaration of Trust and Trust Agreement is governed by Delaware law and any
breach of Millburn Ridgefield's fiduciary duty under Declaration of Trust and
Trust Agreement will generally be governed by Delaware law. Declaration of
Trust and Trust Agreement does not limit fiduciary obligations under Delaware
or common law; however, Millburn Ridgefield may assert as a defense to claims
of breach of fiduciary duty that the conflicts of interest and fees payable
to Millburn Ridgefield have been disclosed in the prospectus. Unitholders
may also have the right, subject to applicable procedural and jurisdictional
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. Unitholders who have suffered losses in connection
with the purchase or sale of the Units may be able to recover such losses
from Millburn Ridgefield where the losses result from a violation by Millburn
Ridgefield of the federal securities laws. State securities laws may also
provide certain remedies to Unitholders. Unitholders should be aware that
performance by Millburn Ridgefield of its fiduciary duty to the Trust is
measured by the terms of the Declaration of Trust and Trust Agreement as well
as applicable law.
Unitholders are afforded certain rights to institute reparations
proceedings under the Commodity Exchange Act for violations of the Commodity
Exchange Act or of any rule, regulation or order of the CFTC by Millburn
Ridgefield.
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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.
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 TRUST AND THE TRUSTEE
The following summary briefly describes 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
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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.
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 a 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 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 not affiliated with either 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 Declaration of Trust provides that the Trustee is
compensated by the Trust. The Managing Owner has the discretion to replace the
Trustee.
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 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 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
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affirmative vote of a majority of the outstanding Units then owned by
Unitholders. 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 to amend the Declaration of Trust without
the consent of the Unitholders provided that any such amendment is for the
benefit of and not adverse to the Unitholders or the Trustee and also in certain
unusual 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 before all Unitholders have had 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. In order to protect
Unitholders against any possible 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 (1) Unitholders' actions
unrelated to the business of the Trust, (2) transfers of their Units in
violation of the Declaration of Trust or (3) taxes imposed on the Trust by the
states or municipalities in which such investors reside (Sections 8(d) and
17(c)).
TRANSFERS OF UNITS RESTRICTED
A Unitholder may, subject to compliance with applicable 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 following the month in which such notice is
received. An assignee may become a substituted Unitholder only 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 no certificates for the Units. 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
The Managing Owner provides Unitholders with monthly reports in compliance
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with CFTC requirements. The Managing Owner also distributes 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 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. (Section 10).
FEDERAL INCOME TAX ASPECTS
THE FOLLOWING CONSTITUTES THE OPINION OF SIDLEY & AUSTIN AND SUMMARIZES THE
MATERIAL FEDERAL INCOME TAX CONSEQUENCES TO INDIVIDUAL INVESTORS IN THE TRUST.
THE TRUST'S PARTNERSHIP TAX STATUS
Based on the type of income expected to be earned by the Trust, the Trust
will not be treated as a "publicly traded partnership," and, therefore, will not
pay any federal income tax.
TAXATION OF UNITHOLDERS ON PROFITS AND LOSSES OF THE TRUST
Each Unitholder (other than Foreign Unitholders, discussed below) must pay
tax on his share of the Trust's annual income and gains, if any, even if the
Trust does not make any cash distributions.
The Trust generally allocates the Trust's gains and losses equally to each
Unit. However, a Unitholder who redeems any Units will be allocated his share
of the Trust's gains and losses in order that the amount of cash a Unitholder
receives for a redeemed Unit will generally equal the Unitholder's adjusted tax
basis in the redeemed Unit. A Unitholder's adjusted tax basis in a redeemed
Unit equals the amount originally paid for the Unit, increased by income or
gains allocated to the Unit and decreased (but not below zero) by distributions,
deductions and losses allocated to the Unit.
TRUST LOSSES BY UNITHOLDERS
A Unitholder may deduct Trust losses only to the extent of his adjusted tax
basis in his Units. However, a Unitholder subject to "at-risk" limitations
(generally, non-corporate taxpayers and closely-held corporations) can only
deduct losses to the extent the is "at-risk." The "at-risk" amount is similar to
adjusted tax basis, except that it does not include any amount borrowed on a
nonrecourse basis or from someone with an interest in the Trust.
"PASSIVE-ACTIVITY LOSS RULES" AND ITS EFFECT ON THE TREATMENT OF INCOME AND LOSS
The trading activities of the Trust are not a "passive activity."
Accordingly, a Unitholder can deduct Trust losses from taxable income (subject
to certain limitations, such as the limitation on deductibility of capital
losses, discussed below). However, a Unitholder cannot offset losses from
"passive activities" against Trust gains.
CASH DISTRIBUTIONS AND UNIT REDEMPTIONS
A Unitholder who receives cash from the Trust, either through a
distribution or a partial redemption, will not pay tax on that cash until his
adjusted tax basis in the Units is reduced to zero.
GAIN OR LOSS ON SECTION 1256 CONTRACTS AND NON-SECTION 1256 CONTRACTS
Section 1256 Contracts are futures and most options traded on U.S.
exchanges and certain foreign currency contracts. For tax purposes, Section
1256 Contracts that remain open at year end are treated as if the position were
closed at year end. The gain or loss on Section 1256 Contracts is characterized
as 60% long-term capital gain or loss and 40% short-term capital gain or loss
regardless of how long the position was open.
Non-Section 1256 Contracts are, among other things, certain foreign
currency transactions,
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including Section 988 transactions -- transactions when the amount paid or
received is in a foreign currency or determined by reference to a foreign
currency. Gain and loss from these Non-Section 1256 Contracts is generally
capital gain or loss and is generally recognized when sold.
TAX ON CAPITAL GAINS AND LOSSES
Long-term capital gains -- net gain on capital assets held more than one
year and 60% of the gain on Section 1256 Contracts -- are taxed at a maximum
rate of 20%. Short-term capital gains -- net gain on capital assets held one
year or less and 40% of the gain on Section 1256 Contracts -- are subject to tax
at the same rates as ordinary income, with a maximum rate of 39.6% for
individuals.
Individual taxpayers can deduct capital losses only to the extent of their
capital gains plus $3,000. Accordingly, the Trust could suffer significant
losses and a Unitholder could still be required to pay taxes on his share of the
Trust's interest income.
An individual taxpayer can carry back net capital losses on Section 1256
Contracts three years to offset earlier gains on Section 1256 Contracts. To the
extent the taxpayer cannot offset past Section 1256 Contract gains, he can carry
forward such losses indefinitely as losses on Section 1256 Contracts.
LIMITED DEDUCTION FOR CERTAIN EXPENSES
Millburn Ridgefield does not consider the Brokerage Fee and the Profit
Share, as well as ordinary expenses of the Trust, investment advisory expenses
or other expenses of producing income. Accordingly, Millburn Ridgefield treats
these items as ordinary business deductions or income allocations not subject to
the material deductibility limitations that apply to investment advisory
expenses. The IRS could contend otherwise and, to the extent the IRS
recharacterizes these items, a Unitholder could have additional tax liability.
INTEREST INCOME
Interest received by the Trust is taxed as ordinary income. Net capital
losses can offset ordinary income only to the extent of $3,000 per year. See
"Tax on Capital Gains and Losses."
SYNDICATION FEES
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.
The IRS could take the position that a portion of the Brokerage Fee paid by
the Trust to Millburn Ridgefield constitutes non-deductible syndication
expenses.
INVESTMENT INTEREST DEDUCTIBILITY LIMITATIONS
Individual taxpayers can deduct "investment interest" -- interest on
indebtedness allocable to property held for investment -- only to the extent
that it does not exceed net investment income. Net investment income does not
include adjusted net capital gain taxed at the lower 20% rate. A taxpayer can
elect to include adjusted net capital gain in investment income if he forgoes
the benefit of the reduced capital gain rate.
UNRELATED BUSINESS TAXABLE INCOME
Tax-exempt Unitholders will not be required to pay tax on their share of
income or gains of the Trust, provided that such Unitholders do not borrow funds
in connection with their purchase of Units.
IRS AUDITS OF THE TRUST AND ITS UNITHOLDERS
The IRS audits Trust-related items at the Trust level rather than at the
Unitholder level. Millburn Ridgefield acts as "tax matters partner" with the
authority to determine the Trust's responses to an audit. If an audit results
in an adjustment, all Unitholders may be required to pay additional taxes,
interest, and penalties.
48
<PAGE>
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. 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 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.
Interest income (other than so-called "contingent interes") allocable to a
Foreign Unitholder is likewise not subject to United States federal income tax
withholding, provided that such Foreign Unitholder is not engaged in a trade or
business within the United States and provides the Trust with a form W-8 or its
equivalent.
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.
PROSPECTIVE INVESTORS ARE URGED TO CONSULT THEIR TAX ADVISERS BEFORE
DECIDING WHETHER TO INVEST.
THE FUTURES AND FORWARD MARKETS
FUTURES AND FORWARD CONTRACTS
Futures contracts in the United States can only be traded on approved
exchanges and call for the future delivery of various commodities. These
contractual obligations may be satisfied either by taking or making physical
delivery or by making an offsetting sale or purchase of a futures contract on
the same exchange.
Forward currency contracts are traded off-exchange through banks or
dealers. In such instances, the bank or dealer generally acts as principal in
the transaction and charges "bid-ask" spreads.
Futures and forward trading is a "zero-sum," risk transfer economic
activity. For every gain there is an equal and offsetting loss.
HEDGERS AND SPECULATORS
The two broad classifications of persons who trade futures are "hedgers"
and "speculators." Hedging is designed to minimize the losses that may occur
because of price changes, for example, between the time a merchandiser contracts
to sell a commodity and the time of delivery. The futures and forward markets
enable the hedger to shift the risk of price changes to the speculator. The
speculator risks capital with the hope of making profits from such changes.
Speculators, such as the Trust, rarely take delivery of the physical commodity
but rather close out their futures positions through offsetting futures
contracts.
EXCHANGES; POSITION AND DAILY LIMITS; MARGINS
Each of the commodity exchanges in the United States has an associated
"clearinghouse." Once trades made between members of an exchange have been
cleared, each clearing broker looks only to the clearinghouse for all payments
in respect of such broker's open positions. The clearinghouse "guarantee" of
performance on open positions does not run to customers. If a member firm goes
bankrupt, customers could lose money.
The Managing Owner trades for the Trust on a number of foreign commodity
exchanges.
-49-
<PAGE>
Foreign commodity exchanges differ in certain respects from their United
States counterparts and are not regulated by any United States agency.
The CFTC and the United States exchanges have established "speculative
position limits" on the maximum positions that the Managing Owner may hold or
control in futures contracts on certain commodities.
Most United States exchanges limit the maximum change in futures prices
during any single trading day. Once the "daily limit" has been reached, it
becomes very difficult to execute trades. Because these limits apply on a
day-to-day basis, they do not limit ultimate losses, but may reduce or
eliminate liquidity.
When a position is established, "initial margin" is deposited. On most
exchanges, at the close of each trading day "variation margin," representing the
unrealized gain or loss on the open positions, is either credited to or debited
from a trader's account. If "variation margin" payments cause a trader's
"initial margin" to fall below "maintenance margin" levels, a "margin call" is
made, requiring the trader to deposit additional margin or have his position
closed out.
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." 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.
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
-50-
<PAGE>
complies with the terms of the Plan and the related trust.
"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, Chase Manhattan
Bank or any of their respective affiliates or any of their respective agents or
employees: (1) has investment discretion with respect to the investment of the
assets of such Plan invested in the Units; (2) 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 (3) is an employer maintaining or contributing to such Plan. A
party that is described in clause (1) or (2) 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
REPRESENTATION 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
APPROPRIATE FOR ANY PARTICULAR PLAN. THE PERSON WITH INVESTMENT DISCRETION
SHOULD CONSULT WITH HIS OR HER ATTORNEY AND FINANCIAL ADVISERS AS TO THE
PROPRIETY OF AN INVESTMENT IN THE TRUST IN LIGHT OF THE CIRCUMSTANCES OF THE
PARTICULAR PLAN AND CURRENT TAX LAW.
PLAN OF DISTRIBUTION
SUBSCRIPTION PROCEDURE
The Selling Agents use their best efforts in offering the Units to the
public. The Trust issues Units at Net Asset Value as of the first business
day of each calendar month. Millburn Ridgefield may from time to time cause
the Trust 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. Larger subscriptions 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, sign 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 "CHASE
MANHATTAN BANK, AS ESCROW AGENT FOR THE MILLBURN WORLD RESOURCE TRUST, ESCROW
ACCOUNT NO. SE14791."
-51-
<PAGE>
Clients of certain Selling Agents may make subscription payments 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 Selling Agent will debit the account and
transmit the debited funds directly to Chase Manhattan Bank via check or wire
transfer made payable to "CHASE MANHATTAN BANK, AS ESCROW AGENT FOR THE MILLBURN
WORLD RESOURCE TRUST, ESCROW ACCOUNT NO. SE14791. The settlement date specified
by such Selling Agents, shall be no later than three business days following
notification by the Managing Owner of the acceptance of an investor's
subscription and no 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. The Managing Owner makes its
determination within five (5) business days of the submission of a subscription
to the Managing Owner. Settlement of the subscription payments on accepted
subscriptions occurs within three (3) business days of acceptance of the related
subscription.
Generally, the Managing Owner must receive subscription documents at least
five (5) calendar days before the end of a month for them to be accepted as of
the first day of the immediately following month.
The Trust receives the interest earned on subscriptions held in escrow.
Escrow interest is allocated among all subscribers during a particular escrow
period in proportion to the amount of their respective subscriptions and the
length of time their Funds were held in escrow. Escrow interest increases the
number of Units received by such subscribers.
The Escrow Agent invests subscription funds in short-term United States
Treasury bills or comparable authorized instruments pending investment in the
Units.
There are no fees applicable to subscriptions held in escrow.
Subscriptions, if rejected, are promptly returned to investors together
with all interest accrued thereon while held in escrow.
The Managing Owner may at any time choose to stop using an escrow account.
In such case, the Managing Owner will notify prospective subscribers that
subscriptions will be accepted, at a single month-end closing date, directly
into the Trust's account.
Subscriptions are final and binding on a subscriber as of the close of
business on the fifth business day following such subscriber's receipt of a
final Prospectus.
THE SELLING AGENTS
Neither the Trust nor the Unitholders pay selling commissions in
connection with the sale of the Units. The Managing Owner pays the Selling
Agents, from its own funds, selling commissions equal to 5% of Net Asset
Value of all Units sold by each Selling Agent. 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 more than twelve months after such Units were first issued
(not the date that the related subscription was deposited into escrow). Such
ongoing compensation may only be paid on Units sold by Registered
Representatives who are (1) registered with the CFTC, (2) have passed either
the Series 3 or the Series 31 Examination, and (3) agree to provide certain
ongoing services to their clients who own outstanding Units.
If a Selling Agent or a Selling Agent's Registered Representative is not
registered with the CFTC, or if a Registered Representative does not agree to
provide ongoing services to his or her clients who own outstanding Units, the
Managing Owner will not pay ongoing compensation to the Selling Agent. However,
the Managing Owner
-52-
<PAGE>
will pay the Selling Agent installment selling commissions, payable in the
same manner as ongoing compensation, 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 Managing Owner pays reduced selling commissions of 3% of the
subscription amount and ongoing compensation at a 2% annual rate in respect
of Units purchased by investors investing $1,000,000 or more in the Trust.
PaineWebber, the Principal Selling Agent, selects certain "introducing
brokers," for which it clears customer transactions and carries customer
accounts, to distribute Units. On Units sold through such introducing brokers,
PaineWebber will retain (1) 1% of the 5% or 3% initial selling commissions,
passing on to the introducing brokers the remaining 4% or 2% and (2) 1% or 0.75%
per annum of the ongoing compensation paid on Units which remain outstanding
more than twelve months, passing on the remaining 3% or 1.25% to the introducing
brokers.
In addition to distributing Units through the Selling Agents, the Trust may
from time to time sell Units directly, without selling commissions or ongoing
compensation. Units sold directly by the Trust may pay reduced brokerage fees.
Direct Unit sales by the Trust will have no effect on any other Units.
<TABLE>
<CAPTION>
SELLING AGENT COMPENSATION TABLE
Recipient Nature and Amount of Compensation
<S> <C>
Selling Agents Selling Commissions of up to 5% of the Net Asset Value of
Units sold - paid by the Managing Owner.
IF CFTC qualified, ongoing compensation of up to 0.33 of 1%
of the month-end Net Assets of all Units sold which remain
outstanding more than twelve months (a 4% annual rate) -
paid by the Managing Owner.
If not CFTC qualified, installment selling commissions up
to 0.33 of 1% of the month-end Net Assets of all Units sold
which remain outstanding more than twelve months, but not to
exceed 4.5% of the Units' initial subscription price - paid
by the Managing Owner.
"Introducing Up to 4% of the Net Asset Value of
Brokers" Units sold - paid by PaineWebber Inc.
Up to 3% annually of the net Assets of all Units sold which
remain outstanding more than twelve months - paid by
PaineWebber.
</TABLE>
LEGAL MATTERS
Sidley & Austin, Chicago, Illinois and Richards, Layton & Finger,
Wilmington, Delaware have advised the Managing Owner on the offering of the
Units. Sidley & Austin and Richards, Layton & Finger do not represent the
Trust or the Unitholders. Sidley & Austin advises the Managing Owner on an
ongoing basis, including concerning its responsibilities as Managing Owner.
Sidley & Austin drafted "Federal Income Tax Aspects."
-53-
<PAGE>
EXPERTS
The Millburn Ridgefield Corporation Statement of Financial Condition as of
December 31, 1998 included in this Prospectus has been audited by Arthur F.
Bell, Jr. & Associates, L.L.C., independent auditor.
The statements of financial condition of The Millburn World Resource Trust
as of December 31, 1998 and 1997 and the statements of operations and of changes
in Trust capital for the years ended December 31, 1998, 1997 and 1996, included
in this Prospectus have been included herein in reliance on the report of
PricewaterhouseCoopers LLP, independent accountants, given on the authority of
that firm as experts in accounting and auditing.
REPORTS
CFTC Rules 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 is a 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. The descriptions in this
Prospectus of agreements included as exhibits to the Registration Statement
(for example, the Selling Agreement, the Escrow Agreement and the Customer
Agreements) are only summaries. 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 of the exhibits may be obtained from
the SEC upon payment of the required fees.
-54-
<PAGE>
INDEX TO FINANCIAL STATEMENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
THE MILLBURN WORLD RESOURCE TRUST
Report of Independent Accountants . . . . . . . . . . . . . . . . . . . . . . 56
Statements of Financial Condition as of December 31, 1998 and 1997. . . . . . 57
Statements of Operations for the years ended December 31, 1998 and
1997 and 1996 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 58
Statements of Changes in Trust Capital for the years ended
December 31, 1998, 1997and 1996 . . . . . . . . . . . . . . . . . . . . . . 59
Notes to Financial Statements . . . . . . . . . . . . . . . . . . . . . . . . 60
MILLBURN RIDGEFIELD CORPORATION
Independent Auditor's Report. . . . . . . . . . . . . . . . . . . . . . . . . 66
Statement of Financial Condition as of December 31, 1998. . . . . . . . . . . 67
Notes to Financial Statement. . . . . . . . . . . . . . . . . . . . . . . . . 68
</TABLE>
____________________
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.
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<PAGE>
REPORT OF INDEPENDENT ACCOUNTANTS
TO THE UNITHOLDERS OF
THE MILLBURN WORLD RESOURCE TRUST:
In our opinion, the accompanying statements of financial condition as of
December 31, 1998 and 1997, and the related statements of operations and the
statements of changes in Trust capital for the years ended December 31, 1998,
1997 and 1996 present fairly, in all material respects, the financial position
of The Millburn World Resource Trust, as of December 31, 1998 and 1997, and the
results of its operations for each of the three years then ended, in conformity
with generally accepted accounting principles. These financial statements are
the responsibility of the Trust's management; our responsibility is to express
an opinion on these financial statements based on our audits. We conducted our
audits of these financial statements in accordance with generally accepted
auditing standards which require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements, assessing the
accounting principles used and significant estimates made by management, and
evaluating the overall financial statement presentation. We believe that our
audits provide a reasonable basis for the opinion expressed above.
New York, New York PRICEWATERHOUSECOOPERS LLP
January 20, 1999
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<PAGE>
THE MILLBURN WORLD RESOURCE TRUST
STATEMENTS OF FINANCIAL CONDITION
AS OF DECEMBER 31, 1998 AND 1997
<TABLE>
<CAPTION>
ASSETS: 1998 1997
------------ -------------
<S> <C> <C>
Equity in trading accounts:
Cash $ 3,646,692 $ 2,105,808
Investments in U.S. Treasury bills - at value (amortized
cost $19,502,626 and $16,490,244 at December 31,
1998 and 1997, respectively) (Note 2) 19,502,626 16,490,244
Options owned, at market value (cost $396,056
at December 31, 1997) --- 559,110
Unrealized appreciation on open contracts 6,974,974 4,753,326
Unrealized depreciation on open contracts (1,457,528) ---
------------ -------------
Total equity in trading accounts 28,666,764 23,908,488
Money market fund 2,278,968 9,944,556
Investment in U.S. Treasury bills - at value (amortized cost
$45,491,917 and $41,009,510 at December 31,
1998 and 1997, respectively) (Note 2) 45,491,917 41,009,510
------------ -------------
Total assets $ 76,437,649 $ 74,862,554
------------ -------------
------------ -------------
LIABILITIES AND TRUST CAPITAL:
Accounts payable and accrued expenses $ 62,706 $ 73,925
Redemptions payable to unitholders, net (Note 9) 2,066,608 773,980
Accrued brokerage fees (Note 4) 487,698 443,746
------------ -------------
Total liabilities 2,617,012 1,291,651
------------ -------------
Trust capital (Notes 4, 9 and 10):
Managing Owner interest 873,631 776,209
Unitholders, (59,096.099 and 61,563.868 Units of Beneficial
Interest outstanding at December 31, 1998 and 1997,
respectively) 72,947,006 72,794,694
------------ -------------
Total Trust capital 73,820,637 73,570,903
------------ -------------
Total liabilities and Trust capital $ 76,437,649 $ 74,862,554
------------ -------------
------------ -------------
</TABLE>
See accompanying notes to financial statements.
PAST PERFORMANCE IS NOT NECESSARILY INDICATIVE OF FUTURE RESULTS.
-57-
<PAGE>
THE MILLBURN WORLD RESOURCE TRUST
STATEMENTS OF OPERATIONS
FOR THE YEARS ENDED DECEMBER 31, 1998, 1997 AND 1996
<TABLE>
<CAPTION>
1998 1997 1996
------------ ------------ ------------
<S> <C> <C> <C>
Income (Note 2):
Net gains (losses) on trading of futures,
forward and option contracts:
Realized gains (losses):
Futures and forwards $ 5,390,695 $ 4,123,599 $ 7,778,511
Options 1,114,879 (486,783) 750,368
Change in unrealized appreciation
(depreciation):
Futures and forwards 764,120 1,548,085 489,201
Options (163,054) (73,486) 123,713
------------ ------------ ------------
7,106,640 5,111,415 9,141,793
Less, Brokerage fees (Note 4) 6,528,321 6,057,327 3,998,675
------------ ------------ ------------
Net realized and unrealized gains
(losses) on trading of futures
forward and option contracts 578,319 (945,912) 5,143,118
Interest Incomes 3,810,780 3,467,544 2,115,972
Foreign exchange gain (loss) (198,930) 62,685 (72,910)
------------ ------------ ------------
Total Income 4,190,169 2,584,317 7,186,180
------------ ------------ ------------
Expenses (Note 2):
Profit share (Note 4) -- 695,667 829,081
Administrative expenses 581,101 345,473 519,753
------------ ------------ ------------
581,101 1,041,140 1,348,834
------------ ------------ ------------
Net Income $ 3,609,068 $ 1,543,177 $ 5,837,346
------------ ------------ ------------
Net Income per Unit of
Beneficial Interest (Note 10) $ 51,95 $ 32,29 $ 99,45
------------ ------------ ------------
------------ ------------ ------------
</TABLE>
See accompanying notes to financial statements.
PAST PERFORMANCE IS NOT NECESSARILY INDICATIVE OF FUTURE RESULTS.
-58-
<PAGE>
THE MILLBURN WORLD RESOURCE TRUST
STATEMENTS OF CHANGES IN TRUST CAPITAL
FOR THE YEARS ENDED DECEMBER 31, 1998, 1997 AND 1996
<TABLE>
<CAPTION>
NEW PROFITS
MEMO
UNITHOLDERS ACCOUNT MANAGING OWNER TOTAL
------------- ------------ -------------- ------------
<S> <C> <C> <C> <C>
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) --
------------- ------------ -------------- ------------
Trust capital at December 31, 1997 72,794,694 -- 776,209 73,570,903
Proceeds from sale of (9,536.800) Units
of Beneficial Interest 11,163,820 -- -- 11,163,820
Net Income 3,511,646 97,422 3,609,068
Redemptions (12,173.848) Units of Beneficial
Interest) (14,523,154) -- -- (14,523,154)
------------- ------------ -------------- ------------
Limited Partnership Units (169.279)
allocated -- -- -- --
------------- ------------ -------------- ------------
Trust capital at December 31, 1998 $ 72,947,006 $ -- $ 873,631 $ 73,820,637
------------- ------------ -------------- ------------
------------- ------------ -------------- ------------
</TABLE>
See accompanying notes to financial statements.
PAST PERFORMANCE IS NOT NECESSARILY INDICATIVE OF FUTURE RESULTS.
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<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. The Trust is engaged in
speculative trading in the futures, options and forward markets. The
instruments that are traded by the Trust are volatile and involve a high
degree of risk. The Trust commenced trading operations on September 13,
1995.
Millburn Ridgefield Corporation (the "Managing Owner") has agreed to make
additional capital contributions, 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. There are 63,400 Units authorized for sale.
2. SUMMARY OF SIGNIFICANT 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 the statements of operations in net gains (losses)
on trading of futures, forward and option contracts.
Investments in U.S. government obligations are valued at cost plus
amortized discount which approximates value. 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.
-60-
<PAGE>
THE MILLBURN WORLD RESOURCE TRUST
NOTES TO FINANCIAL STATEMENTS, CONTINUED
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (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 assets and
liabilities and disclosure of contingent assets and liabilities at the
date of the financial statements and 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.
3. ORGANIZATION AND 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 also pays, from its own funds, selling commissions on all sales of
Units.
4. 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.
-61-
<PAGE>
THE MILLBURN WORLD RESOURCE TRUST
NOTES TO FINANCIAL STATEMENTS, CONTINUED
4. TRUST AGREEMENT (CONTINUED):
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.
5. 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 statements of operations. The fair value
of the derivative financial instruments, at December 31, 1998 and 1997,
respectively, was $5,517,446 and $5,312,436. The average fair value during
the periods then ended (calculated on a monthly basis), approximated
$4,407,653 and $3,510,394, respectively.
The Trust conducts its trading activities with various brokers acting
either as a broker or counterparty to various transactions. At December
31, 1998 and 1997, respectively, cash and treasury bills, aggregating
$23,149,318 and $18,596,052, included in the Trust's equity in trading
accounts are held by such brokers in segregated accounts as required by
U.S. Commodity Futures Trading Commission's regulations.
6. DERIVATIVE INSTRUMENTS:
The Trust is party to derivative financial 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.
-62-
<PAGE>
THE MILLBURN WORLD RESOURCE TRUST
NOTES TO FINANCIAL STATEMENTS, CONTINUED
6. DERIVATIVE INSTRUMENTS:
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.
7. OPEN DERIVATIVE INSTRUMENTS (CONTRACTS) AT DECEMBER 31, 1998 AND 1997:
<TABLE>
<CAPTION>
DECEMBER 31, 1997 DECEMBER 31, 1998
-------------------------------------------- -------------------------------------------
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 $ 93,685,000 $ 372,011,000 $ 308,387,000 $ 89,641,000
Stock indices 7,448,000 17,333,000 600,000 17,726,000
Currencies* 49,459,000 32,720,000 16,768,000 48,924,000
Energy -- 18,327,000 -- 33,784,000
Agricultural 11,304,000 24,688,000 21,519,000 21,184,000
Metals 1,295,000 30,190,000 -- 30,027,000
---------------------- ---------------------- --------------------- --------------------
$ 163,191,000 $ 495,269,000 $ 347,274,000 $ 241,286,000
---------------------- ---------------------- --------------------- --------------------
---------------------- ---------------------- --------------------- --------------------
</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.
-63-
<PAGE>
THE MILLBURN WORLD RESOURCE TRUST
NOTES TO FINANCIAL STATEMENTS, CONTINUED
7. OPEN DERIVATIVE INSTRUMENTS (CONTRACTS) AT DECEMBER 31, 1998 AND 1997
(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 UNREALIZED APPRECIATION
AMOUNT OF COMMITMENTS (DEPRECIATION)
--------------------------------------------- -------------------------------------------
TO PURCHASE TO SELL GROSS NET
--------------------- --------------------- ------------------- ---------------------
<S> <C> <C> <C> <C>
DECEMBER 31, 1998:
Exchange traded $ 113,732,000 $ 462,549,000 $ 8,180,903 $ 6,717,476
Non-exchange traded 49,459,000 32,720,000 637,335 (1,200,030)
--------------------- --------------------- ------------------- ---------------------
$ 163,191,000 $ 495,269,000 $ 8,818,238 $ 5,517,446
--------------------- --------------------- ------------------- ---------------------
--------------------- --------------------- ------------------- ---------------------
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 appreciation on exchange traded options of $163,054.
8. 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.
9. 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.
-64-
<PAGE>
THE MILLBURN WORLD RESOURCE TRUST
NOTES TO FINANCIAL STATEMENTS, CONTINUED
10. NET ASSET VALUE PER UNIT:
Changes in net asset value per Unit during the years ended December 31,
1998, 1997 and 1996:
<TABLE>
<CAPTION>
YEAR ENDED YEAR ENDED YEAR ENDED
DECEMBER 31, 1998 DECEMBER 31, 1997 DECEMBER 31, 1996
----------------- ----------------- -----------------
<S> <C> <C> <C>
Net realized and unrealized gains (losses) on futures,
forwards and options $ 8.32 $ (19.79) $ 87.62
Interest income 54.85 72.56 36.05
Foreign exchange gain (loss) (2.86) 1.31 (1.24)
Profit share expense -- (14.56) (14.12)
Administrative expenses (8.36) (7.23) (8.86)
------------ ----------- -----------
Net income per unit 51.95 32.29 99.45
------------ ----------- -----------
------------ ----------- -----------
Net asset value per Unit, beginning of year 1,182.43 1,150.14 1,050.69
------------ ----------- -----------
Net asset value per Unit,
end of year $ 1,234.38 $ 1,182.43 $ 1,150.14
------------ ----------- -----------
------------ ----------- -----------
Redemption value per Unit
(before redemption charge) $ 1,234.38 $ 1,182.43 $ 1,154.81
------------ ----------- -----------
------------ ----------- -----------
</TABLE>
11. SUBSEQUENT EVENTS:
Effective January 1, 1999, approximately $2,050,000 and $200,000 in
redemptions and subscriptions, respectively, were made by unitholders.
-65-
<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 (the Corporation) as of December 31, 1998. 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, 1998,
of $15,926,620, 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, 1998, in conformity with generally accepted accounting
principles.
ARTHUR F. BELL, JR. & ASSOCIATES, L.L.C.
Hunt Valley, Maryland
March 18, 1999
-66-
<PAGE>
MILLBURN RIDGEFIELD CORPORATION
STATEMENT OF FINANCIAL CONDITION
December 31, 1998
-----------------
<TABLE>
<CAPTION>
<S> <C>
ASSETS
Cash and cash equivalents $ 1,350,215
Fees receivable 5,753,986
Deferred fees 2,198,280
Loans receivable from stockholder and affiliate 2,736,101
Investments in sponsored funds 20,215,072
Other investments 775,273
Furniture and equipment, net of accumulated
depreciation of $637,078 26,511
Total assets $33,055,438
LIABILITIES
Accounts payable and accrued expenses $ 849,897
Due to affiliated companies 5,379,796
Due to Apollo Fund 307,771
Stockholder distributions payable 1,384,716
Total liabilities 7,922,180
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 23,989,275
Total stockholders' equity 25,133,258
Total liabilities and stockholders' equity $33,055,438
</TABLE>
See accompanying notes.
-67-
<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 presented in
accordance with generally accepted accounting principles. The
preparation of the statement of financial condition 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. Actual results could
differ from those estimates.
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.
-68-
<PAGE>
MILLBURN RIDGEFIELD CORPORATION
NOTES TO FINANCIAL STATEMENT (CONTINUED)
Note 1. ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
(CONTINUED)
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.
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 1998, the
Corporation's Connecticut S-Corp. business tax has been estimated
based on capital.
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 as of December 31, 1998, are as follows:
<TABLE>
<CAPTION>
<S> <C>
Millburn Global Markets Portfolio L.P. $1,540,777
Millburn MCo Partners L.P. 2,890,432
Nestor Partners 7,904,495
The Millburn Global Opportunity Fund L.P. 1,075,924
The Millburn World Resource Trust 873,631
Millburn Currency Fund L.P. 2,006,179
Others 3,923,634
-----------
Total $20,215,072
-----------
-----------
</TABLE>
-69-
<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, 1998, is as follows:
<TABLE>
<CAPTION>
MILLBURN MULTI- MILLBURN MCO NESTOR NESTOR THE MILLBURN WORLD MILLBURN CURRENCY
STRATEGY PORTFOLIO L.P. PARTNERS L.P. PARTNERS PARTNERS II, L.P. RESOURCE TRUST FUND L.P.
----------------------- ------------- ------------- ----------------- ------------------ ------------------
<S> <C> <C> <C> <C> <C> <C>
Assets $63,947,534 $129,409,120 $ 246,907,551 $43,299,872 $76,437,649 $34,912,613
Liabilities 0 892,754 1,456,948 233,918 2,617,012 243,386
----------- ------------ ------------ ----------- ----------- -----------
Net asset value $63,947,534 $ 128,516,36 $245,450,603 $43,065,954 $73,820,637 $34,669,227
----------- ------------ ------------ ----------- ----------- -----------
----------- ------------ ------------ ----------- ----------- -----------
</TABLE>
The combined net asset value of other sponsored funds as of December
31, 1998, is approximately $78,015,000.
As the general partner or managing owner, the Corporation conducts and
manages the respective businesses of the sponsored funds. The limited
partnership or trust agreements typically require 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. 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, 1998:
<TABLE>
<CAPTION>
<S> <C>
The Millburn Corporation $ 2,829,796
ComminVest Research L.P. 2,550,000
-------------
Total consulting fees due to affiliated companies $ 5,379,796
-------------
-------------
</TABLE>
-70-
<PAGE>
MILLBURN RIDGEFIELD CORPORATION
NOTES TO FINANCIAL STATEMENT (CONTINUED)
Note 3. RELATED PARTY TRANSACTIONS (CONTINUED)
The Corporation has entered into borrowing arrangements with the
Apollo Fund, a limited partnership whose limited partners are the
stockholders of the Corporation. The borrowing bears interest at a
variable rate which ranged from 3.8% to 5.6% during 1998. The
Corporation has a related loan receivable of $307,771 from a
stockholder. No specific repayment terms apply to the borrowing and
the loan receivable.
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. 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. The
outstanding balance of the loan is $2,428,330 at December 31, 1998.
Note 4. DEFERRED FEES
The Corporation has entered into deferred compensation agreements with
certain non-U.S. domiciled entities. The Corporation is the advisor
or general partner for these entities. Such agreements allow the
Corporation to defer the payment of all or a portion of the management
and incentive fees and or net brokerage commissions earned in its
capacity as advisor or general partner.
Deferred fees are subject to the claims of the entities' general
creditors. Pursuant to the terms of the applicable deferred
compensation agreement, the fees may either remain invested in the
entity and share in the earnings, appreciation or depreciation of the
respective entities' assets or may be invested in other entities. At
December 31, 1998, the fees and commissions receivable under the
deferred compensation agreements totaled $2,198,280. The Corporation
elected to defer its receipt of such fees and commissions earned
during 1998 until December 31, 2003.
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.
-71-
<PAGE>
MILLBURN RIDGEFIELD CORPORATION
NOTES TO FINANCIAL STATEMENT (CONTINUED)
Note 5. TRADING ACTIVITIES AND RELATED RISKS (CONTINUED)
The average fair value of derivatives held by the sponsored funds
during 1998 was approximately $20,010,000 and the related year-end
fair value was approximately $12,903,000. The fair value of contracts
represents unrealized gains and losses on open futures and long and
short options at market value.
At December 31, 1998, the notional amounts of open contracts to
purchase and sell held by the sponsored funds aggregated approximately
$1,067,700,000 and $2,942,300,000, 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, 1998.
The Corporation, as general partner or managing owner, has established
procedures to actively monitor market risk and minimize credit risk of
the sponsored funds.
Note 6. LEASE COMMITMENT
The Corporation has 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>
1999 $64,821
2000 64,821
2001 64,821
2002 21,607
--------
$216,070
--------
--------
</TABLE>
Note 7. MINIMUM ADJUSTED NET CAPITAL
The Corporation is subject to the net capital requirements of the
CFTC. At December 31, 1998, the Corporation's regulatory net capital
exceeded the minimum net capital requirement by $7,643,156.
-72-
<PAGE>
ANNUAL RATES OF RETURN SINCE INCEPTION
OF THE MILLBURN RIDGEFIELD CLIENT FUNDS
The following are the annual rates of return of the client futures funds
sponsored by Millburn Ridgefield, other than the Trust itself. 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 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. 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>
1999(3 mos.) 0.77% 1999(3 mos.) 3.98% 1999(3 mos.) (0.28)%
1998 1.08 1998 (9.83) 1998 4.64
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>
-73-
<PAGE>
PURCHASERS OF UNITS WILL ACQUIRE NO INTEREST IN THESE FUNDS.
<TABLE>
<CAPTION>
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>
1999(3 mos.) 1.32% 1999(3 mos.) 5.06%
1998 1.57 1998 (7.03)
1997 13.59 1997 20.13 1997 (5 mos.) 15.31% (closed 5/31/97)
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>
MILLBURN WORLD
RESOURCE FUND L.P.
(DIVERSIFIED; PRIVATELY OFFERED)
<TABLE>
<CAPTION>
ANNUAL
YEAR RATES OF RETURN
- ---- ----------------
<S> <C>
1999(3 mos.) (3.87)%
1998 10.50
1997 11.87
1996 17.43
1995 36.25
</TABLE>
________________________
Prospective investors should note that Millburn Ridgefield's private pools
outperform its public funds. This is due in principal part 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 higher costs, and its performance can
be expected to reflect the effect of such costs, which cumulate significantly
over time.
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 BE A
MATERIALLY CONTRIBUTING FACTOR.
MILLBURN RIDGEFIELD'S SYSTEMS HAVE DEVELOPED SIGNIFICANTLY OVER TIME. THE
SYSTEMS CURRENTLY USED BY MILLBURN RIDGEFIELD ARE NOT NECESSARILY THE SAME AS
THOSE WHICH PRODUCED A SUBSTANTIAL PORTION OF THE PERFORMANCE REFLECTED ABOVE.
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 ABOVE.
PURCHASERS OF UNITS WILL ACQUIRE NO INTEREST IN THESE FUNDS.
<PAGE>
EXHIBIT A
THE MILLBURN WORLD RESOURCE TRUST
SECOND AMENDED AND RESTATED
DECLARATION OF TRUST AND TRUST AGREEMENT
DATED AS OF MAY 1, 1996
<PAGE>
THE MILLBURN WORLD RESOURCE TRUST
SECOND AMENDED AND RESTATED
DECLARATION OF TRUST AND TRUST AGREEMENT
TABLE OF CONTENTS
<TABLE>
<CAPTION>
Page
----
<S> <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-5
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-7
8. Allocation of Profits and Losses. . . . . . . . . . . . . . . . . . . . . . TA-8
(a) Capital Accounts and Allocations. . . . . . . . . . . . . . . . . . . TA-8
(b) Allocation of Profit and Loss for Federal Income
Tax Purposes . . . . . . . . . . . . . . . . . . . . . . . . . . . TA-9
(c) Profit Share; New Profits Memo Account. . . . . . . . . . . . . . . .TA-12
(d) Expenses; Interest Income . . . . . . . . . . . . . . . . . . . . . .TA-12
(e) Limited Liability of Unitholders. . . . . . . . . . . . . . . . . . .TA-13
(f) Return of Capital Contributions . . . . . . . . . . . . . . . . . . .TA-14
9. Management of the Trust . . . . . . . . . . . . . . . . . . . . . . . . . .TA-14
(a) Authority of the Managing Owner . . . . . . . . . . . . . . . . . . .TA-14
(b) Notification of Basic Changes . . . . . . . . . . . . . . . . . . . .TA-14
(c) Certain Agreements. . . . . . . . . . . . . . . . . . . . . . . . . .TA-14
(d) Fiduciary Duties. . . . . . . . . . . . . . . . . . . . . . . . . . .TA-14
(e) Brokerage Arrangements. . . . . . . . . . . . . . . . . . . . . . . .TA-15
(f) Prohibited Activities . . . . . . . . . . . . . . . . . . . . . . . .TA-15
(g) Freedom of Action . . . . . . . . . . . . . . . . . . . . . . . . . .TA-15
10. Audits and Reports to Unitholders . . . . . . . . . . . . . . . . . . . . .TA-16
11. Assignability of Units. . . . . . . . . . . . . . . . . . . . . . . . . . .TA-17
</TABLE>
TA-ii
<PAGE>
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
12. Redemptions . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .TA-17
13. Offering of Units . . . . . . . . . . . . . . . . . . . . . . . . . . . . .TA-19
14. Special Power of Attorney . . . . . . . . . . . . . . . . . . . . . . . . .TA-19
15. Withdrawal of a Unitholder. . . . . . . . . . . . . . . . . . . . . . . . .TA-20
16. Benefit Plan Investors. . . . . . . . . . . . . . . . . . . . . . . . . . .TA-20
17. Standard of Liability; Indemnification. . . . . . . . . . . . . . . . . . .TA-21
(a) Standard of Liability for the Managing Owner. . . . . . . . . . . . .TA-21
(b) Indemnification of the Managing Owner by the Trust. . . . . . . . . .TA-21
(c) Indemnification by the Unitholders. . . . . . . . . . . . . . . . . .TA-22
18. Amendments; Meetings. . . . . . . . . . . . . . . . . . . . . . . . . . . .TA-23
(a) Amendments with Consent of the Managing Owner . . . . . . . . . . . .TA-23
(b) Amendments and Actions without Consent of the
Managing Owner . . . . . . . . . . . . . . . . . . . . . . . . . .TA-23
(c) Meetings; Other . . . . . . . . . . . . . . . . . . . . . . . . . . .TA-23
(d) Consent by Trustee. . . . . . . . . . . . . . . . . . . . . . . . . .TA-24
19. Governing Law . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .TA-24
20. Miscellaneous . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .TA-24
(a) Notices . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .TA-24
(b) Binding Effect. . . . . . . . . . . . . . . . . . . . . . . . . . . .TA-24
(c) Captions. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .TA-24
21. Certain Definitions . . . . . . . . . . . . . . . . . . . . . . . . . . . .TA-25
22. No Legal Title to Trust Estate. . . . . . . . . . . . . . . . . . . . . . .TA-27
23. Legal Title . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .TA-27
24. Creditors . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .TA-27
Testimonium
Signatures
Schedule A -- Certificate of Trust. . . . . . . . . . . . . . . . . . . . .TA-29
Annex -- Request for Redemption . . . . . . . . . . . . . . . . . . . . . . RR-1
</TABLE>
TA-iii
<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
TA-2
<PAGE>
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 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;
TA-3
<PAGE>
(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 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.
TA-4
<PAGE>
(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.
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.
TA-5
<PAGE>
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);
(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
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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.
(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.
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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 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.
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(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.
(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.
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(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 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
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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
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."
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(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.
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
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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 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
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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 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
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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 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.
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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 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
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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 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
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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.
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,
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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. 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
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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 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
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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 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.
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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.
(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.
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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.
(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
TA-23
<PAGE>
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.
(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.
TA-24
<PAGE>
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 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
TA-25
<PAGE>
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.
TA-26
<PAGE>
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.
TA-27
<PAGE>
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
TA-28
<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
TA-29
<PAGE>
ANNEX
THE MILLBURN WORLD RESOURCE TRUST
REQUEST FOR REDEMPTION
THE MILLBURN WORLD RESOURCE TRUST __________________________
C/O MILLBURN RIDGEFIELD CORPORATION DATE
MANAGING OWNER
1560 SHERMAN AVENUE
SUITE 810
EVANSTON, ILLINOIS 60201
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 _________________________
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<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 ________ __, 1999 (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 subscription 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, Chase Manhattan Bank
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, Chase
Manhattan Bank, 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 STATES MUST MEET THE SPECIFIC
REQUIREMENTS SET FORTH BELOW (NET WORTH IS, IN ALL CASES, TO BE CALCULATED
EXCLUSIVE OF
SR-1
<PAGE>
HOME, FURNISHINGS AND AUTOMOBILES). NO PURCHASER SHOULD INVEST MORE THAN 10%
OF HIS OR HER NET WORTH (EXCLUSIVE OF HOME, FURNISHINGS AND AUTOMOBILES) IN
THE UNITS. NO ENTITY, INCLUDING ERISA PLANS, SHOULD 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.
_________________________
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-2
<PAGE>
[PAGE INTENTIONALLY LEFT BLANK]
<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
FEDERAL SECURITIES LAWS.
SUBSCRIPTION AGREEMENT AND
POWER OF ATTORNEY
THE MILLBURN WORLD RESOURCE TRUST
C/O MILLBURN RIDGEFIELD CORPORATION
MANAGING OWNER
1560 SHERMAN AVENUE
SUITE 810
EVANSTON, ILLINOIS 60201
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 described 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 "CHASE MANHATTAN 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 "CHASE MANHATTAN
BANK, AS ESCROW AGENT FOR THE MILLBURN WORLD RESOURCE TRUST, ESCROW ACCOUNT NO.
SE14791," directly to the Escrow Agent (for wire instructions, contact Priscilla
Ceron at 212-332-7320). 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 am of
legal age and am legally competent to execute this Subscription Agreement and
Power of Attorney. 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. This
subscription, if made as custodian for a minor, is a gift I have made to such
minor, or if not a gift, such minor satisfies the requirements relating to
net worth and annual income set forth in "Exhibit B -- Subscription
Requirements."
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. No investor should invest more than 10% of his or her net worth
(exclusive of home, furnishings and automobiles) in the Trust. Risk factors
relating to the Units include the following: (i) You may lose all or
substantially all of your investment; (ii) the Trust is a speculative leveraged
investment and involves a high degree of risk; the Trust generally employs
leverage of up to six times its total equity; (iii) the performance of the Trust
to date has been volatile; the Net Asset Value of the Units has fluctuated as
much as 16% in a single month; (iv) single-advisor funds such as the Trust are
typically considered -- even among speculative managed futures funds --
unusually high risk; (v) the Trust is subject to substantial charges regardless
of profitability, as well as to quarterly Profit Shares; the Managing Owner
estimates that the Trust needs to earn trading profits in the first twelve
months after a Unit is issued of approximately 6.70% to offset expenses, or
approximately 9.80% if redemption charges apply, assuming the Trust continues to
earn interest on its assets at current rates; and (vi) the Units are not liquid
as no secondary market exists for the Units and redemption rights are limited.
See "The Risks You Face" in the Prospectus beginning at page 7.
________________
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>
Printing Expenses . . . . . . . . . . . . . 30,000
Fees of Certified Public Accountants. . . . 25,000
Blue Sky Expenses (Excluding Legal Fees). . 15,000
Fees of Counsel . . . . . . . . . . . . . . 50,000
Escrow Fees . . . . . . . . . . . . . . . . 15,000
Miscellaneous Offering Costs. . . . . . . . 15,000
--------
Total. . . . . . . . . . . . . . . . . $150,000
--------
--------
</TABLE>
_______________________
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.
There have been no sales of unregistered securities within the past three
years.
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.
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).
</TABLE>
S-1
<PAGE>
<TABLE>
<CAPTION>
Exhibit
Number Description of Document
- ------- -----------------------
<S> <C>
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 PricewaterhouseCoopers LLP
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
(amended) 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).
(b) Financial Statement Schedules.
No Financial Schedules are required to be filed herewith.
</TABLE>
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 Greenwich in the State of Connecticut on the 16th day of April, 1999.
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 Co-Chief Executive April 16, 1999 April 16, 1999
----------------------- Officer and Director (Principal
George E. Crapple Executive Officer)
/s/ HARVEY BEKER President, Co-Chief Executive Officer April 16, 1999
------------------------ and Director (Principal Financial
Harvey Beker and Accounting Officer)
</TABLE>
(Being the principal executive officer, the principal financial and
accounting officer and a majority of the directors of Millburn Ridgefield
Corporation.)
<TABLE>
<CAPTION>
<S> <C>
MILLBURN RIDGEFIELD CORPORATION Managing Owner of Registrant
By /s/ HARVEY BEKER April 16, 1999
----------------------
Harvey Beker
President
</TABLE>
S-4
<PAGE>
THE MILLBURN WORLD RESOURCE TRUST
EXHIBIT INDEX
<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.
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 PricewaterhouseCoopers L.L.P.
27.01 Financial Data Schedule
</TABLE>
<PAGE>
[LETTERHEAD]
EXHIBIT 5.01(a)
April 16, 1999
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 Post-Effective Amendment No. 1 to the Registration
Statement on Form S-1 (Reg. No. 333-50209), 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 19, 1999 (the "Registration Statement"), relating to the registration
under the Act of $56,100,000 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
<PAGE>
Millburn Ridgefield Corporation
April 16, 1999
Page 2
the failure to so qualify might reasonably be expected to result in material
adverse consequences to the Trust.
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)
[LETTERHEAD OF RICHARDS, LAYTON & FINGER, P.A.]
April 16, 1999
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 "Initial Registration Statement") on
Form S-1 (Registration No. 333-50209), filed by the Trust with the Securities
and Exchange Commission (the "SEC") on April 15, 1998, as amended by
Post-Effective Amendment No. 1 to the Initial Registration Statement,
including a related prospectus (the "Prospectus"), as filed by the Trust with
the SEC on or about April 19, 1999 (Post-Effective Amendment No. 1) (the
Initial Registration Statement, as amended by Post-Effective Amendment No. 1
is hereinafter referred to as the "Registration Statement");
<PAGE>
Millburn Ridgefield Corporation
April 16, 1999
Page 2
(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 16, 1999,
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. Section
3801, ET SEQ.) (the "Act"), the due
<PAGE>
Millburn Ridgefield Corporation
April 16, 1999
Page 3
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 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
<PAGE>
Millburn Ridgefield Corporation
April 16, 1999
Page 4
in Sections 8(d), 8(e) and 17(c) of the Agreement and to repay any funds
wrongfully distributed to it from the Trust.
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,
RICHARDS, LAYTON & FINGER, P.A.
MIL/DWO
<PAGE>
[LETTERHEAD]
April 16, 1999
Millburn Ridgefield Corporation
Managing Owner of
The Millburn World Resource Trust
411 West Putnam Avenue
Greenwich, Connecticut 06830
Re: Post-Effective Amendment No.1 to the Registration Statement on
Form S-1
--------------------------------------------------------------
Dear Sir or Madam:
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 (Reg. No.
333-50209) declared effective by the Securities and Exchange Commission on
May 13, 1998 and Post-Effective Amendment No. 1 thereto filed with the
Commission on or about April 19, 1999 (together, the "Registration
Statement") relating to Units of Beneficial Interest ("Units") of The
Millburn World resource Trust (the "Trust"), a Delaware business trust.
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 set forth
under the caption "Federal Income Tax Aspects" in the prospectus (the
"Prospectus") constituting a part of the Registration Statement and confirm
that it accurately summarizes (subject to the uncertainties referred to
therein) the material aspects of the federal income tax treatment to a United
States individual taxpayer, as of the date hereof, of an investment in the
Trust. 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 inclusion in this Registration Statement of The Millburn World
Resource Trust of our report dated March 18, 1999 on our audit of the statement
of financial condition of the Millburn Ridgefield Corporation as of December 31,
1998 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.
Hunt Valley, Maryland
April 14, 1999
<PAGE>
EXHIBIT 23.04
[Letterhead of PricewaterhouseCoopers LLP]
CONSENT OF INDEPENDENT ACCOUNTANTS
We consent to the inclusion in this registration statement on Form S-1 (File No.
333-50209) of our report dated January 20, 1999, on our audits of the financial
statements of The Millburn World Resource Trust. We also consent to the
references to our firm under the captions "Selected Financial Information" and
"Experts".
PricewaterhouseCoopers LLP
New York, New York
April 16, 1999
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE MILLBURN
WORLD RESOURCE TRUST AUDITED FINANCIAL STATEMENTS FOR THE YEAR ENDED DECEMBER
31, 1998 INCLUDED WITHIN THIS POST-EFFECTIVE AMENDMENT NO. 1 TO THE REGISTRATION
STATEMENT AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL
STATEMENTS.
</LEGEND>
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> DEC-31-1998
<PERIOD-START> JAN-01-1998
<PERIOD-END> DEC-31-1998
<CASH> 3,646,692
<SECURITIES> 67,273,511
<RECEIVABLES> 0
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 76,437,649
<PP&E> 0
<DEPRECIATION> 0
<TOTAL-ASSETS> 76,437,649
<CURRENT-LIABILITIES> 2,617,012
<BONDS> 0
0
0
<COMMON> 0
<OTHER-SE> 73,820,637
<TOTAL-LIABILITY-AND-EQUITY> 76,437,649
<SALES> 0
<TOTAL-REVENUES> 11,495,739
<CGS> 0
<TOTAL-COSTS> 6,528,321
<OTHER-EXPENSES> 581,101
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 0
<INCOME-PRETAX> 3,609,068
<INCOME-TAX> 0
<INCOME-CONTINUING> 0
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 3,609,068
<EPS-PRIMARY> 51.95
<EPS-DILUTED> 51.95
</TABLE>