<PAGE>
Filed with the Securities and Exchange Commission on April 27, 2000
REGISTRATION NO. 333-50209
===============================================================================
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
------------------------------
POST-EFFECTIVE
AMENDMENT NO. 2
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)
<TABLE>
<S> <C> <C>
6799 06-6415-583
DELAWARE (Primary Standard Industrial (I.R.S. Employer
(State of Organization) Classification Number) Identification Number)
</TABLE>
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
$53,400,000
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, 2000, Millburn
Ridgefield had approximately $571 million under management in these markets.
THE UNITS
PaineWebber Incorporated, the Principal Selling Agent, along with
Additional Selling Agents offer the Trust's Units for sale, as of the first
day of each month, at Net Asset Value. As of March 31, 2000, the Net Asset
Value of a Unit that sold for $1,000 as of September 13, 1995, when the Trust
began trading, was $1,039.16.
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 released to the Trust as of the date of investment. There are no sales
commissions payable by investors or the Trust. If the total amount of this
offering is sold, the proceeds to the Trust will be $53,400,000.
Units may be redeemed at Net Asset Value as of the end of any calendar month.
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 employee benefit plans and
IRAs; and $1,000 for existing Unitholders.
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 5.60% to offset expenses, or approximately 8.70%
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 ______, 2000.
<PAGE>
COMMODITY FUTURES TRADING COMMISSION
RISK DISCLOSURE STATEMENT
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.
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 TO 33
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.
<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 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
-2-
<PAGE>
THE MILLBURN WORLD RESOURCE TRUST
TABLE OF CONTENTS
PART ONE
<TABLE>
<CAPTION>
Disclosure Document Page
--------------------- ------
<S> <C>
SUMMARY..................................................4
THE RISKS YOU FACE.......................................7
INVESTMENT FACTORS......................................10
PERFORMANCE OF THE TRUST................................13
QUANTITATIVE AND QUALITATIVE DISCLOSURES
ABOUT MARKET RISK..................................17
MILLBURN RIDGEFIELD CORPORATION.........................21
USE OF PROCEEDS.........................................26
CHARGES.................................................27
REDEMPTIONS; NET ASSET VALUE............................29
THE CLEARING BROKERS....................................30
CONFLICTS OF INTEREST...................................33
THE TRUST AND THE TRUSTEE...............................35
FEDERAL INCOME TAX ASPECTS..............................37
PURCHASES BY EMPLOYEE BENEFIT PLANS.....................39
PLAN OF DISTRIBUTION....................................40
LEGAL MATTERS...........................................42
EXPERTS.................................................42
REPORTS.................................................42
ADDITIONAL INFORMATION..................................42
INDEX TO FINANCIAL STATEMENTS...........................43
</TABLE>
PART TWO
<TABLE>
<CAPTION>
Statement of Additional Information Page
- ------------------------------------- ------
<S> <C>
ANNUAL RATES OF RETURN SINCE INCEPTION
OF THE MILLBURN RIDGEFIELD CLIENT
FUNDS............................................II-2
THE FUTURES AND FORWARD MARKETS.......................II-2
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, 2000, the Trust's performance has been
profitable. As of March 31, 2000, the Net Asset Value of the Trust was
$45,124,412, the Net Asset Value of a Unit initially sold for $1,000 was
$1,039.16, and the compound annual rate of return of the Trust since it began
trading was 0.85%. 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 investor's
participation in the Trust, the Trust must earn trading profits of approximately
5.60%, or 8.70% 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.
-4-
<PAGE>
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, 2000, the Managing Owner was
directing the trading of approximately $608 million of client and proprietary
capital, approximately $76 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, four to ten
- -- 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 the Managing Owner expects the Trust 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 minimums, 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.
-5-
<PAGE>
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. The interest the Trust earns on its
assets will offset a portion of these expenses. However, at current interest
rates, the charges to which the Trust is subject are greater than the interest
it earns. Redemption charges are in effect through the end of the first twelve
months after a Unit is sold. 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.
BREAKEVEN TABLE
<TABLE>
<CAPTION>
DOLLAR RETURN
REQUIRED
PERCENTAGE ($5,000
RETURN 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% $37.50
Redemption Charge* 3.10% $155.00
Less Interest Income* (4.90)% $(245.00)
TWELVE-MONTH "BREAKEVEN"
WITH REDEMPTION CHARGE 8.70% $435.00
TWELVE-MONTH "BREAKEVEN"
WITHOUT REDEMPTION CHARGE 5.60% $280.00
</TABLE>
- ---------------------------
*Estimated.
The Breakeven Table assumes a constant $5,000 Net Asset Value and a breakeven
year. See "Charges" beginning on page 30.
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.
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.
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 net worth (exclusive
of home, furnishings and automobiles) in the Trust.
- --------------------
THESE ARE SPECULATIVE SECURITIES. YOU MAY LOSE ALL OR SUBSTANTIALLY ALL OF YOUR
INVESTMENT IN THE TRUST.
-6-
<PAGE>
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, 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 5.5% annual rate, the Managing Owner
estimates that the Trust must achieve trading profits of approximately 5.60%, or
8.70% 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 MANAGING OWNER ANTICIPATES THE TRUST'S 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 the Trust may have no gains to offset your losses from other
investments.
-7-
<PAGE>
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 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 such
systems increases, 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,
-8-
<PAGE>
government confiscation of assets, taxation and government disruptions.
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 compensation which the
Selling Agents receive gives them an incentive to promote the sale of Units as
well as to discourage redemptions; (2) the brokerage commissions which the
Principal Selling Agent receives as a Clearing Broker for the Trust gives it an
additional incentive to promote the sale of Units as well as to discourage
redemptions; (3) the Managing Owner has significant financial incentives both to
promote the sale of the Units and to discourage their redemption; and (4) 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.
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 was a very significant and novel political and economic event and
there can be no certainty about its direct or indirect future affect on
-9-
<PAGE>
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 YOURSELF 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 substantial profit
opportunities over the medium- to long-term in these markets. 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 TRENDS OF THE
TYPE MILLBURN RIDGEFIELD ATTEMPTS TO IDENTIFY WILL DEVELOP DURING THE NEXT FEW
YEARS. IF SUCH TRENDS 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. 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.
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.
-10-
<PAGE>
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 has changed 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 market turmoil experienced in Asia, the
former Soviet Union and Latin America during the third and fourth quarters of
1998, 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 continue to
recover from the financial shocks of the third and fourth quarters of 1998.
The following depicts the market allocations as of March 31, 2000 of the World
Resource Portfolio.
[PIE CHART]
Interest Rates 24%
Currencies 28%
Stock Indices 10%
Metals 11%
Energy 15%
Agriculture 12%
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 trading portfolios. The Managing Owner believes that
profit potential 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:
AGRICULTURAL COMMODITIES
- ------------------------
Cocoa Soybeans
Coffee Soy Meal
Corn Soy Oil
Cotton Sugar
Orange Juice Wheat
<TABLE>
<CAPTION>
- -----------------------------------------------------------------
- -----------------------------------------------------------------
METALS ENERGY
- ------ ------
<S> <C>
- -----------------------------------------------------------------
- -----------------------------------------------------------------
Aluminum Crude Oil
- -----------------------------------------------------------------
Copper Gas Oil
Gold Heating Oil
- -----------------------------------------------------------------
Nickel Natural Gas
- -----------------------------------------------------------------
Palladium Unleaded Gas
- -----------------------------------------------------------------
Silver
- -----------------------------------------------------------------
Zinc
- -----------------------------------------------------------------
</TABLE>
<TABLE>
<CAPTION>
CURRENCIES
- ----------
- -----------------------------------------------------------------
MAJOR CROSSES
- ----- -------
<S> <C>
- -----------------------------------------------------------------
- -----------------------------------------------------------------
British Pound Canadian Dollar - Japanese Yen
- -----------------------------------------------------------------
Euro currency Euro - Japanese Yen
- -----------------------------------------------------------------
Japanese Yen Euro - Swiss Franc
- -----------------------------------------------------------------
Swiss Franc Euro - Norwegian Krone
- -----------------------------------------------------------------
</TABLE>
-11-
<PAGE>
<TABLE>
<CAPTION>
- -----------------------------------------------------------------
SECONDARY
- ---------
<S> <C>
- -----------------------------------------------------------------
- -----------------------------------------------------------------
Canadian Dollar Malaysian Ringgit
- -----------------------------------------------------------------
Danish Krone Mexican Peso
- -----------------------------------------------------------------
Dollar Index Norwegian Krone
- -----------------------------------------------------------------
European Currency Unit South African Rand
- -----------------------------------------------------------------
Hong Kong Dollar Singapore Dollar
- -----------------------------------------------------------------
Indonesian Rupiah Thai Baht
- -----------------------------------------------------------------
Korean Won
- -----------------------------------------------------------------
</TABLE>
INTEREST RATES
- --------------
Australian Bonds Canadian Bonds
Eurodollars London Short Rates
Euro Yen Spanish Bonds
French Bonds Tiffe Euro-Yen
French Pibor Tokyo Yen Bond
German Bunds U.S. Treasury Bonds
Italian Bonds U.S. Treasury Notes
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 not 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 on the Internet at www.marcal.com or 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.
-12-
<PAGE>
PERFORMANCE OF THE TRUST
THE MILLBURN WORLD RESOURCE TRUST
(SEPTEMBER 13, 1995 - MARCH 31, 2000)
TYPE OF POOL: Single-Advisor/Publicly-Offered/No Principal Protection
INCEPTION OF TRADING: September 13, 1995
AGGREGATE SUBSCRIPTIONS: $96,564,865
CURRENT CAPITALIZATION: $45,124,412
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
- ---------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
MONTH 2000 1999 1998 1997 1996 1995
- ------------------- ------------ ----------- ----------- ----------- ------------ -----------
January 0.91% (7.51)% 3.07% 4.24% (0.36)% --
- ------------------- ------------ ----------- ----------- ----------- ------------ -----------
February (0.57)% 2.45% (1.19)% 7.17% (12.30)% --
- ------------------- ------------ ----------- ----------- ----------- ------------ -----------
March (6.69)% (0.43)% (1.73)% (4.29)% 2.94% --
- ------------------- ------------ ----------- ----------- ----------- ------------ -----------
April 7.57% (7.27)% (4.63)% 2.55% --
- ------------------- ------------ ----------- ----------- ----------- ------------ -----------
May (6.39)% 6.24% 3.02% (7.88)% --
- ------------------- ------------ ----------- ----------- ----------- ------------ -----------
June 6.44% 3.04% (1.73)% 6.64% --
- ------------------- ------------ ----------- ----------- ----------- ------------ -----------
July (3.79)% (4.42)% 2.95% (0.36)% --
- ------------------- ------------ ----------- ----------- ----------- ------------ -----------
August 1.82% 8.88% (10.22)% 1.49% --
- ------------------- ------------ ----------- ----------- ----------- ------------ -----------
September 2.38% 0.54% 0.84% 4.01% (6.62)%
- ------------------- ------------ ----------- ----------- ----------- ------------ -----------
October (14.82)% (7.75)% 0.74% 8.09% (1.92)%
- ------------------- ------------ ----------- ----------- ----------- ------------ -----------
November 1.24% (0.44)% (0.77)% 4.10% 0.92%
- ------------------- ------------ ----------- ----------- ----------- ------------ -----------
December 2.80% 6.94% 6.45% 0.42% 16.02%
- ------------------- ------------ ----------- ----------- ----------- ------------ -----------
Compound (6.37)% 7.23%
Rate of Return (3 mos.) (10.09)% 4.39% 2.39% 7.69% (3 1/2 mos.)
- ------------------- ------------ ----------- ----------- ----------- ------------ -----------
</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.
-13-
<PAGE>
SELECTED FINANCIAL INFORMATION
THE FOLLOWING SELECTED FINANCIAL INFORMATION IS TAKEN FROM THE
FINANCIAL STATEMENTS OF THE TRUST AUDITED BY PRICEWATERHOUSECOOPERS LLP. THE
TRUST COMMENCED TRADING OPERATIONS ON SEPTEMBER 13, 1995. SEE "INDEX TO
FINANCIAL STATEMENTS" AT PAGE 55.
-------------------------
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31
------------------------------------------------------------- SEPTEMBER 13, 1995
1999 1998 1997 1996 TO
---- ---- ---- ---- DECEMBER 31, 1995
--------------------
INCOME STATEMENT DATA
- ---------------------
<S> <C> <C> <C> <C> <C>
Realized gains (losses) $
Future and forwards $(913,247) $5,390,695 $ 4,123,599 $7,778,511 $ 551,797
Options -- 1,114,879 (486,783) 750,368 (98,084)
------------- ----------- ----------- --------- ----------
Total realize gain (loss) (913,247) 6,505,574 3,636,816 8,528,879 453,713
Change in unrealized appreciation (2,536,947) 764,120 1,548,085 489,201 2,716,040
(depreciation) Futures and
forwards
Options -- (163,054) (73,486) 123,713 112,827
------------- ----------- ----------- --------- ----------
Total increase (decrease) in (2,536,947) 601,066 1,474,599 612,914 2,828,867
unrealized appreciation
(3,450,194) 7,106,640 5,111,415 9,141,793 3,282,580
Less, Brokerage Fees 5,496,697 6,528,321 6,057,327 3,998,675 548,790
------------- ----------- ----------- --------- ----------
Net realized and unrealized gains (8,946,891) 578,319 (945,912) 5,143,118 2,333,790
(losses) on trading of futures,
forward and options contracts
Interest income 3,026,673 3,810,780 3,467,544 2,115,972 303,229
Foreign exchange gain (loss) (33,211) (198,930) 62,685 (72,910) (9,539)
------------- ----------- ----------- --------- ----------
Total income (loss) (5,953,429) 4,190,169 2,584,317 7,186,180 3,027,480
------------- ----------- ----------- --------- ----------
Expenses:
Profit Share ___ ___ 695,667 829,081 460,840
Administrative expenses 389,267 581,101 345,473 519,753 59,492
------------- ----------- ----------- --------- ----------
Total expenses 389,267 581,101 1,041,140 1,348,834 520,332
------------- ----------- ----------- --------- ----------
Net income (loss) $(6,342,9,696) $ 3,609,068 $ 1,543,177 $5,837,346 $2,507,148
============= =========== =========== ========= ==========
BALANCE SHEET DATA*
AS OF DECEMBER 31 1999 1998 1997 1996 1995
---- ---- ---- ---- ----
Aggregate Net $56,365,318
Asset Value $50,484,616 $73,820,637 $73,570,903 $26,457,277
Net Asset Value
per Unit $1,109.88 $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 PRINCIPLES. 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.
-14-
<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
1999
1999 was a difficult year for managed futures traders and the Trust
posted a sizable loss. The one bright spot was the energy sector where a broad
uptrend provided significant profit opportunities in crude oil and oil products.
Sill, extreme volatility in natural gas prices resulted in losses that reduced
the positive impact from this sector. Similarly, in currency trading, solid
profits from short Euro positions vis-a-vis the dollar, yen, and Eastern
European currencies were largely offset by losses from trading yen, Swiss franc
and Norwegian krone. Mixed results also occurred in stock indices where gains
from trading the Hang Seng, Topix and S&P indices were largely offset by losses
in Nikkei index positions. Interest rates too produced mixed results, with
losses from Japanese and U.S. interest rate futures overwhelming gains from
European futures trading. Metals trading showed a similar pattern. Profits from
gold and aluminum trading were greatly offset by losses from zinc and copper.
Meanwhile, trading of grains (corn, soybeans, wheat) was modestly unprofitable.
Finally, with extreme price volatility affecting coffee and sugar trading
throughout 1999, the softs sector was highly unprofitable for the year.
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
-15-
<PAGE>
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 (I.E., emerging market) 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.
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.
LIQUIDITY AND 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 (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 35%.
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.
-16-
<PAGE>
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.
Materiality, as used in this section "Quantitative and Qualitative
Disclosures About Market Risk," is based on an assessment of reasonably
possible market movements and the potential losses caused by such movements,
taking into account the leverage, optionality and multiplier features of the
Trust's market sensitive instruments. The Managing Owner does not believe
that, under the foregoing standard, there have been any material changes to
either the sources of the Trust's trading or non-trading risks or their
impact on the Trust, given the nature of the Trust as a speculative commodity
pool, since December 31, 1998.
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
-17-
<PAGE>
requirement attributable to the instrument underlying each option.
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 tables indicate the average, highest and lowest amounts of trading
Value at Risk associated with the Trust's open positions by market category for
fiscal year 1999 and trading Value at Risk as of December 31, 1998. As of
December 31, 1998, the Trust's total capitalization was approximately $73.8
million. During fiscal year 1999, the Trust's average total capitalizaion was
approximately $60.9 million.
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------
FISCAL YEAR 1999
- --------------------------------------------------------------------------
AVERAGE HIGHEST LOWEST
VALUE % OF AVERAGE VALUE VALUE
MARKET SECTOR AT RISK CAPITALIZATION AT RISK AT RISK
- -------------- --------- --------------- -------- ---------
<S> <C> <C> <C> <C>
Interest Rates $ 1.7 2.8% $ 2.4 $ 1.4
Currencies $ 5.8 9.5% $ 6.9 $ 4.5
Stock Indices $ 1.7 2.8% $ 2.2 $ 1.1
Metals $ 1.2 2.1% $ 1.7 $ 0.6
Commodities $ 0.9 1.5% $ 1.3 $ 0.7
Energy $ 1.8 2.8% $ 3.5 $ 0.8
Total $13.2 21.6%
- --------------------------------------------------------------------------
</TABLE>
Average, highest and lowest Value at Risk amounts relate to the quarter-end
amounts for each calendar quarter-end during the fiscal year. Average
Capitalization is the average of the Trust's capitalization at the end of each
calendar quarter of fiscal year 1999. Dollar amounts represent millions of
dollars.
<TABLE>
<CAPTION>
- ---------------------------------------------------------------
DECEMBER 31, 1998
- ---------------------------------------------------------------
% OF TOTAL
MARKET SECTOR VALUE AT RISK CAPITALIZATION
- --------------- --------------- ----------------
<S> <C> <C>
Interests Rates $ 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 tables -- 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.
-18-
<PAGE>
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 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, 1999, 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/euro and dollar/Swiss positions. The Managing Owner does not
anticipate that the risk profile of the Trust's currency sector will change
significantly in the future.
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, 1999, the
Trust's primary exposures were in the Simex (Singapore), Nikkei (Japan) and Hang
Seng (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, 1999. 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 volatile and substantial profits
and losses have been and are expected to continue to be experienced in this
market.
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<PAGE>
QUALITATIVE DISCLOSURES REGARDING NON-TRADING RISK EXPOSURE
The following were the only non-trading risk exposures of the Trust as of
December 31, 1999.
FOREIGN CURRENCY BALANCES. The Trust's primary foreign currency balances are in
Japanese yen, euro 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).
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 analyzes the profitability of the systems
looking at such features as the percentage of profitable trades, the worst
losses experienced, the average give back 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.
-20-
<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, 1999, Millburn Ridgefield, together with its
affiliate ShareInVest Research L.P., was managing approximately
$1.4 billion in currencies, currency overlays, financial and
commodity futures, equities and funds of funds.
Millburn Ridgefield has been registered with the CFTC as a "commodity pool
operator" since September 13, 1984 and as a "commodity trading advisor" since
July 1, 1982 and is also registered as a "futures commission merchant." The
Millburn Corporation, an affiliate of Millburn Ridgefield, performs certain
administrative and operating functions for Millburn Ridgefield. ShareInVest
Research L.P., an affiliate of Millburn Ridgefield, manages portfolios of
U.S. small capitalization growth stocks. THE REGISTRATION OF MILLBURN
RIDGEFIELD WITH THE CFTC MUST NOT BE TAKEN AS AN INDICATION THAT 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 46. Mr. Beker is President, Co-Chief Executive Officer and
Co-Chairman 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 55. Mr. Crapple is Co-Chief Executive Officer and
Co-Chairman of Millburn Ridgefield and The Millburn Corporation and a partner of
ShareInVest Research L.P. In 1966 he graduated with honors from the University
of Wisconsin where his field of concentration was economics and he was elected
to Phi Beta Kappa. In 1969 he graduated from Harvard Law School, MAGNA CUM
LAUDE, where he was a member of the Harvard Law Review. He was a lawyer with
Sidley & Austin, Chicago, Illinois, from 1969 until April 1, 1983, as a partner
since 1975, specializing in commodities, securities, corporate and tax law. He
was first associated with Millburn Ridgefield in 1976 and joined Millburn
Ridgefield Corporation on April 1, 1983 on a full-time basis. Mr. Crapple is a
Director and Member of the Executive Committee and a former Chairman of the
Eastern Regional Business Conduct Committee of the NFA, Chairman 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.
-21-
<PAGE>
GREGG R. BUCKBINDER, AGE 41. 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 52. Mr. Fitzsimmons is a Senior Vice-President of
Millburn Ridgefield and The Millburn Corporation. 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 42. 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 48. 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 48. Mr. Smith is Executive Vice-President and Co-Director of
Research of Millburn Ridgefield and The Millburn Corporation and a partner of
ShareInVest Research L.P. He is responsible for the design, testing and
implementation of quantitative trading strategies, as well as for planning and
overseeing the computerized decision-support systems of the firm. He received a
B.S. degree from the Massachusetts Institute of Technology in 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.
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, 2000, Millburn Ridgefield's interest in the Trust was valued at
$810,278.
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
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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.
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.
Successful systematic futures trading depends primarily on two factors:
development and selection of the trading systems used in each market, and
allocation of portfolio risk among the markets available for trading.
Market environments change over time, and particular systems may perform well in
one environment but poorly in another. Likewise, portfolio sectors and
individual markets go through periods where systematic trading is very
profitable and other periods where no system makes any money. Recent experience
in the futures markets has illustrated how a portfolio limited to certain market
sectors can have an excellent run but then stumble badly.
The goal of Millburn Ridgefield's research has been to develop an algorithm to
select the optimal mix of systems in each market and an algorithm to dynamically
determine optimum portfolio allocations, allocating risk to markets according to
a forecast of profitability using our mix of systems.
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A major part of Millburn Ridgefield's research effort goes into developing
quantitative trading systems. Over the last 29 years, Millburn Ridgefield has
developed hundreds of trading systems. These `heritage' systems are augmented
from time to time with the results of fruitful research. This is the universe
from which Millburn Ridgefield selects the trading systems Millburn Ridgefield
uses in each market. Since the early 1980's Millburn Ridgefield has selected up
to four systems in each market after a review of statistical data for the
heritage systems in an effort to diversify away from reliance on a single system
in a market. Millburn Ridgefield has attempted to select systems with different
characteristics to smooth the return stream from the market. Millburn Ridgefield
then selects its portfolio weightings taking into account statistical data on
the systems' returns in each market, liquidity constraints and Millburn
Ridgefield judgement and experience. Millburn Ridgefield has achieved a major
improvement in this process through the recent implementation of its System
Selection Algorithm and Portfolio Allocation Algorithm.
Because there are hundreds of systems in Millburn Ridgefield's heritage
universe, there are billions of potential combinations of systems for each
market. The System Selection Algorithm simulates these potential combinations
and searches for both an optimal number and combination of systems in each
market. The number of systems ranges from 5 to 8, and the combination selected
will maximize Sharpe Ratio subject to minimum levels of diversification among
systems in the group.
The System Allocation Algorithm will be rerun annually, or whenever new systems
become available for inclusion in the system universe.
The Portfolio Allocation Algorithm was designed to select a portfolio with
`optimal' risk/reward statistics - Sharpe ratio, volatility and drawdown. It
will dynamically shift the portfolio risk allocations into the markets and
sectors which offer the best profit opportunities. There are currently about 60
markets included in the Portfolio Allocation Algorithm universe for potential
allocation - markets we deem `tradable'. Using return streams for each market
(generated by the system combination selected by the System Selection
Algorithm), the Portfolio Allocation Algorithm simulates approximately 1 billion
potential combinations of risk allocations. Each market and sector in the
universe is constrained to a maximum allocation based on real-world
considerations. In any single market, the constraints are based primarily on
liquidity and market access. Sectors are constrained largely by externally
imposed portfolio considerations, such as would occur in a `financial only', a
`currency only' or a `commodity oriented' portfolio. No minimum allocation is
specified, so markets can (and do) have allocations of zero. At the present time
the Portfolio Allocation Algorithm reallocates the portfolio quarterly. Millburn
Ridgefield expects to run the Portfolio Allocation Algorithm on monthly basis
beginning in mid-2000.
The implementation of the System Selection Algorithm and the Portfolio
Allocation Algorithm constitute a major advance which mines Millburn
Ridgefield's 29 years of research achievements and extracts significant
additional value.
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 (i) the
profitability of the systems and (ii) a number of statistics designed to
identify high quality profits such as (a) the percentage of profitable trades,
(b) the worst losses experienced, (c) the average giveback of maximum profits on
profitable trades and (d) Sharpe ratio (risk adjusted returns).
The performance of all systems in the market are ranked, and typically
four to ten systems are selected which make decisions in different ways at
different times with special emphasis placed on minimizing semi-correlation
among the systems (semi-correlation is correlation that considers only losing
periods). This multi-system approach ensures that the total risk intended to be
taken in a market is spread over several different strategies. If four systems
are used to trade crude oil, the maximum position would be traded if all four
were long or short. If two were long and two short, they would cancel each other
out and a flat position in crude oil would be signaled. The effect of the
multi-system approach is that in periods during which the technical picture is
unclear, the systems disagree and positions will be light or flat, but when all
systems agree on the trend, Millburn Ridgefield will trade maximum positions.
In certain markets, Millburn Ridgefield may use short-term systems
based on intra-day price data to identify "quiet" as opposed to "noisy" periods,
and may
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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.
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
as a part of individual market risk management. This system is designed to
measure 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 money management principles 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.
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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 form at 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 90% 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.
<TABLE>
<CAPTION>
CHARGES PAID BY THE TRUST
RECIPIENT NATURE OF PAYMENT AMOUNT OF PAYMENT
<S> <C> <C>
Managing Owner Brokerage Fee A flat-rate monthly fee of 0.75 of 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 are a part of
Counterparties the forward contract price.
Managing Owner Quarterly Profit Share 17.5% of any New Trading Profit, excluding
interest income and after reduction
for Brokerage Fees and administrative costs.
Others Trustee fees, legal, accounting, As incurred; estimated not to exceed 0.75 of 1% of
printing, postage and average month-end Net Assets annually.
administrative 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 $0.18 per round-turn
trade of a futures contract and $0.09 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.
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
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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 1999, the Trust Brokerage Fees of $5,496,697 a rate of approximately $64
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 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
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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 1999.
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 1999, the Trust incurred administrative expenses of $389,267, approximately
0.65 of 1% of the Trust's Month-end Net Assets for the year.
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 1999, Millburn Ridgefield paid (or accrued) to the Selling Agents a total of
$177,050 in selling commissions and $2,069,382 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 1999, the Managing Owner received, paid or accrued,
a total of $32,658 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%
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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.
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. Paine Webber 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.
PaineWebber did not sponsor the Trust and is not responsible for the activities
of Millburn Ridgefield. It acts only as one of the commodity brokers and one of
the selling agents.
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
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material to a decision whether to invest in the Trust in light of all the
circumstances.
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. The
District Court's approval was appealed by certain private parties in May 1997
and was affirmed in August 1998.
IN THE MATTER OF CERTAIN MARKET MAKING ACTIVITIES ON NASDAQ was an SEC
administrative action instituted and settled without a hearing or an admission
of or denial of findings on January 11, 1999. The administrative action found
that on certain occasions in 1994 PaineWebber traders and a PaineWebber
registered representative engaged in certain improper trading activities in
connection with specified NASDAQ securities, failed to maintain certain required
books and records and failed reasonably to supervise in connection with the
above activities. PaineWebber agreed to pay a civil penalty of $6.3 million and
disgorgement of $381,685; to an administrative cease and desist order
prohibiting the firm from violating certain provisions of the federal securities
laws; and to submit certain of its policies and procedures relating to the
matters alleged in the order to review by an SEC-appointed consultant.
Twenty-seven other market makers and fifty-one traders at the firm settled
related SEC administrative actions at the same time.
On or about January 18, 1996, PaineWebber consented, without admitting or
denying the findings therein, to the entry of an Order by the SEC which imposed
a censure, a cease and desist order, a $5 million civil penalty and various
remedial sanctions. The SEC alleged that PaineWebber violated the antifraud and
recordkeeping provisions of the federal securities laws in connection with the
offer and sale of certain limited partnership interests between 1986 and 1992
and failed reasonably to supervise certain registered representatives and other
employees involved in the sale of those interests. PaineWebber must comply with
its representation that it had paid and will pay a total of $292.5 million to
investors, including a payment of $40 million for a claims fund. PaineWebber has
also entered into settlement agreements with all the states, Puerto Rico and the
District of Columbia.
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. It acts only as one of the commodity brokers.
Prudential Securities, in its capacity as commodities broker for the Trust, is
registered as a futures commission merchant with the CFTC and is a member of
NFA. 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 allegations, Prudential Securities agreed to the
following: (a) to maintain and make available to the Missouri Division of
Securities all customer and regulatory complaints concerning any Prudential
Securities employee working in a branch located in Missouri or any security sold
by such employees; (b) beginning 30 days from the date of the Consent Order and
continuing for a period of three years, to include at least one public service
information piece selected by the Commissioner of Securities in all of
Prudential Securities' new account packages mailed to Missouri residents; (c)
for a period of three years from the date of the Consent Order, to annually
provide a notice to Prudential Securities' Missouri customers which details the
procedures for filing a complaint with Prudential Securities and the applicable
regulatory authorities. In addition, Prudential Securities agreed to pay a fine
in the amount of $175,000.
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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.
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.
In April 2000 Prudential Securities and nine other national and regional
brokerage firms settled SEC civil administrative charges for overcharging
municipalities for U.S. Treasury securities sold in connection with advance
refundings of municipal bonds during the years 1990-94. In conjunction with the
SEC enforcement action, the U.S. Attorney for the Southern District of New York
and the Department of the Treasury settled civil charges under the False Claims
Act against all ten firms. Prudential Securities agreed to pay $5.88 million
($5.83 million to the Treasury and $55,000 to municipal issuers). These payments
also resolved certain tax-related claims of the IRS.
----------------------
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.
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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
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, as Managing Owner, has a responsibility to
Unitholders to exercise good faith 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.
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. The 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.
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
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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
advisors concerning the implications to such prospective subscribers of
investing in a Delaware Business Trust. The section references below are to
sections in the Declaration of Trust.
PRINCIPAL OFFICE; LOCATION OF RECORDS
The Trust is organized under the Delaware Business Trust Act. The Trust is
administered by the Managing Owner, whose office is located at 411 West Putnam
Avenue, Greenwich, Connecticut 06830 (telephone: (203) 625-7554). The records of
the Trust, including a list of the Unitholders and their addresses, is located
at the foregoing address, and available for inspection and copying, upon payment
of reasonable reproduction costs, by Unitholders or their representatives during
regular business hours as provided in the Declaration of Trust. (Section 10).
There is a limitation to non-commercial purposes. Certain administrative and
transfer agent services are provided at the Managing Owner's Chicago area
office, 1560 Sherman Avenue, Suite 810, Evanston, Illinois 60201.
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
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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 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
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<PAGE>
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 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, 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.
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
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<PAGE>
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," above.
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.
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
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.
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<PAGE>
Interest income (other than so-called "contingent interest") 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-8BEN or
other applicable form.
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 ADVISORS BEFORE DECIDING
WHETHER TO INVEST.
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 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
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<PAGE>
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 FINANCIAL AND LEGAL ADVISORS 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."
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.
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<PAGE>
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 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
RECIPIENT NATURE AND AMOUNT OF COMPENSATION
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 Units sold-- paid by
brokers" PaineWebber Inc.
Up to 3% annually of the net Assets of all Units sold
which remain outstanding more than twelve months -- paid
by PaineWebber Inc.
</TABLE>
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<PAGE>
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 does not represent the Trust or the Unitholders. Richards, Layton &
Finger acted as special counsel to the Trust in connection with assessing the
legality of its securities but does not otherwise 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."
EXPERTS
The Millburn Ridgefield Corporation Statement of Financial Condition as of
December 31, 1999 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, 1999 and 1998 and the statements of operations and of changes in
Trust capital for the years ended December 31, 1999, 1998 and 1997, 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.
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<PAGE>
INDEX TO FINANCIAL STATEMENTS
<TABLE>
<CAPTION>
PAGE
------
THE MILLBURN WORLD RESOURCE TRUST
<S> <C>
Report of Independent Accountants.....................................................................44
Statements of Financial Condition at December 31, 1999 and 1998.......................................45
Statements of Operations for the years ended December 31, 1999, 1998 and 1997.........................46
Statements of Changes in Trust Capital for the years ended December 31,
1999, 1998 and 1997..............................................................................47
Notes to Financial Statements.........................................................................48
MILLBURN RIDGEFIELD CORPORATION
Independent Auditor's Report..........................................................................51
Statement of Financial Condition as of December 31, 1999..............................................52
Notes to Financial Statement..........................................................................53
</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 and the
related statements of operations and of changes in Trust capital present
fairly, in all material respects, the financial position of The Millburn
World Resource Trust at December 31, 1999 and 1998, and the results of its
operations for each of the three years in the period ended December 31, 1999,
in conformity with accounting principles generally accepted in the United
States. 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 auditing standards generally accepted in the
United States, 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
February 11, 2000
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<PAGE>
THE MILLBURN WORLD RESOURCE TRUST
STATEMENTS OF FINANCIAL CONDITION
AT DECEMBER 31, 1999 AND 1998
<TABLE>
<CAPTION>
ASSETS 1999 1998
<S> <C> <C>
Equity in trading accounts:
Cash $ 2,885,005 $ 3,646,692
Investments in U.S. Treasury bills - at value (amortized
cost $20,714,304 and $19,502,626 at December 31,
1999 and 1998, respectively) (Note 2) 20,714,304 19,502,626
Unrealized appreciation on open contracts 3,240,145 6,974,974
Unrealized depreciation on open contracts (259,646) (1,457,528)
------------ ------------
TOTAL EQUITY IN TRADING ACCOUNTS 26,579,808 28,666,764
Money market fund 2,534,912 2,278,968
Investment in U.S. Treasury bills - at value (amortized cost
$24,036,104 and $45,491,917 at December 31,
1999 and 1998, respectively) (Note 2) 24,036,104 45,491,917
------------ ------------
TOTAL ASSETS $ 53,150,824 $ 76,437,649
============ ============
LIABILITIES AND TRUST CAPITAL
Accounts payable and accrued expenses $ 70,961 $ 62,706
Redemptions payable to unitholders, net (Note 8) 2,261,893 2,066,608
Accrued brokerage fees (Note 4) 333,354 487,698
------------ ------------
TOTAL LIABILITIES 2,666,208 2,617,012
------------ ------------
Trust capital (Notes 4, 8 and 9):
Managing Owner interest 848,658 873,631
Unitholders, (44,722.052 and 59,096.099 Units of Beneficial
Interest outstanding at December 31, 1999 and 1998,
respectively) 49,635,958 72,947,006
------------ ------------
TOTAL TRUST CAPITAL 50,484,616 73,820,637
------------ ------------
TOTAL LIABILITIES AND TRUST CAPITAL $ 53,150,824 $ 76,437,649
============ ============
</TABLE>
See accompanying notes to financial statements.
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<PAGE>
THE MILLBURN WORLD RESOURCE TRUST
STATEMENTS OF OPERATIONS
FOR THE YEARS ENDED DECEMBER 31, 1999 1998 AND 1997
<TABLE>
<CAPTION>
1999 1998 1997
<S> <C> <C> <C>
Income (Note 2):
Net gains (losses) on trading of futures,
forward and option contracts
Realized gains (losses)
Futures and forwards $ (913,247) $ 5,390,695 $ 4,123,599
Options -- 1,114,879 (486,783)
Change in unrealized appreciation
(depreciation):
Futures and forwards (2,536,947) 764,120 1,548,085
Options -- (163,054) (73,486)
----------- ----------- -----------
(3,450,194) 7,106,640 5,111,415
Less, Brokerage fees (Note 4) 5,496,697 6,528,321 6,057,327
----------- ----------- -----------
NET REALIZED AND UNREALIZED GAINS
(LOSSES) ON TRADING OF FUTURES,
FORWARD AND OPTION CONTRACTS (8,946,891) 578,319 (945,912)
Interest income 3,026,673 3,810,780 3,467,544
Foreign exchange gain (loss) (33,211) (198,930) 62,685
----------- ----------- -----------
TOTAL INCOME (LOSS) (5,953,429) 4,190,169 2,584,317
----------- ----------- -----------
Expenses (Note 2):
Profit share (Note 4) -- -- 695,667
Administrative expenses 389,267 581,101 345,473
----------- ----------- -----------
389,267 581,101 1,041,140
----------- ----------- -----------
NET INCOME (LOSS) $(6,342,696) $ 3,609,068 $ 1,543,177
=========== =========== ===========
NET INCOME (LOSS) PER UNIT OF
BENEFICIAL INTEREST (NOTE 9) $ (124.50) $ 51.95 $ 32.29
=========== =========== ===========
</TABLE>
See accompanying notes to financial statements.
-46-
<PAGE>
THE MILLBURN WORLD RESOURCE TRUST
STATEMENTS OF CHANGES IN TRUST CAPITAL
FOR THE YEARS ENDED DECEMBER 31, 1999 1998 AND 1997
<TABLE>
<CAPTION>
NEW PROFITS
MEMO MANAGING
UNITHOLDERS ACCOUNT OWNER TOTAL
<S> <C> <C> <C> <C>
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 -- -- -- --
------------ ------------ ------------ ------------
72,947,006 -- 873,631 73,820,637
------------ ------------ ------------ ------------
TRUST CAPITAL AT DECEMBER 31, 1998
Proceeds from sale of 3,163.697 Units of
Beneficial Interest 3,655,051 -- -- 3,655,051
Net loss (6,317,723) -- (24,973) (6,342,696)
Redemptions (17,657.948 Units of Beneficial
Interest) (20,648,376) -- -- (20,648,376)
Limited Partnership Units (120.204) allocated -- -- -- --
------------ ------------ ------------ ------------
TRUST CAPITAL AT DECEMBER 31, 1999 $ 49,635,958 $ -- $ 848,658 $ 50,484,616
============ ============ ============ ============
</TABLE>
See accompanying notes to financial statements.
-47-
<PAGE>
THE MILLBURN WORLD RESOURCE TRUST
NOTES TO FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
1. PARTNERSHIP 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.
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.
-48-
<PAGE>
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.
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, 1999 and
1998, respectively, was $2,980,499 and $5,517,446.
The Trust conducts its trading activities with various brokers acting
either as a broker or counterparty to various transactions. At December
31, 1999 and 1998, respectively, cash and treasury bills, aggregating
$23,599,309 and $23,149,318, 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 or by the
counterparty bank or broker.
-49-
<PAGE>
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.
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.
The fair value of the Partnership's derivative financial instruments at
December 31, 1999 and 1998 is detailed below:
<TABLE>
<CAPTION>
UNREALIZED APPRECIATION
(DEPRECIATION)
------------------------------------
GROSS NET
<S> <C> <C>
DECEMBER 31, 1999:
Exchange traded $ 3,288,946 $ 2,846,384
Non-exchange traded 402,364 134,115
----------------- -----------------
$ 3,691,310 $ 2,980,499
================= =================
DECEMBER 31, 1998:
Exchange traded $ 8,180,903 $ 6,717,476
Non-exchange traded 637,335 (1,200,030)
----------------- -----------------
$ 8,818,238 $ 5,517,446
================= =================
</TABLE>
7. 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.
-50-
<PAGE>
8. 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.
Effective January 1, 2000, approximately $2,133,426 in redemptions were
made by unitholders.
9. NET ASSET VALUE PER UNIT
Changes in net asset value per Unit during the years ended December 31,
1999, 1998 and 1997 were as follows:
<TABLE>
<CAPTION>
1999 1998 1997
<S> <C> <C> <C>
Net realized and unrealized gains (losses)
on futures, forwards and options $ (173.00) $ 8.32 $ (19.79)
Interest income 56.51 54.85 72.56
Foreign exchange gain (loss) (0.65) (2.86) 1.31
Profit share expense -- -- (14.56)
Administrative expenses (7.36) (8.36) (7.23)
--------- --------- ---------
NET INCOME (LOSS) PER UNIT (124.50) 51.95 32.29
Net asset value per Unit, beginning of year 1,234.38 1,182.43 1,150.14
--------- --------- ---------
NET ASSET VALUE PER UNIT,
END OF YEAR $1,109.88 $1,234.38 $1,182.43
========= ========= =========
</TABLE>
10. NEW ACCOUNTING PRONOUNCEMENT
The Trust adopted Statement of Financial Accounting Standards No. 133
(SFAS 133), ACCOUNTING FOR DERIVATIVE INSTRUMENTS AND HEDGING
ACTIVITIES, on January 1, 1999. SFAS 133 requires that an entity
recognize all derivative instruments in the statement of financial
condition and measure those financial instruments at fair value. SFAS
133 has no impact on the Trust's capital and operating results as all
derivative instruments are recorded at fair value, with changes therein
reported in the statements of operations.
In compliance with the Commodity Futures Trading Commission's regulations, I
hereby affirm that to the best of my knowledge and belief, the information
contained in the statements of financial condition of The Millburn World
Resource Trust, at December 31, 1999 and 1998 and the related statements of
operations and of changes in Trust capital for the years ended December 31,
1999, 1998 and 1997 are complete and accurate.
GEORGE E. CRAPPLE, CO-CHIEF EXECUTIVE OFFICER
MILLBURN RIDGEFIELD CORPORATION
MANAGING OWNER OF THE MILLBURN WORLD RESOURCE TRUST
-51-
<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, 1999. 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, 1999,
of $14,008,325, 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, 1999, in conformity with generally accepted accounting
principles.
ARTHUR F. BELL, JR. & ASSOCIATES, L.L.C.
Hunt Valley, Maryland
March 25, 2000
-52-
<PAGE>
MILLBURN RIDGEFIELD CORPORATION
STATEMENT OF FINANCIAL CONDITION
December 31, 1999
---------------
<TABLE>
<S> <C>
ASSETS
Cash and cash equivalents $ 110,530
Fees receivable 3,685,094
Deferred fees 5,605,327
Loans receivable from stockholders and affiliates 4,744,971
Investments in sponsored funds 19,504,886
Other investments 700,642
Furniture and equipment, net of accumulated
depreciation of $649,347 14,242
-------------
Total assets $34,365,692
=============
LIABILITIES
Accounts payable and accrued expenses $ 799,089
Due to affiliated companies 1,525,198
Due to Apollo Fund 562,036
Due to stockholder 600,151
Deferred compensation payable 5,605,327
-------------
Total liabilities 9,091,801
=============
STOCKHOLDERS' EQUITY
Common stock - $.005 par value; 300,000 shares
authorized, 200,000 shares issued and outstanding 1,000
Additional paid-in capital 1,142,983
Stock subscription receivable (600,151)
Retained earnings 24,730,059
------------
Total stockholders' equity 25,273,891
=============
Total liabilities and stockholders' equity $ 34,365,692
=============
</TABLE>
See accompanying notes.
-53-
<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.
-54-
<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
1999, 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, 1999, are as follows:
<TABLE>
<S> <C>
Millburn Global Markets Portfolio L.P. $ 1,601,192
Millburn MCo Partners L.P. 4,680,301
Nestor Partners 5,549,859
The Millburn Global Opportunity Fund L.P. 1,148,788
The Millburn World Resource Trust 848,658
Millburn Currency Fund L.P. 2,149,269
Others 3,526,819
-------------
Total $19,504,886
=============
</TABLE>
-55-
<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, 1999, 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 $65,227,157 $149,616,619 $205,538,713 $46,778,608 $53,150,824 $31,656,312
Liabilities 7,159,809 9,754,114 1,023,360 3,504,003 2,666,208 228,098
----------- ------------ ------------ ----------- ------------- ------------
Net asset value $58,067,348 $139,862,505 $204,515,353 $43,274,605 $50,484,616 $31,428,214
=========== ============ ============ =========== ============== ============
</TABLE>
The combined net asset value of other sponsored funds as of December
31, 1999, is approximately $80,539,000.
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; however, such amount is not
required to exceed $1,000,000. 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. (CIVR) 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 $1,525,198 to The Millburn Corporation at
December 31, 1999 for consulting fees.
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 3.66% to 5.85% during 1999. The
Corporation has a related loan receivable of $562,036 from The
Millburn Corporation (TMC). No specific repayment terms apply to the
borrowing and the loan receivable.
-56-
<PAGE>
MILLBURN RIDGEFIELD CORPORATION
NOTES TO FINANCIAL STATEMENT (CONTINUED)
---------------
Note 3. RELATED PARTY TRANSACTIONS (CONTINUED)
Additionally, the Corporation has loaned funds to 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 $2,090,942 at December 31, 1999.
The Corporation made advances of $1,735,000 to its stockholders and
$100,000 to CIVR during 1999, which remain outstanding at December
31, 1999. The advances are non-interest bearing and are due on
demand. In addition, at December 31, 1999, the Corporation had an
outstanding loan receivable of $256,993 from a certain stockholder.
The loan is due on demand and bears interest at an annualized rate of
2% above the interest rate of a money market fund held by the
Corporation.
On December 31, 1999, the Corporation entered into an agreement with
CIVR to utilize CIVR's trading services and systems for a term of one
year commencing on January 1, 2000. In consideration for these
services, the Corporation has agreed to pay CIVR its net fee income,
as defined in the agreement, and a portion of its deferred fees
earned from certain non-U.S. domiciled entities (see Note 4.) This
agreement automatically renews each year unless terminated by the
Corporation upon 30 days written notice to CIVR.
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 receipt 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 agreements, 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.
The Corporation has agreed to pay these deferred fees to a certain
stockholder, and to CIVR for providing research services and the use
of its research systems (see Note 3). The Corporation is obligated to
pay these amounts only to the extent that it receives payment from
the non-U.S. domiciled entities.
At December 31, 1999, the fees and commissions receivable under the
deferred compensation agreements and the dates they are due are as
follows:
2003 $2,317,586
2004 3,287,741
-----------
$5,605,327
-57-
<PAGE>
MILLBURN RIDGEFIELD CORPORATION
NOTES TO FINANCIAL STATEMENT (CONTINUED)
---------------
Note 5. TRADING ACTIVITIES AND RELATED RISKS
The sponsored funds for which the Corporation is either the general
partner or managing owner engage in speculative trading of futures
contracts, options on futures contracts and forward contracts
(collectively, "derivatives"). These derivatives include both
financial and non-financial contracts held as part of diversified
trading programs and may be traded on an exchange or
over-the-counter. Exchange traded investments are standardized and
include futures and certain options. The sponsored funds are exposed
to both market risk, the risk arising from changes in the market
value of the contracts, and credit risk, the risk of failure by
another party to perform according to the terms of a contract.
Theoretically, the sponsored funds and the Corporation, as general
partner or managing owner, are exposed to market risk equal to the
notional value of derivative contracts purchased and unlimited
liability on such contracts sold short.
The 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>
<S> <C>
2000 $ 64,821
2001 64,821
2002 21,607
----------
$ 151,249
</TABLE>
Note 7. STOCK REPURCHASE AGREEMENT
During 1999, the Corporation entered into an agreement with one of
its stockholders which provides for the Company to repurchase the
stockholder's 26,000 shares on various dates through December 31,
2005, at the then current book value as defined in the agreement. On
December 31, 1999, the Corporation repurchased 6,020 shares of its
common stock from the stockholder for an aggregate purchase price of
$600,151. The Corporation resold these shares on December 31, 1999 to
a new stockholder for $600,151.
Note 8. MINIMUM ADJUSTED NET CAPITAL
The Corporation is subject to the net capital requirements of the
CFTC. At December 31, 1999, the Corporation's regulatory net capital
exceeded the minimum net capital requirement by $8,727,332.
-58-
<PAGE>
PART TWO
STATEMENT OF ADDITIONAL INFORMATION
THE MILLBURN WORLD RESOURCE TRUST
TABLE OF CONTENTS
<TABLE>
<S> <C>
THE FUTURES AND FORWARD MARKETS................................................................................II-1
ANNUAL RATES OF RETURN SINCE INCEPTION
OF THE MILLBURN RIDGEFIELD CLIENT FUNDS........................................................................II-2
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>
THIS IS A SPECULATIVE INVESTMENT. PAST PERFORMANCE IS NOT NECESSARILY INDICATIVE
OF FUTURE RESULTS. SEE "THE RISKS YOU FACE" BEGINNING ON PAGE ___ OF PART ONE.
<PAGE>
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. 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.
II-1
<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 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>
2000 (3 mos.) (8.55) % 2000 (3 mos.) (4.19) % 2000 (3 mos.) (4.53) %
1999 (2.26) 1999 (1.86) 1999 (3.27)
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>
II-2
<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>
2000 (3 mos.) (8.27)% 2000 (3 mos.) (3.27) %
1999 1.26 1999 2.12
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>
<TABLE>
<CAPTION>
MILLBURN WORLD
RESOURCE FUND L.P.
(DIVERSIFIED; PRIVATELY OFFERED)
ANNUAL
YEAR RATES OF RETURN
---- ---------------
<S> <C>
2000 (3 mos.) (4.53)%
1999 (3.97)
1998 10.50
1997 11.87
1996 17.43
1995 36.25
</TABLE>
------------------------
Prospective investors should note that, in general, 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.
II-3
<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> <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
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
-ii-
<PAGE>
(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>
-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.
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
TA-1
<PAGE>
such sixty (60) day period, the Trustee may apply to the Court of Chancery of
the State of Delaware for the appointment of a successor Trustee.
(b) POWERS. Except to the extent expressly set forth in this
Section 2, the duty and authority of the Trustee to manage the business and
affairs of the Trust are hereby delegated to the Managing Owner. The Trustee
shall have only the rights, obligations or liabilities specifically provided for
herein and in the Act and shall have no implied rights, obligations or
liabilities with respect to the business or affairs of the Trust. The Trustee
shall have the power and authority to execute, deliver, acknowledge and file all
necessary documents, including any amendments to or cancellation of the
Certificate of Trust, and to maintain all necessary records of the Trust as
required by the Act. The Trustee shall provide prompt notice to the Managing
Owner of its performance of any of the foregoing. The Managing Owner shall keep
the Trustee informed of any actions taken by the Managing Owner with respect to
the Trust that affect the rights, obligations or liabilities of the Trustee
hereunder or under the Act.
(c) COMPENSATION AND EXPENSES OF THE TRUSTEE. The Trustee
shall be entitled to receive from the Trust or, if the assets of the Trust are
insufficient, from the Managing Owner reasonable compensation for its services
hereunder in accordance with the Trustee's standard fee schedule, and shall be
entitled to be reimbursed by the Trust or, if the assets of the Trust are
insufficient, by the Managing Owner for reasonable out-of-pocket expenses
incurred by the Trustee in the performance of its duties hereunder, including
without limitation, the reasonable compensation, out-of-pocket expenses and
disbursements of counsel and such other agents as the Trustee may employ in
connection with the exercise and performance of its rights and duties hereunder,
to the extent attributable to the Trust.
(d) INDEMNIFICATION. The Managing Owner agrees, whether or not
any of the transactions contemplated hereby shall be consummated, to assume
liability for, and does hereby indemnify, protect, save and keep harmless the
Trustee and its successors, assigns, legal representatives, officers, directors,
agents and servants (the "Indemnified Parties") from and against any and all
liabilities, obligations, losses, damages, penalties, taxes (excluding any taxes
payable by the Trustee on or measured by any compensation received by the
Trustee for its services hereunder or as indemnity payments pursuant to this
Section 2(d)), claims, actions, suits, costs, expenses or disbursements
(including legal fees and expenses) of any kind and nature whatsoever
(collectively, "Expenses"), which may be imposed on, incurred by or asserted
against the Indemnified Parties in any way relating to or arising out of the
formation, operation or termination of the Trust, the execution, delivery and
performance of any other agreements to which the Trust is a party or the action
or inaction of the Trustee hereunder or thereunder, except for Expenses
resulting from the gross negligence or willful misconduct of the Indemnified
Parties. The indemnities contained in this Section 2(d) shall survive the
termination of this Declaration of Trust or the removal or resignation of the
Trustee. In addition, the Indemnified Parties shall be entitled to
indemnification from any cash, net equity in any commodity futures, forward and
option contracts, all funds on deposit in the accounts of the Trust, any other
property held by the Trust, and all proceeds therefrom, including any rights of
the Trust pursuant to any agreements to which the Trust is a party (the "Trust
Estate") to the extent such expenses are attributable to the formation,
operation or termination of the Trust as set forth above, and to 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
TA-2
<PAGE>
other agreement to which the Trust is a party shall look only to the Trust
Estate for payment or satisfaction thereof. The Trustee shall not be liable or
accountable hereunder or under any other agreement to which the Trust is a
party, except for the Trustee's own gross negligence or willful misconduct. In
particular, but not by way of limitation:
(i) the Trustee shall have no liability or responsibility for
the validity or sufficiency of this Declaration of Trust or for the
form, character, genuineness, sufficiency, value or validity of the
Trust Estate;
(ii) the Trustee shall not be liable for any actions taken or
omitted to be taken by it in accordance with the instructions of the
Managing Owner;
(iii) the Trustee shall not have any liability for the acts or
omissions of the Managing Owner;
(iv) the Trustee shall not be liable for its failure to
supervise the performance of any obligations of the Managing Owner, any
commodity broker, any selling agent or any additional selling agent;
(v) no provision of this Declaration of Trust shall require
the Trustee to expend or risk funds or otherwise incur any financial
liability in the performance of any of its rights or powers hereunder
if the Trustee shall have reasonable grounds for believing that
repayment of such funds or adequate indemnity against such risk or
liability is not reasonably assured or provided to it;
(vi) under no circumstances shall the Trustee be liable for
indebtedness evidenced by or other obligations of the Trust arising
under this Declaration of Trust or any other agreements to which the
Trust is a party;
(vii) the Trustee shall be under no obligation to exercise any
of the rights or powers vested in it by this Declaration of Trust, or
to institute, conduct or defend any litigation under this Declaration
of Trust or any other agreements to which the Trust is a 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-
TA-3
<PAGE>
president or by the treasurer or other authorized officers of the relevant
party, as to such fact or matter, and such certificate shall constitute full
protection to the Trustee or the Managing Owner for any action taken or omitted
to be taken by either of them in good faith in reliance thereon.
(ii) In the exercise or administration of the trust hereunder
and in the performance of its duties and obligations under this Declaration of
Trust, the Trustee, at the expense of the Trust, (i) may act directly or through
its agents, attorneys, custodians or nominees pursuant to agreements entered
into with any of them, and the Trustee shall not be liable for the conduct or
misconduct of such agents, attorneys, custodians or nominees if such agents,
attorneys, custodians or nominees shall have been selected by the Trustee with
reasonable care and (ii) may consult with counsel, accountants and other skilled
professionals to be selected with reasonable care by the Trustee; provided that
the Trustee shall not allocate any of its internal expenses or overhead to the
account of the Trust. The Trustee shall not be liable for anything done,
suffered or omitted in good faith by it in accordance with the opinion or advice
of any such counsel, accountant or other such persons.
(h) NOT PART OF TRUST ESTATE. Amounts paid to the Trustee from
the Trust Estate, if any, pursuant to this Section 2 shall not be deemed to be
part of the Trust Estate immediately after such payment.
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.
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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 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.
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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.
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.
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(3) Brokerage Fees shall be charged equally to all Units at
the rate of 0.75 of 1% of the month-end Trust assets (prior to reduction for any
accrued but unpaid fees or Profit Shares) allocable to such Units, not including
the Managing Owner's capital account or the New Profits Memo Account (a 9.0%
annual rate). Such Brokerage Fees shall be paid out to the Managing Owner;
provided that in respect of Units which are subject to Brokerage Fees of 7.0%
per annum of the average month-end Trust assets allocable to such Units, the
difference between the 0.75 of 1% Brokerage Fees charged and the 0.583 of 1%
Brokerage Fee due as of the end of each month shall not be paid out to the
Managing Owner but shall instead be credited to a Suspense Account which shall
not be included in the Net Asset Value of the Units, and shall be used solely as
a means of efficiently accounting for the reduction in the Brokerage Fee payable
by such Unitholders while maintaining a uniform Net Asset Value per Unit.
Brokerage Fees will not be charged to (or calculated on a
basis of average month-end Trust assets which include) either the Managing
Owner's capital account or the New Profits Memo Account. The capital account of
the Managing Owner and the New Profits Memo Account shall be charged for their
respective PRO RATA shares of the out-of-pocket brokerage commissions paid by
the Managing Owner on behalf of the Trust, but not for any Brokerage Fees.
(4) The Managing Owner's Profit Share will equal 17.5% of any
New Trading Profit (as defined in Section 8(c)). As of the end of each month,
the amount of any such Profit Share shall be calculated and shall reduce the Net
Asset Value per Unit. The amount of any such Profit Share shall be deducted from
each Unit's capital account and credited to the New Profits Memo Account, as a
bookkeeping entry only, as of the end of each calendar quarter. The Managing
Owner's capital account and the New Profits Memo Account will not be subject to
the Profit Share.
(5) The amounts credited to the Suspense Account as provided
in Paragraph 3 above as of the end of any month shall be reduced by the 17.5%
Profit Share if there is an accrued Profit Share in respect of the Units as of
the month-end that such amounts are so credited. If such month-end is also a
quarter-end, the amount of such Profit Share shall be credited to the New
Profits Memo Account, as a bookkeeping entry only, and the remainder of the
Suspense Account shall be reinvested in Units as of such month-end, at Net Asset
Value, for the benefit of the appropriate Unitholders. If such month-end is not
also a quarter-end, the Profit Share accrual, as well as the remainder of the
Suspense Account, shall be reinvested in Units as of such month-end, at Net
Asset Value, for the benefit of the appropriate Unitholders.
(6) The Managing Owner's Profit Share with respect to Units
redeemed as of a month-end which is not the end of a calendar quarter shall be
computed as though such month-end were the end of a calendar quarter, and the
amount of the Profit Share so computed shall be deducted from the redeemed
Units' capital accounts and credited to the New Profits Memo Account, as a
bookkeeping entry only.
(7) When Units subject to the 7.0% per annum Brokerage Fee are
redeemed: (i) if a Profit Share is then accrued, the difference between the 9.0%
per annum and 7.0% per annum Brokerage Fee attributable to such Units for the
month-end of redemption shall be assessed a 17.5% Profit Share which shall be
credited to the New Profits Memo Account, as a bookkeeping entry only; and (ii)
the Profit Share, if any, due in respect of such Units shall be calculated on
the same basis as in respect of all other Units, as set forth in Paragraph 4
above, and credited to the New Profits Memo Account, as a bookkeeping entry
only.
If no Profit Share is accrued as of the date of redemption,
then no New Profits Memo Account credits shall be made in respect of any portion
of the Units redeemed.
(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
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Units, the aggregate Net Asset Value of an investor's Units is less than
$1,000,000, such Unitholder will no longer be eligible for 7.0% per annum, as
opposed to a 9.0% Brokerage Fee. Should such person subsequently make an
additional subscription, if the amount of such subsequent subscription plus such
Unitholder's remaining net capital contributions (subscriptions less
redemptions, but assuming redemptions to be made first from accumulated net
profits, not capital contributions) equals $1,000,000 or more, reduced Brokerage
Fees will again apply.
Reduced Brokerage Fees apply to a Unitholder's entire capital
account, not just that part of such capital account corresponding to capital
contributions of $1,000,000 or more.
(b) ALLOCATION OF PROFIT AND LOSS FOR FEDERAL INCOME TAX
PURPOSES. Each of the parties hereto, by entering into this Declaration of
Trust, (i) expresses its intention that the Units will qualify under applicable
tax law as though the Units were interests in a partnership which holds the
Trust Estate for their benefit, (ii) agrees that it will file its own federal,
state and local income, franchise and other tax returns in a manner that is
consistent with the treatment of the Trust as though it were a partnership in
which each of the Unitholders is a partner and (iii) agrees to use reasonable
efforts to notify the Managing Owner promptly upon a receipt of any notice from
any taxing authority having jurisdiction over such Unitholder with respect to
the treatment of the Units as anything other than interests in a partnership. As
of the end of each fiscal year, income and expense and capital gain or loss of
the Trust shall be allocated among the Unitholders pursuant to the following
provisions of this Section 8(b) for federal income tax purposes. Such
allocations shall be PRO RATA from short-term capital gain or loss and long-term
capital gain or loss. For purposes of this Section 8(b), capital gain and
capital loss shall be allocated separately and not netted.
(1) Items of ordinary income and expenses attributable to the
Trust (other than Brokerage Fees, which shall be allocated as set forth in
Section 8(b)(2)), shall be allocated equally among all Units of the Trust
outstanding as of the end of each calendar month (including Units being then
redeemed), and PRO RATA to the account of the Managing Owner.
(2) Ordinary deductions attributable to Brokerage Fees paid to
the Managing Owner shall be allocated to each Unitholder and the Managing Owner
in the same manner as such Brokerage Fees are allocated for financial purposes
pursuant to Section 8(a).
(3) Capital Gain or Loss (as defined in Section 8(b)(3)(H))
shall be allocated as follows:
(A) There shall be established a tax account with respect to
each outstanding Unit and with respect to the Managing Owner. The
initial balance of each tax account shall be the net amount paid to the
Trust for each Unit and the amount contributed to the Trust by the
Managing Owner. Amounts reinvested in Units from the Suspense Account,
as described in Section 8(a) hereof, shall not increase the aggregate
tax basis of the affected Unitholders in their Units; rather the Units
acquired upon reinvestment will have an initial 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.
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(B) The Managing Owner shall be allocated Capital Gain, if
any, up to the amount of any bookkeeping credit to the New Profits Memo
Account, including any credits made as of the end of the fiscal year of
allocation. To the extent any such tax allocation is made, the balance
in the New Profits Memo Account shall be reduced, and the balance in
the Managing Owner's capital account, for financial purposes,
correspondingly increased.
(C) Each Unitholder who redeems a Unit during a fiscal year
(including Units redeemed as of the end of the last day of such fiscal
year) shall be allocated Capital Gain, if any, up to the amount of the
excess, if any, of the amount received in respect of the Units so
redeemed over the sum of the tax accounts (determined after making the
allocation described in Sections 8(b)(1) and 8(b)(2), but prior to
making the allocations described in this Section 8(b)(3)(C)) allocable
to such Units (an "Excess"). In the event that the aggregate amount of
Capital Gain available to be allocated pursuant to this Section
8(b)(3)(C) is less than the aggregate amount of Capital Gain required
to be so allocated, the aggregate amount of available Capital Gain
shall be allocated among all such Unitholders in the ratio which each
such Unitholder's Excess bears to the aggregate Excess of all such
Unitholders.
(D) Capital Gain remaining after the allocation described in
Section 8(b)(3)(C) shall be allocated among all Unitholders who hold
Units outstanding as of the end of the applicable fiscal year (other
than Units redeemed as of the end of the last day of such fiscal year)
whose capital accounts with respect to such Units are in excess of the
related tax accounts (determined after making the allocations described
in Sections 8(b)(1) and 8(b)(2)) allocable to such Units, in the ratio
that each such Unitholder's Excess bears to the aggregate Excess of all
such Unitholders. Capital Gain remaining after the allocation described
in the preceding sentence shall be allocated among all Unitholders
described in said sentence in proportion to their holdings of such
Units.
(E) Each Unitholder who redeems a Unit during a fiscal year
(including Units redeemed as of the end of the last day of such fiscal
year) shall be allocated Capital Loss, if any, up to the amount of the
sum of the excess of the tax accounts (determined after making the
allocations 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 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.
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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 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
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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 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
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Owner or any of their respective affiliates; and such prohibitions may not be
circumvented by any reciprocal business arrangements.
The maximum period covered by any contract entered into by the
Trust, except for the various provisions of the Selling Agreement which survive,
shall not exceed one year. Any material change in the basic investment policies
or structure of the Trust shall require the approval of Unitholders owning Units
representing more than fifty percent (50%) of the total outstanding Units owned
by Unitholders as of a record date established for a vote thereon. Any
agreements between the Trust and the Managing Owner or any affiliate of the
Managing Owner shall be terminable by the Trust upon no more than 60 days'
written notice.
(g) FREEDOM OF ACTION. The Managing Owner is engaged, and may
in the future engage, into other business activities and shall not be required
to refrain from any other activity nor forego any profits from any such
activity, whether or not in competition with the Trust. The Trustee and the
Unitholders may similarly engage in any such other business activities. The
Managing Owner shall devote to the Trust such time as the Managing Owner may
deem advisable to the conduct of the Trust's business and affairs.
10. AUDITS AND REPORTS TO UNITHOLDERS.
The Trust's books shall be audited annually by an independent
certified public accountant. The Trust will use its best efforts to cause each
Unitholder to receive (i) within 90, but in no event later than 120 days, after
the close of each fiscal year certified financial statements for the fiscal year
then ended, (ii) within 90 days of the end of each fiscal year (but in no event
later than March 15 of each year) such tax information as is necessary for a
Unitholder to complete his or her federal income tax return and (iii) such other
annual and monthly information as the Commodity Futures Trading Commission may
by regulation require. Unitholders or their duly authorized representatives may
inspect the books and records of the Trust during normal business hours upon
reasonable written notice to the Managing Owner and obtain copies of such
records upon payment of reasonable reproduction costs; provided, however, that
upon request by the Managing Owner, the requesting Unitholder shall represent
that the inspection and/or copies of such records will not be used for
commercial purposes unrelated to such Unitholder's interest as an investor in
the Trust.
The Managing Owner shall calculate the Net Asset Value per
Unit on a monthly basis and sell and redeem Units at Net Asset Value.
The Brokerage Fees and Profit Share may not be increased
without prior written notice to all Unitholders within sufficient time for the
exercise of their redemption rights prior to any such increase becoming
effective. The Brokerage Fees and the Profit Share may not be increased during
any period when a redemption charge is in effect with respect to any Units.
The Managing Owner shall notify the Unitholders of (i) changes
to the trading method of the Managing Owner which the Managing Owner believes to
be material, (ii) changes in Brokerage Fees, Profit Share or other fees paid by
the Trust or (iii) material changes in the basic investment policies or
structure of the Trust. The Managing Owner shall so notify Unitholders, by
certified mail or other means of notification providing for evidence of
delivery, prior to any such change. Such notification shall set forth 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.
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In particular, and not by way of limitation, the Managing
Owner will retain all Subscription Agreement and Power of Attorney Signature
Pages submitted by persons admitted as Unitholders, and all other records
necessary to substantiate that Units are sold only to purchasers for whom the
Units are a suitable investment, for at least six (6) years after Units are sold
to such persons.
The Managing Owner shall seek the best price and services for
the Trust's trading, and will, with the assistance of the Trust's commodity
broker(s), make an annual review of the commodity brokerage arrangements
applicable to the Trust. In connection with such review, the Managing Owner will
ascertain, to the extent practicable, the commodity brokerage rates charged to
other major commodity pools whose trading and operations are, in the opinion of
the Managing Owner, comparable to those of the Trust, in order to assess whether
the rates charged the Trust are reasonable in light of the services it receives
and the terms upon which the Trust was promoted to subscribers. If, as a result
of such review, the Managing Owner determines that such rates are unreasonable
in light of the services provided to the Trust and the terms upon which the
Trust was promoted, the Managing Owner will notify the Unitholders, setting
forth the rates charged to the Trust and several funds which are, in the
Managing Owner's opinion, comparable to the Trust. The Managing Owner shall also
make an annual review of the forward trading arrangements for the Trust in an
attempt to determine whether such arrangements are competitive with those of
other comparable pools in light of the circumstances.
11. ASSIGNABILITY OF UNITS.
Each Unitholder expressly agrees that he or she will not
assign, transfer or dispose of, by gift or otherwise, any of his or her Units or
any part or all of his or her right, title and interest in the capital or
profits of the Trust in violation of any applicable federal or state securities
laws or without giving written notice to the Managing Owner. No assignment,
transfer or disposition by an assignee of Units or of any part of his or her
right, title and interest in the capital or profits of the Trust shall be
effective against the Trust, the Trustee or the Managing Owner until the
Managing Owner receives the written notice of the assignment; the Managing Owner
shall not be required to give any assignee any rights hereunder prior to receipt
of such notice. The Managing Owner may, in its sole discretion, waive any such
notice. No such assignee, except with the consent of the Managing Owner (such
consent to be withheld only in the event that such assignment could give rise to
negative legal or tax consequences), may become a substituted Unitholder, nor
will the estate or any beneficiary of a deceased Unitholder or assignee have any
right to redeem Units from the Trust except by redemption as provided in Section
12 hereof. Each Unitholder agrees that with the consent of the Managing Owner
any assignee may become a substituted Unitholder without need of the further act
or approval of any Unitholder. If the Managing Owner withholds consent, an
assignee shall not become a substituted Unitholder, and shall not have any of
the rights of a Unitholder, except that the assignee shall be entitled to
receive that share of capital and profits and shall have that right of
redemption to which his or her assignor would otherwise have been entitled. No
assignment, transfer or disposition of Units shall be effective against the
Trust, the Trustee or the Managing Owner until the first business day of the
calendar month following the month in which the Managing Owner receives notice
of such assignment, transfer or disposition. The Managing Owner will send
written confirmation to both the transferors and transferees of Units that the
transfers in question have been duly recorded on the Trust's books and records.
12. REDEMPTIONS.
A Unitholder (including the Managing Owner except to the
extent that its power to redeem is limited by any other provision of this
Declaration of Trust) or any assignee of Units of whom the Managing Owner has
received written notice, may redeem all or any of his or her Units, effective as
of the close of business (as determined by the Managing Owner) on the last
business day of any calendar month, provided that (i) all liabilities,
contingent or otherwise, of the Trust (including the Trust's allocable share of
the liabilities, contingent or otherwise, of any entities in which the Trust
invests), except any liability to Unitholders on account of their capital
contributions, have been paid or there remains property of the Trust sufficient
to pay them and (ii) the Managing Owner shall have received a redemption request
at least ten business days prior to the date of redemption, or such later time
as shall be acceptable to the Managing Owner. Unitholders who redeem Units on or
prior to the end of the first and second successive six-month periods after such
Units are sold will be assessed redemption charges of 4% and 3%, respectively
(3% and 2%, respectively, in the case of Unitholders who have invested
$1,000,000 or more in the Trust), of their Units' Net Asset Value as of the date
of redemption. Units purchased by the same Unitholder on different closing dates
will be treated on a "first-in, first-out" basis for purposes of calculating the
foregoing six-month periods. Additional Units issued to Unitholders subject to a
7.0% rather than a 9.0% annual Brokerage Fee will be
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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, 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
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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 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.
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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 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.
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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.
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 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.
TA-19
<PAGE>
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.
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.
TA-20
<PAGE>
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 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.
TA-21
<PAGE>
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.
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-22
<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-23
<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-24
<PAGE>
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<PAGE>
ANNEX
THE MILLBURN WORLD RESOURCE TRUST
REQUEST FOR REDEMPTION
THE MILLBURN WORLD RESOURCE TRUST ________________________________
C/O MILLBURN RIDGEFIELD CORPORATION. DATE
MANAGING OWNER
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 ______________________
RR-1
<PAGE>
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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 ______, 2000 (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.
SR-1
<PAGE>
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 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>
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.
SA-1
<PAGE>
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 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 and subscriber
has full power and authority to purchase the Units. 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." I am, or
am not required to be, registered with the CFTC or a member of NFA. The
information set forth on the Subscription Agreement and Power of Attorney
Signature Page is correct and complete as of the date of such Subscription
Agreement, and, should there be any material change in such information prior
to my admission to the Trust as a Unitholder, I will immediately furnish
revised or corrected information to the Managing Owner.
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 5.60% to offset expenses, or approximately 8.70% 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>
[PAGE INTENTIONALLY LEFT BLANK]
<PAGE>
[PAGE INTENTIONALLY LEFT BLANK]
\<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 Amendment. The Trust pays all
such costs.
<TABLE>
<CAPTION>
Approximate
Amount
-----------
<S> <C>
Printing Expenses.............................................. 30,000
Fees of Certified Public Accountants........................... 20,000
Blue Sky Expenses (Excluding Legal Fees)....................... 20,000
Fees of Counsel................................................ 50,000
Escrow Fees.................................................... 15,000
Miscellaneous Offering Costs................................... 15,000
--------
Total....................................................... $155,000
========
</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).
</TABLE>
-1-
<PAGE>
<TABLE>
<CAPTION>
<S> <C>
10.01 Form of Subscription Agreement and Power
of Attorney (included as Exhibit C to
the Prospectus).
23.01 Consent of Sidley & Austin.
23.02 Consent of Richards, Layton & Finger.
23.03 Consent of Arthur F. Bell, Jr. &
Associates, L.L.C.
23.04 Consent of PricewaterhouseCoopers LLP
</TABLE>
The following exhibit is incorporated by reference herein from
the exhibit of the same description and number filed with Post Effective
Amendment No. 1 to Registrant's Registration Statement on Form 5-1 (Reg. No.
333-50209) as filed with the Commission on April 19, 1999.
<TABLE>
<CAPTION>
Exhibit
Number Description of Document
------ -----------------------
<S> <C>
8.01 Opinion of Sidley & Austin with respect to
federal income tax consequences.
</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. 333-50209) as filed with the
Commission on April 15, 1998, and which became effective on May 13, 1998.
<TABLE>
<CAPTION>
Exhibit
Number Description of Document
------ -----------------------
<S> <C>
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.
</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.
-2-
<PAGE>
<S> p
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
(amended) of Attorney.
</TABLE>
The following exhibits are incorporated by reference herein
from the exhibits of the same description and number filed with Amendment No. 1
to Registrant's Registration Statement on Form S-1 (Reg. No. 33-90756), as filed
with the Commission on June 27, 1995 and which became effective on July 12,
1995.
<TABLE>
<CAPTION>
Exhibit
Number Description of Document
------ -----------------------
<S> <C>
3.02 Certificate of Trust of the Registrant.
99.03 Treatment of Delaware Business Trusts.
99.04 North American Securities Administrators
Association, Inc. Guidelines for the
Registration of Commodity Pool Programs.
</TABLE>
The following exhibits are incorporated by reference herein
from the exhibits of the same description and number filed with Registrant's
Registration Statement on Form S-1 (Reg. No. 33-90756), as filed with the
Commission on April 4, 1995 and which became effective on July 12, 1995.
<TABLE>
<CAPTION>
Exhibit
Number Description of Document
------ -----------------------
<S> <C>
99.01 Securities and Exchange Commission
Release No. 33-6815 -- Interpretation
and Request for Public Comment --
Statement of the Commission Regarding
Disclosure by Issuers of Interests in
Publicly Offered Commodity Pools. (54
Fed. Reg. 5600; February 6, 1989).
99.02 Commodity Futures Trading Commission --
Interpretive Statement and Request for
Comments -- Statement of the Commodity
Futures Trading Commission Regarding
Disclosure by Commodity Pool Operators
of Past Performance Records and Pool
Expenses and Requests for Comments. (54
Fed. Reg. 5597; February 6, 1989).
</TABLE>
(b) Financial Statement Schedules.
No Financial Schedules are required to be filed herewith.
-3-
<PAGE>
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.
-4-
<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 26th day
of April, 2000.
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>
<S> <C> <C>
/s/ GEORGE E. CRAPPLE Co-Chief Executive April 26, 2000
-------------------------- Officer and Director (Principal
George E. Crapple Executive Officer)
/s/ HARVEY BEKER President, Co-Chief Executive Officer April 26, 2000
-------------------------- 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.)
MILLBURN RIDGEFIELD CORPORATION
Managing Owner of Registrant
<TABLE>
<S> <C>
By /s/ HARVEY BEKER April 26, 2000
----------------
Harvey Beker
President
</TABLE>
-5-
<PAGE>
THE MILLBURN WORLD RESOURCE TRUST
EXHIBIT INDEX
Exhibit
Number Description of Document
------ -----------------------
3.01 Second Amended and Restated Declaration of Trust and Trust
Agreement of the Registrant (included as Exhibit A to the
Prospectus).
10.01 Form of Subscription Agreement and Power of Attorney (included
as Exhibit C to the Prospectus).
23.01 Consent of Sidley & Austin.
23.02 Consent of Richards, Layton & Finger
23.03 Consent of Arthur F. Bell, Jr. & Associates, L.L.C.
23.04 Consent of PricewaterhouseCoopers L.L.P.
<PAGE>
EXHIBIT 23.01
CONSENT OF COUNSEL
We consent to the references to our firm under the captions "Federal Income
Tax Aspects" and "Legal Matters" in Post-Effective Amendment No. 2 to the
Form S-1 Registration Statement (Reg. No. 33-50209) as filed with the United
States Securities Exchange Commission on or about April 26, 2000 and the
related Prospectus of The Millburn World Resource Trust.
Sidley & Austin
April 26, 2000
<PAGE>
Exhibit 23.02
CONSENT OF COUNSEL
We consent to the reference to our firm under the caption "Legal Matters" in
Post-Effective Amendment No. 2 to the Form S-1 Registration Statement (Reg.
No. 333-50209) as filed with the United States Securities Exchange Commission
on or about April 26, 2000 and the related Prospectus of The Millburn World
Resource Trust. In giving the foregoing consent, 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 SEC
thereunder.
Richards, Layton & Finger, P.A.
April 26, 2000
<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 25, 2000 on our audit of the
statement of financial condition of the Millburn Ridgefield Corporation as of
December 31, 1999 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 24, 2000
<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 February 11, 2000, 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 26, 2000
