WORLD MONITOR TRUST II
Series D ($50 million), Series E ($50 million) and Series F ($50 million)
Minimum Initial Purchase $5,000 or $2,000 (for IRAs only)
in one or more series
Minimum Per Series $1,000
Minimum Additional Purchases $100 per series
Each series trades speculatively in a diversified
portfolio of futures, forward (including interbank
foreign currencies) and/or options contracts.
Interests in each series are separately offered. The
assets of each series are segregated from the other
series. Each series is separately valued and
independently managed. Each week you are able to
purchase additional interests, exchange your interests
in one series for interests in another series or redeem
your interests. Interests are priced at their net
asset value as of the end of each week.
Series Trading Advisor Trading Program(s)
D Bridgewater Associates, Inc. Aggressive Pure Alpha
Futures Only System
E Graham Capital Management, L.P. Global Diversified Program
F Campbell & Company, Inc. FME Small Portfolio
- -These are speculative securities. Before you decide
whether to invest, read this entire prospectus
carefully and consider the "RISK FACTORS" section
that begins on page 17. In particular, you should
be aware that:
- -Futures, forward and options trading is speculative,
volatile and highly leveraged.
- -You could lose a substantial portion, or even all,
of your investment.
- -Past performance is not necessarily indicative of
future results.
- -Each series relies on its trading advisor for
success.
- -Your annual tax liability for taxable income from a
series will exceed distributions to you.
- -If you redeem an interest in any series during the
first 12 months following the effective date of your
purchase of that interest, you will be charged a
redemption fee, except in defined circumstances.
- -The fixed expenses of each series requires estimated
gains of 4.88% per annum (Series D), 5.31% per annum
(Series E) and 5.00% per annum (Series F) to break
even. These break even amounts increase if you have
to pay redemption fees.
- -Transfers are restricted, the interests are not
exchange listed and no other secondary market exists
for the interests.
- -You are required to make representations and warranties
in connection with this investment. You are encouraged
to discuss this investment with your individual
financial, legal and tax advisors.
- -Your liability for any series will not exceed your
investment in that series.
- -Subscription funds will not be subject to fees or
other deductions.
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED
BY THE SECURITIES AND EXCHANGE COMMISSION (THE "SEC") OR
ANY STATE SECURITIES COMMISSION NOR HAS THE SEC OR ANY
STATE SECURITIES COMMISSION PASSED UPON THE ACCURACY OR
ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE
CONTRARY IS A CRIMINAL OFFENSE.
THE COMMODITY FUTURES TRADING COMMISSION (THE "CFTC")
HAS NOT PASSED UPON THE MERITS OF PARTICIPATING IN THE
TRUST NOR HAS THE CFTC PASSED ON THE ACCURACY OR
ADEQUACY OF THIS PROSPECTUS.
PRUDENTIAL SECURITIES INCORPORATED
Selling Agent and Clearing Broker
PRUDENTIAL SECURITIES FUTURES MANAGEMENT INC.
Managing Owner and Sponsor
The date of this prospectus is April 3, 2001
COMMODITY FUTURES TRADING COMMISSION
RISK DISCLOSURE STATEMENT
YOU SHOULD CAREFULLY CONSIDER WHETHER YOUR
FINANCIAL CONDITION PERMITS YOU TO PARTICIPATE IN A
COMMODITY POOL. IN SO DOING, YOU SHOULD BE AWARE THAT
FUTURES AND OPTIONS TRADING CAN QUICKLY LEAD TO LARGE
LOSSES AS WELL AS GAINS. SUCH TRADING LOSSES CAN
SHARPLY REDUCE THE NET ASSET VALUE OF THE POOL AND
CONSEQUENTLY THE VALUE OF YOUR INTEREST IN THE POOL.
IN ADDITION, RESTRICTIONS ON REDEMPTIONS MAY AFFECT
YOUR ABILITY TO WITHDRAW YOUR PARTICIPATION IN THE
POOL.
FURTHER, COMMODITY POOLS MAY BE SUBJECT TO
SUBSTANTIAL CHARGES FOR MANAGEMENT AND ADVISORY AND
BROKERAGE FEES. IT MAY BE NECESSARY FOR THOSE POOLS
THAT ARE SUBJECT TO THESE CHARGES TO MAKE SUBSTANTIAL
TRADING PROFITS TO AVOID DEPLETION OR EXHAUSTION OF
THEIR ASSETS. THIS DISCLOSURE DOCUMENT CONTAINS A
COMPLETE DESCRIPTION OF EACH EXPENSE TO BE CHARGED THIS
POOL AT PAGES 94 TO 99 AND A STATEMENT OF THE
PERCENTAGE RETURN NECESSARY TO BREAK EVEN, THAT IS, TO
RECOVER THE AMOUNT OF YOUR INITIAL INVESTMENT, AT PAGE
15.
THIS BRIEF STATEMENT CANNOT DISCLOSE ALL THE RISKS
AND OTHER FACTORS NECESSARY TO EVALUATE YOUR
PARTICIPATION IN THIS COMMODITY POOL. THEREFORE,
BEFORE YOU DECIDE TO PARTICIPATE IN THIS COMMODITY
POOL, YOU SHOULD CAREFULLY STUDY THIS DISCLOSURE
DOCUMENT, INCLUDING A DESCRIPTION OF THE PRINCIPAL RISK
FACTORS OF THIS INVESTMENT AT PAGES 17 TO 23.
YOU SHOULD ALSO BE AWARE THAT THIS COMMODITY POOL
MAY TRADE FOREIGN FUTURES OR OPTIONS CONTRACTS.
TRANSACTIONS ON MARKETS LOCATED OUTSIDE THE UNITED
STATES, INCLUDING MARKETS FORMALLY LINKED TO A UNITED
STATES MARKET, MAY BE SUBJECT TO REGULATIONS WHICH
OFFER DIFFERENT OR DIMINISHED PROTECTION TO THE POOL
AND ITS PARTICIPANTS. FURTHER, UNITED STATES
REGULATORY AUTHORITIES MAY BE UNABLE TO COMPEL THE
ENFORCEMENT OF THE RULES OF REGULATORY AUTHORITIES OR
MARKETS IN NON-UNITED STATES JURISDICTIONS WHERE
TRANSACTIONS FOR THE POOL MAY BE EFFECTED.
--------------
- -You should rely only on
the information
contained in this
prospectus or
incorporated by
reference (all of which
legally form a part of
the prospectus). We
have not authorized
anyone to provide you
with information that
is different.
- -There is no guarantee
that information in
this prospectus is
correct as of any time
after the date
appearing on the cover.
- -This prospectus must be
accompanied by a recent
monthly report of the
Trust.
- -Prudential Securities
Incorporated (referred
to as Prudential
Securities) and any
additional sellers must
deliver any
supplemented or amended
prospectus issued by
the Trust.
- -This prospectus is not
an offer to sell, nor
is it seeking an offer
to buy these securities
in any jurisdiction
where the offer or sale
is not permitted.
- -World Monitor Trust II
(referred to as the
Trust) is not a mutual
fund or any other type
of investment company
within the meaning of
the Investment Company
Act of 1940, as
amended, and is not
subject to the
regulations under that
Act.
- -You should not invest
more than 10% of your
"liquid" net worth
(exclusive of home,
home furnishings and
automobiles in the case
of individuals or
readily marketable
securities in the case
of entities) in any
series of the Trust or
in the Trust as a
whole.
- -If you are an
Individual Retirement
Account (referred to as
an IRA), 401(k) or
ERISA plan, you should
not invest more than
10% of your assets in
the Trust.
2
TABLE OF CONTENTS
-----------------
PART ONE: CFTC DISCLOSURE DOCUMENT
CFTC RISK DISCLOSURE STATEMENT 2
SUMMARY OF THE PROSPECTUS 5
Seclected Financial Information 13
Summary Of Fees And Expenses 14
Projected Twelve-Month Break-Even Analyses 15
RISK FACTORS 17
Trading And Performance Risks 17
Trading Advisor Risks 20
Trust And Offering Risks 20
Tax Risks 21
Regulatory Risks 22
ACTUAL AND POTENTIAL CONFLICTS OF INTEREST 24
STRUCTURE OF THE TRUST 26
PERFORMANCE OF EACH SERIES 27
SERIES D 40
Bridgewater Associates And Its Principals 40
Bridgewater Associates' Trading Strategy 41
Bridgewater Associates' Past Performance
For All Of Its Clients 43
SERIES E 49
Graham Capital And Its Principals 49
Graham Capital's Trading Strategy 51
Graham Capital's Past Performance
For All Of Its Clients 55
SERIES F 60
Campbell & Company And Its Principals 60
Campbell & Company's Trading Strategy 62
Campbell & Company's Past Performance
For All of Its Clients 65
TRADING LIMITATIONS AND POLICIES 70
DESCRIPTION OF THE TRUST, TRUSTEE, MANAGING
OWNER AND AFFILIATES 72
DUTIES AND COMMITMENTS OF THE MANAGING OWNER 81
FIDUCIARY RESPONSIBILITIES 83
THE OFFERING 84
WHO MAY SUBSCRIBE 88
HOW TO SUBSCRIBE FOR, EXCHANGE AND REDEEM INTERESTS 91
FEES AND EXPENSES 94
Charges To Be Paid By The Trust 94
3
Charges To Be Paid By Prudential Securities
Or Its Affiliates 98
Charges To Be Paid By Limited Owners 98
Projected Twelve-Month Break-Even Analysis 99
SUMMARY OF AGREEMENTS 100
Advisory Agreements 100
Brokerage Agreement 101
Trust Agreement 102
U.S. FEDERAL INCOME TAX CONSEQUENCES 111
LEGAL MATTERS 114
ADDITIONAL INFORMATION 114
EXPERTS 114
PART TWO: CFTC STATEMENT OF ADDITIONAL INFORMATION
THE FUTURES MARKETS 115
HOW MANAGED FUTURES FIT INTO A PORTFOLIO 120
GLOSSARY OF TERMS 122
INDEX TO CERTAIN FINANCIAL INFORMATION 127
FINANCIAL STATEMENTS
World Monitor Trust II -- Series D 128
World Monitor Trust II -- Series E 136
World Monitor Trust II -- Series F 144
Managing Owner 152
Diversified Futures Trust I 157
EXHIBIT A -- FORM OF TRUST AGREEMENT A-1
EXHIBIT B -- FORM OF REDEMPTION REQUEST B-1
EXHIBIT C -- FORM OF EXCHANGE REQUEST C-1
EXHIBIT D -- FORM OF SUBSCRIPTION AGREEMENT D-1
State Suitability Requirements D-13
4
PART ONE
CFTC DISCLOSURE DOCUMENT
This is Part One of a two-part CFTC disclosure document.
SUMMARY OF THE PROSPECTUS
This summary outlines certain important aspects of
an investment in Series D, Series E and/or Series F.
You are referred to the Glossary beginning on page 122
for the definition of any term you may not understand.
The Trust
The Trust was formed as a Delaware
Business Trust on April 22, 1999,
with separate series of interests.
The principal offices of the Trust
and of Prudential Securities Futures
Management Inc. (referred to as the
managing owner) are located at One
New York Plaza, 13th Floor, New
York, New York 10292-2013; phone
(212) 778-7866.
The Series
Currently, the Trust's interests are
offered in three separate and
distinct series: Series D, Series E
and Series F. The series commenced
trading activities during March and
April of 2000. Each series:
- -Engages in the speculative trading
of a diversified portfolio of
futures, forward (including
interbank foreign currencies)
and/or options contracts and may,
from time to time, engage in cash
and spot transactions.
- -Has a one-year renewable contract
with its own independent
professional trading advisor that
manages 100% of that series'
assets and makes the trading
decisions for that series.
- -Trades and accounts for its assets
separately from the other series
and the other Trust assets.
- -Segregates its assets from the
other series and maintains
separate and distinct records.
- -Calculates the net asset value
(sometimes referred to as the NAV)
of its interests separately from
the net asset value of the other
series.
- -Has an investment objective of
increasing the value of your
interests over the long term
(capital appreciation), while
controlling risk and volatility.
5
Performance of Each Series
Series D Series E Series F
Date trading started (3/13/00) (4/5/00) (3/1/00)
NAV on start date $5,279,158 $5,147,459 $5,185,772
NAV on 12/31/00 $6,052,627 $6,106,314 $7,925,332
NAV on 3/31/01 $5,272,096 $6,942,871 $10,034,148
NAV per interest
on start date $100 $100 $100
NAV per interest
on 12/31/00 $87.49 $120.36 $106.90
NAV per interest
on 3/31/01 $77.36 $133.52 $112.51
Series D
Trading for Series D is directed by
Bridgewater Associates, Inc.
(referred to as Bridgewater
Associates). Bridgewater Associates
has been operating its trading
systems since 1985. As of February
28, 2001, Bridgewater Associates had
an estimated $15.8 billion in
investor funds (including notional
funds) under management.
Bridgewater Associates directs
trading for 100% of Series D's
assets pursuant to its Aggressive
Pure Alpha Futures Only System.
Series D trades a portfolio of
financial related instruments.
Series E
Trading for Series E is directed by
Graham Capital Management, L.P.
(referred to as Graham Capital).
Graham Capital has been operating
its trading systems on behalf of
clients since February 1995. As of
February 28, 2001, Graham Capital had
approximately $741 million in
investor funds (including notional
funds) under management. Graham
Capital directs trading for 100% of
Series E's assets according to its
Global Diversified Program. Series
E trades a diversified portfolio
including approximately 80 global
markets.
Series F
Trading for Series F is directed by
Campbell & Company, Inc. (referred
to as Campbell & Company). Campbell
& Company has been operating its
trading systems since April 1978 and
is a successor to a partnership
originally organized in January
1974. As of February 28, 2001,
Campbell & Company had approximately
$2.3 billion in investor funds
(including notional funds) under
management. Campbell & Company
directs trading for 100% of Series'
F's assets pursuant to The
Financial, Metal & Energy Small
Portfolio (referred to as its the
FME Small Portfolio) which invests
in a broadly diversified futures
portfolio of currency, interest
rate, stock index, metal and energy
contracts.
Risk Factors To Consider
Interests in each series are
speculative securities, and an
investment in any series of the
Trust involves a high degree of
risk. You should be aware that the
following risks, listed in
descending order of significance,
apply to each series.
- -Futures, forward and options
contracts trading is speculative,
volatile and highly leveraged, and
you could lose a substantial
portion or even all of your
investment.
- -The trading advisors' programs may
not perform for each series as
they have performed in the past,
and you should not rely on past
performance to predict the results
of an investment in a series.
6
Risk Factors To Consider
(Continued)
- -Each series is traded by a single
advisor rather than by dispersing
the risk among several advisors,
and if that advisor does not trade
well, that series will not be
profitable. There is no guarantee
that any series will meet its
intended objective.
- -Your annual tax liability for any
taxable income from a series will
exceed cash distributions to you
from the Trust.
- -If you redeem an interest in any
series during the first 12 months
following the effective date of
your purchase, you will be charged
redemption fees (4% in the first
6-month period, 3% in the second
6-month period), except in defined
circumstances.
- -Each series has large fixed
expenses. Assuming a net asset
value of $5 million and interest
income equal to 5.00% annually, we
estimate that the series' gains
from trading must be 4.88% per
annum (Series D), 5.31% per annum
(Series E) and 5.00% per annum
(Series F) in order to break even.
These break even amounts increase
if you have to pay redemption
fees.
- -Although the Trust offers weekly
purchase, exchange and redemption
rights, liquidity is limited
because of transfer restrictions
and because of the absence of any
exchange listing or secondary
trading market for the interests.
- -Actual and potential conflicts of
interest exist among Prudential
Securities, the managing owner and
the trading advisors. For
example, conflicts related to the
brokerage fee and effecting
transactions or trading for their
own accounts and other accounts
may create an incentive for
Prudential Securities, the
managing owner and the trading
advisors to benefit themselves
rather than you, the investor.
- -You will have limited voting
rights and no control over the
Trust's business.
- -Although an investment in the
series is designed to diversify
your portfolio, we cannot assure
you that diversification will
create profits for you.
The Trustee
Wilmington Trust Company, a Delaware
banking corporation, is the Trust's
sole trustee (referred to as the
trustee). The trustee has delegated
to the managing owner all of the
power and authority to manage the
business and affairs of the Trust
and has only nominal duties and
liabilities to the Trust.
The Managing Owner
The managing owner is a wholly-owned
subsidiary of Prudential Securities,
and as the managing owner it:
- -Administers the business and
affairs of each series (excluding
commodity trading decisions,
except in certain limited, and
essentially emergency,
situations).
- -Makes a contribution to each
series in order to maintain at
least a 1% interest in the profits
and losses of each series at all
times.
- -Accepts responsibility for the
obligations of any series whose
liabilities exceed its assets.
7
Prudential Securities
Prudential Securities, the parent
company of the managing owner, is
the Trust's selling agent and
clearing broker.
Its affiliates also indirectly
engage in foreign currency forward
transactions with the various series
for a profit. Because of Prudential
Securities' affiliation with the
managing owner, these arrangements
have not been negotiated at arm's
length.
All compensation to Prudential
Securities and its affiliates is
within the limits of applicable
regulatory guidelines.
Limitation Of Liabilities
The debts, liabilities, obligations,
claims, and expenses of a particular
series are charged against the
assets of that series only and not
against the assets of the Trust
generally or against the assets of
any other series.
Liabilities You Assume
You cannot lose more than your
investment in any series, and you
will not be subject to the losses or
liabilities of any series in which
you have not invested. We have
received opinions of Rosenman &
Colin LLP, counsel to the Trust, and
Richards, Layton & Finger, P.A.,
special Delaware counsel to the
Trust and the trustee. These
opinions provide that creditors of
and equity holders in any particular
series have recourse only to the
assets of that series and to the
assets of the managing owner and not
to the assets of any other series,
provided that certain requirements
are met. These requirements include
treating each series as separate and
distinct from the other series. See
the "Liabilities" section in the
trust agreement for a more complete
explanation.
Who May Subscribe
To subscribe for the interests of
any series:
- -You must generally have a net
worth (exclusive of home, home
furnishings and automobiles) of at
least $150,000 or a net worth,
similarly calculated, of at least
$45,000 and an annual gross income
of at least $45,000, although
several states impose higher
requirements. See the section in
the subscription agreement
(Exhibit D) entitled "State
Suitability Requirements."
- -You may not invest more than 10%
of your liquid net worth in any
series or combination of series.
- -IRAs, 401(k) accounts and other
employee benefit plans are subject
to special suitability
requirements.
- -If your aggregate interests in all
series, when added to your
aggregate interests in the various
series of World Monitor Trust,
another public futures fund
sponsored by the managing owner,
total at least $5 million, you may
receive a discount on the purchase
price of an interest and/or have
any applicable redemption fees
waived.
What You Must Understand
Before You Subscribe
You should not subscribe for
interests unless you understand:
- -The fundamental risks and possible
financial hazards of this
investment.
- -The trading strategy or strategies
to be followed in the series
you invest in.
- -The tax consequences of your
investment in the series.
8
What You Must Understand
Before You Subscribe (continued)
- -That if you decide to sell
securities in your Prudential
Securities account to subscribe
for interests, you may have income
tax consequences from that sale.
- -The fees and expenses to which you
will be subject.
- -Your rights and obligations as a
limited owner.
Your Minimum Subscription
And Interest Pricing
Minimum required subscriptions and
interest prices are as follows:
- -Your minimum initial purchase is
$5,000, unless you are investing
in an IRA in which case your
minimum initial investment is
$2,000.
- -You may purchase interests in all
or any combination of the series
so long as your total minimum
subscription amount is satisfied,
but your minimum initial purchase
in any one series must be at least
$1,000.
- -Each series' interests are being
offered and sold at their weekly
net asset value; if you are an
existing limited owner, you may
purchase additional interests in
increments of $100.
- -No front-end sales charges or
selling commissions are charged.
A series' net asset value is not
diluted by the Trust's
organization and ongoing offering
expenses because Prudential
Securities or an affiliate is not
responsible for payment of those
expenses.
How To Subscribe
To subscribe for and be permitted to
purchase any series' interests:
- -You must complete and sign a
subscription agreement (Exhibit
D).
- -You are required to have a
securities account with Prudential
Securities (or with another
brokerage firm, which is referred
to as an additional seller) and to
have funds in that account equal
to the amount of your purchase at
the time you subscribe.
- -You must subscribe in cash.
- -You must meet the established
application time deadlines.
You may revoke your subscription
within five business days after you
submit a subscription agreement to
Prudential Securities or to an
additional seller. You may not
revoke it after that time. The
managing owner may reject any
subscription in whole or in part for
any reason.
How The Offering Works
Interests in each series will be
sold once each week until the total
amount of interests registered for
sale with the SEC for each series is
issued, either through sale or
exchange. For purposes of
describing the purchase, exchange
and redemption of interests, the
following terms are used:
- -"Dealing day" means the first
business day of each week.
- -"Valuation point" means the close
of business on Friday of each
week.
The sale price, or net asset value
per interest, is set at a valuation
point, and subscriptions for new
interests become effective on a
dealing day. Generally, interests
are priced at the close of business
on a Friday, and new purchases
become effective at that price on
the following Monday. To
9
How The Offering Works
(Continued)
purchase interests, you must submit your
subscription agreement (Exhibit D)
at least five business days (or two
business days if you are an existing
investor purchasing additional
interests of a series you currently
own) before any given dealing day.
Additional time may be required
before your subscription is approved
by the managing owner. Due to this
waiting period, the purchase price
of your interests is not fixed on
the date you submit your
subscription but is instead
finalized on the valuation point
immediately preceding the dealing
day on which your purchase is
eligible to become effective. There
may be a considerable difference
between the net asset value of an
interest on the date you submit your
subscription and the dealing day on
which your purchase becomes
effective.
Purchases Of Additional
Interests
If you are a limited owner of
interests in a particular series and
wish to purchase additional
interests in that same series, you
must submit your subscription
agreement (Exhibit D) at least two
business days before any given
dealing day, and your subscription
for additional interests must be
approved by the managing owner.
Additional interests will be sold at
the applicable series' then-current
net asset value per interest at the
valuation point immediately
preceding the dealing day on which
your purchase of additional
interests is eligible to become
effective. Purchases of additional
interests are subject to changes in
net asset value per interest between
the date you submit a subscription
agreement (Exhibit D) and the
dealing day on which your purchase
becomes effective.
Exchange Of Interests
Interests you own in one series may
be exchanged for interests of one or
more other series for as long as the
interests in the series for which
exchange is being made are offered
for sale. To make an exchange, you
must complete an exchange request
(Exhibit C). You must submit your
exchange request at least five
business days before any given
dealing day, and the exchange must
be approved by the managing owner.
Exchanges are made at the applicable
series' then-current net asset
values per interest at the valuation
point immediately preceding the
dealing day on which your exchange
is eligible to become effective.
Exchanges, like subscriptions, are
subject to changes in net asset
value per interest between the date
you submit an exchange request and
the dealing day on which your
exchange becomes effective. The
exchange of interests will be
treated as a redemption of interests
in one series and the simultaneous
purchase of interests in the series
you exchange into. Tax consequences
will result. No exchange charges
are imposed.
Segregated Accounts/
Interest Income
The proceeds of the offering for
each series are deposited in cash in
separate segregated trading accounts
maintained for each series at
Prudential Securities in accordance
with CFTC regulatory requirements.
These funds are maintained in
segregation unless they are (i)
secured amounts used as margin for
trading on foreign exchanges or (ii)
used as margin to maintain a series'
forward currency contract positions
or a position on a non-U.S.
exchange. Funds are maintained in
cash. On the last day of each
month, each series receives interest
income on 100% of its average daily
equity maintained in cash in the
series' account with Prudential
Securities during that month at a
13-week (91-day) Treasury bill rate.
This rate is determined weekly by
Prudential Securities and is the
rate awarded to all bidders during
that week based on the results of
that week's auction of 13-week (91-
day) Treasury bills. The weekly
interest rate may be found on the
Internet at www.publicdebt.treas.gov.
While funds currently are maintained in
cash, in the event that funds are
maintained in Treasury bills instead
of cash, the series will receive the
interest income paid on such
Treasury bills.
10
Segregated Accounts/
Interest Income (continued)
If you redeem or purchase interests
of a series on a day other than the
last day of a month, the interest
income will be pro rated through the
date of purchase or redemption for
purposes of determining net asset
value.
Use Of Proceeds
One hundred percent of each series'
offering proceeds is used for that
series' trading activities.
Organization And
Offering Expenses
Prudential Securities or an
affiliate is responsible for the
payment of all of the expenses
associated with the organization of
the Trust and the offering of each
series' interests. No series is
required to reimburse Prudential
Securities or its affiliate for
these expenses.
Transfer Of Interests
The trust agreement restricts the
transferability and assignability of
the interests of each series. There
is not now, nor is there expected to
be, a primary or secondary trading
market for the interests of any
series.
Redemption Of Interests
You may sell back to the Trust, in
whole or in part, interests you own
in any series. This sale is
referred to as a redemption.
Redemptions may be made each week at
the beginning of the dealing day.
To redeem your interests, you must
deliver your redemption request
(Exhibit B) at least two business
days prior to a given dealing day.
The redemption price is the net
asset value per interest on the
valuation point immediately
preceding the dealing day on which
your redemption is eligible to
become effective. Redemptions are
subject to changes in net asset
value between the date you deliver
your redemption request and the
dealing day on which your redemption
becomes effective.
Redemption Fees
If you redeem interests in any
series on or before the end of 12
full months following the effective
date of purchase of the interests
being redeemed, you will be subject
to the following redemption fees:
Redemption Date Redemption Fee
up to six months 4% of redemption price
from the effective
date of purchase
after the sixth 3% of redemption price
month and through
the 12th month from
the effective date
of purchase
Redemption fees may be waived if:
- -Your aggregate interests in all
series, when added to your
aggregate interests in the various
series of World Monitor Trust,
another public futures fund
sponsored by the managing owner,
total at least $5 million.
Redemption fees will be waived if:
- -The redemption proceeds are used
to effect an exchange for
interests in another series.
- -The redemption proceeds are used
to purchase interests in another
fund sponsored by the managing
owner.
Distributions
The managing owner does not intend
to make ongoing distributions.
11
Income Tax Consequences
Based on the facts set forth in this
prospectus, the managing owner's
representations and current U.S.
federal income tax law, we have
obtained an opinion of Rosenman &
Colin LLP to the effect that each
series in the Trust will be treated
as a partnership provided that at
least 90% of each series' annual
gross income consists of "qualifying
income" as defined in the Internal
Revenue Code. The managing owner
believes that each series currently
satisfies this test.
As long as each series is treated as
a partnership for U.S. federal
income tax purposes, the Trust and
each series in the Trust will not be
subject to any U.S. federal income
tax as an entity. Instead, as a
limited owner, your allocable share
of annual trading profits and other
income generated from the series in
which you have purchased interests
will be taxable to you whether or
not any cash is distributed to you
by the Trust. Your ability to
deduct any losses that may be
incurred and the expenses relating
to the Trust's trading activities
may be subject to significant
limitations. The excess of a
series' capital losses over capital
gains will be deductible by you if
you are a non-corporate limited
owner only against your capital gain
income each year (and up to $3,000
per year against your ordinary
income). Furthermore, special tax
risks apply if you are a tax-exempt
limited owner or a non-U.S. investor.
Reports
During the year, you will receive
unaudited monthly reports and an
annual financial statement audited
by the Trust's independent
accountants. You also will be
provided with appropriate
information to permit you to file
your federal and state income tax
returns.
Fiscal Year
The Trust's fiscal year runs from
January 1 through December 31.
Financial Information
Financial information concerning the
Trust and the managing owner is set
forth under "FINANCIAL STATEMENTS."
12
Selected Financial Information
As of December 31, 2000 and for
the period from commencement
of operations to December 31, 2000
Series D Series E Series F
Commencement of Operations 3/13/00 4/5/00 3/1/00
Total Assets $6,176,069 $6,444,621 $8,131,557
Total Liabilities $123,442 $338,307 $206,225
Total Trust's Capital $6,052,627 $6,106,314 $7,925,332
Total Income (Loss) $(375,118) $1,660,064 $1,172,280
Net Income (Loss) $(834,523) $1,035,768 $556,293
Net Asset Value Per Interest $87.49 $120.36 $106.90
Net Income (Loss) Per
Weighted Average Interest $(13.32) $19.41 $8.41
13
Summary Of Fees And Expenses
Fees Paid By The Trust
Brokerage Fee -- 6% of each
series' net asset value,
normally not more than 2%
of which are paid as
employee "trailing
compensation". This fee,
plus trading transaction
costs, equated to an amount
per round-turn transaction
of:
Actual Expected
for 2000 going forward
Series D: $66 $28
Series E: $56 $38
Series F: $87 $72
Prudential Securities
receives this brokerage
fee for brokerage services
it renders and for
assisting the managing
owner. In addition, the
series pay all trading
transaction costs as set
out in the break-even
analyses on the following
page. The brokerage fee
is determined at the close
of business each Friday,
and the sum of the amounts
determined each week is
paid monthly. The amount
per round-turn transaction
will vary depending on how
frequently a trading
advisor makes trades
Management Fee -- an annual
percentage of each series'
net asset value:
Series D: 1.25%
Series E: 2%
Series F: 2%
Each trading advisor
receives a monthly
management fee for its
trading advisory services.
The management fee is
determined at the close of
business each Friday, and
the sum of the amounts
determined each week is
paid monthly.
Incentive Fee
Series D: 22%
Series E: 22%
Series F: 22%
Each trading advisor
receives a quarterly
incentive fee for the
profit (realized and
unrealized) it achieves
for a series. The
incentive fee for each
series is determined as of
the close of business on
the last Friday of each
calendar quarter.
Routine Operating Expenses
- -- the lesser of the actual
amount of expenses incurred
or 1.50% annually of each
series' net asset value.
If the actual expenses
exceed 1.50% annually of a Series'
net asset value (or if such
expenses, excluding legal
and audit charges, exceed
0.5% of Series E's or
Series F's, and 1.25% of
Series D's, net asset
value annually), the excess is paid
by Prudential Securities.
Routine operating expenses
include legal, auditing,
cash management,
accounting, postage,
printing, photocopying and
similar expenses incurred
on behalf of the Trust.
Extraordinary Expenses
Extraordinary expenses,
including expenses
associated with litigation
or other extraordinary
events, are paid if, and
as, they are incurred.
Fees Paid By The Investors
Redemption Fees -- 4% or 3%, if applicable
The managing owner
receives these fees. See
"Redemption Fees" on page
11 for details.
The above fees constitute all fees paid, or to be paid, either
directly or indirectly, to Prudential Securities and/or its
affiliates or to the trading advisors.
Fees Paid By Prudential Securities Or Its Affiliates:
Organization, Offering and Excess
Operating Expenses
Approximately $250,000 per
series for the organization and
initial offering, and approximately
$75,000 per series each year during
the continuous offering. Excess
operating expenses will vary from
year to year.
Organization and offering expenses
include legal, accounting, filing, and
printing expenses for the
initial and continuous offering of interests.
Excess operating expenses are routine
operating expenses in excess of the limits
on such expenses payable by the Trust,
as described above.
14
Projected Twelve-Month Break-Even Analyses
The following is the projected twelve-month break-even
analysis for each series at a $5 million net asset
value. The projection takes into account all fees and
expenses other than advisory incentive fees and
extraordinary expenses which are impossible to predict.
This analysis is expressed both as a dollar amount and
as a percentage of a $5,000 initial investment:
SERIES D SERIES E SERIES F
Description of Dollar Percentage Dollar Percentage Dollar Percentage
Charges Break-Even Break-Even Break-Even Break-Even Break-Even Break-Even
Brokerage Fees $300.00 6.00% $300.00 6.00% $300.00 6.00%
Trading Transaction
Costs (1) $56.50 1.13% $54.00 0.81% $25.00 0.50%
Advisory
Management Fees $62.50 1.25% $100.00 2.00% $100.00 2.00%
Advisory
Incentive Fees (2) -- -- -- -- -- --
Routine Operating
Expenses (3) $75.00 1.50% $75.00 1.50% $75.00 1.50%
Total $494.00 9.88% $529.00 10.31% $500.00 10.00%
Less Estimated
Interest Income (4) $(250.00) (5.00)% $(250.00) (5.00)% $(250.00) (5.00)%
Estimated 12-Month
Break-Even Level
Without Redemption
Charges (5)(7)(8) $244.00 4.88%(9) $279.00 5.31%(10) $250.00 5.00%(11)
Redemption
Charges (5)(6) $150.00 3.00% $150.00 3.00% $150.00 3.00%
Estimated 12-Month
Break-Even Level
After Redemption
Charges (6)(7)(8) $394.00 7.88% (9) $429.00 8.31%(10) $400.00 8.00%(11)
- -----------------------
1 Trading transaction costs consist of execution
charges, floor brokerage expenses and give-up
charges, as well as the National Futures
Association fees, the exchange fees and the
clearing fees which are incurred in connection with
each series' futures trading activities.
2 Advisory incentive fees are paid only on new high
net trading profits. New high net trading profits
are determined after deducting brokerage fees,
trading transaction costs, advisory management
fees, and routine operating expenses for which a
series is responsible and extraordinary expenses
related to that series' trading advisor, and do not
include interest income. Each series could pay
advisory incentive fees in years in which the
series breaks even, or even loses money, due to the
quarterly, rather than annual, nature of such fees.
3 Routine operating expenses are currently
approximately $125,000 to $150,000 per series each
year. However, during each year, no series will
pay more than the amount that equals the lesser of
the actual expenses or 1.50% (with a maximum of
0.5% attributable to non-legal and audit expenses
for Series E and Series F, and a maximum of 1.25%
attributable to non-legal and audit expenses for
Series D) of that series net asset value for that
year. (For example, if a series' net asset value
remained constant at $5 million during a year no
series will pay more than $75,000 for that period,
even if the actual expenses are higher.) For each
series, if the actual expenses exceed 1.50% of a
series' net asset value (or the other stated
limits) for the year, Prudential Securities will
pay the additional amount. As the number of
investors in each series increases, the aggregate
amount of these expenses are expected to increase,
but as a percentage of the series' net asset value
these expenses are expected to decrease as asset
levels increase.
(Notes are continued on the next page)
15
4 Funds currently are maintained in cash. On the
last day of each month, each series receives
interest income on 100% of its average daily equity
maintained in cash in the series' account with
Prudential Securities during that month at a 13-
week (91-day) Treasury bill discount rate. This
rate is determined weekly by Prudential Securities
and is the rate awarded to all bidders during that
week based on the results of that week's auction of
13-week (91-day) Treasury bills. The weekly
interest rate may be found on the Internet at
www.publicdebt.treas.gov. While it is anticipated
that funds will continue to be maintained in cash,
in the event that funds are maintained in Treasury
bills instead of cash, the series will receive the
interest income paid on such Treasury bills.
If you purchase or redeem interests of a series on
a day other than the last day of a month, the
interest income will be pro rated through the date
of purchase or redemption for purposes of
determining net asset value.
5 A redemption fee of 4% will be assessed on an
interest redeemed on or before the end of the sixth
full month after the effective date of its
purchase. A redemption fee of 3% will be assessed
on an interest redeemed after the end of the sixth
full month but on or before the end of the 12th
full month after its purchase. Redemption fees
will not be charged if you effect an exchange of
interests or if you invest your redemption proceeds
concurrently in another fund sponsored by the
managing owner, and they may be waived if your
aggregate interests in all series, when added to
your aggregate interests in the various series of
World Monitor Trust, another public futures fund
sponsored by the managing owner, total at least $5
million.
6 Because this break-even analysis is a twelve-month
computation, only the 3% redemption fee, which is
imposed at the end of the twelve-month period, is
used.
7 If this break-even analysis was separately computed
for a $2,000 initial IRA account investment, the
break-even percentages would be equally applicable
to that investment.
8 Extraordinary expenses, which are impossible to
predict, are not included as part of this break-
even analysis.
9 If Series D were operating at $50 million net asset
value, the estimated 12-month break-even percentage
would be 3.84% without redemption charges and 6.84%
with the 3% redemption charge.
10 If Series E were operating at $50 million net asset
value, the estimated 12-month break-even percentage
would be 4.27% without redemption charges and 7.27%
with the 3% redemption charge.
11 If Series F were operating at $50 million net asset
value, the estimated 12-month break-even percentage
would be 3.96% without redemption charges and 6.96%
with the 3% redemption charge.
16
RISK FACTORS
The Trust is a venture in a high-risk business. An
investment in the interests of each series is very
speculative. You should not make an investment in any
series before consulting with independent, qualified
sources of investment advice. You should only make an
investment if your financial condition permits you to
bear the risk of a total loss of your investment.
Moreover, to evaluate the risks of this investment
properly, you must familiarize yourself with the
relevant terms and concepts relating to commodities
trading and the regulation of commodities trading which
are discussed in this prospectus in the section
captioned "THE FUTURES MARKETS."
Trading And Performance Risks
Futures, Forward And Options Trading Is Volatile And Highly Leveraged
A principal risk in futures, forward and options
trading is volatile performance, i.e., potentially wide
variations in daily, weekly and monthly contract
values. This volatility can lead to wide swings in the
value of your investment. This risk is increased by
the low margin normally required in futures, forward
and options trading, which provides a large amount of
leverage, i.e., contracts can have a value
substantially greater than their margin and may be
traded for a comparatively small amount of money.
Thus, a relatively small change in the market price of
an open position can produce a disproportionately large
profit or loss.
Options Trading Can Be More Volatile Than Futures Trading
Successful options trading requires a trader to
assess accurately near-term market volatility, because
that volatility is directly reflected in the price of
outstanding options. Correct assessment of market
volatility can therefore be of much greater
significance in trading options than it is in many
long-term futures strategies where volatility does not
have so great an effect on the price of a futures
contract.
Single-Advisor Funds Are More Volatile Than Multi-Advisor Funds
Each series functions like a single-advisor fund.
In single-advisor funds, volatility may increase as
compared to a fund where more than one advisor
diversifies risk to a greater extent. To the extent a
single advisor concentrates trading in one or only a
few markets, volatility and risk increases further.
There Is No Protection Against The Loss Of Your Principal
You will not be assured of any minimum return.
This means you could lose your entire investment
(including any undistributed profits), in addition to
losing the use of your subscription funds for the
period you maintain an investment in any series.
Past Performance Is Not Necessarily Indicative Of Future Performance
You must consider the uncertain significance of
past performance, and you should not rely to a
substantial degree on the trading advisors' or the
managing owner's records to date for predictive
purposes. You should not assume that any trading
advisor's future trading decisions will create profit,
avoid substantial losses, or result in performance for
the series comparable to that trading advisor's past
performance. In fact, as a significant amount of
academic study has shown, futures funds more frequently
than not underperform the past performance records
included in their prospectuses.
Because you and other investors will acquire,
exchange and redeem interests at different times, you
may experience a loss on your interests even though the
series in which you have invested in is profitable as a
whole and even though other investors who invest in
that series experience a profit. The past performance
of any series may not be representative of each
investor's investment experience in it.
17
Likewise, you and other investors will invest in
different series managed by different trading advisors.
Each series' assets are:
- -Segregated from every other series' assets.
- -Traded separately from every other series.
- -Valued and accounted for separately from
every other series.
Consequently, the past performance of one series
has no bearing on the past performance of another
series. You should not consider the past performance
record of one series when deciding whether to invest in
another series.
Performance Is Not Correlated To The Debt Or Equity Markets
We anticipate that over time each series'
performance will not be similar to the performance of
the general financial markets for equity and debt, and
will move up and down independently. For example, the
net asset value of a series may rise or fall while
general stock indices rise or while stock indices fall.
Non-correlation is not, however, negative correlation.
Negative correlation would mean that there is an
inverse and opposite relationship between a series'
performance and the performance of the general
financial markets. Because of non-correlation, during
certain periods a given series may perform in a manner
very similar to or in a manner different from a more
traditional portfolio, providing few, if any,
diversification benefits.
The Series Have Limited Operating Histories
Series D and F each commenced trading during March
2000 and Series E commenced trading in April 2000.
Futures, Forward And Options Trading May Be Illiquid
Although each series generally purchases and sells
actively traded contracts, we cannot assure you that
orders will be executed at or near the desired price,
particularly in thinly traded markets, in markets that
lack trading liquidity, or because of applicable "daily
price fluctuation limits," "speculative position
limits" or market disruptions. Market illiquidity or
disruptions could cause major losses.
Technical Trading Systems Require Trending Markets And
Sustained Price Moves To Be Profitable
Graham Capital and Campbell & Company use primarily
technical trading systems for many of their trading
decisions. For any technical trading system to be
profitable, there must be price moves or "trends" --
either upward or downward -- in some commodities that
the system can track and those trends must be
significant enough to dictate entry or exit decisions.
Trendless markets have occurred in the past, however,
and are likely to recur. In addition, technical
systems may be profitable for a period of time, after
which the system fails to detect correctly any future
price movements. Accordingly, technical traders may
modify and alter their systems on a periodic basis.
Any factor (such as increased governmental control of,
or participation in, the markets traded) that lessens
the prospect of sustained price moves in the future may
reduce the likelihood that any commodity trading
advisor's technical systems will be profitable.
The Large Number Of Existing Technical Traders Could
Adversely Affect Each Series
In recent years, there has been a substantial
increase in the use of technical trading systems.
Different technical systems will tend to generate
different trading signals. However, the significant
increase in the use of technical systems as a
proportion of the trading volume in the particular
markets included in each series' portfolio could result
in traders attempting to initiate or liquidate
substantial positions at or about the same time as a
series' trading advisor, or otherwise altering
historical trading patterns or affecting the execution
of trades, all to the significant detriment of a
series.
18
Discretionary Decision-Making May Result In Missed
Opportunities Or Losses
Each of the trading advisors' strategies involves
some discretionary aspects in addition to their
technical factors. For example, the trading advisors
often use discretion in selecting contracts and markets
to be followed. Discretionary decision making may
result in a trading advisor's failing to capitalize on
certain price trends or making unprofitable trades in a
situation where another trader relying solely on a
systematic approach might not have done so.
Recent Legislative Changes Permit the Series to Engage
in Transactions Subject to Little or No Regulation
Congress passed the Commodity Futures Modernization
Act of 2000 in December 2000. This legislation was
designed to streamline and reduce the amount of
regulation governing commodity exchanges and
transactions. Under the new legislation "eligible
contract participants," a term which includes each
series, may enter into off-exchange transactions in
certain commodities that are not subject to the
provisions of the Commodity Exchange Act, other than
the antifraud and antimanipulation provisions and, in
some cases, the provisions relating to recognized
clearing organizations. Each series will also be
eligible to trade on two new types of exchanges created
by the legislation, "derivatives transaction execution
facilities" and "exempt boards of trade." These
trading facilities, once created, will be subject to
less regulatory oversight than futures exchanges have
been in the past. Any trading conducted directly with
a counterparty or on a less regulated exchange, may
involve more risks than trading through a facility
subject to more oversight by the CFTC. Because the
legislation was passed so recently, it is impossible to
predict exactly what the effects on the series trading
will be.
Trading On Exchanges Outside The U.S. May Be Riskier
Than Trading On U.S. Exchanges
Each series trades on non-U.S. exchanges as a
component of its trading programs. Foreign exchanges,
whether or not linked to a U.S. exchange, are not
regulated by the CFTC or by any other U.S. governmental
agency or instrumentality and may be subject to
regulations (i) that are different from those to which
U.S. exchanges are subject and (ii) that provide less
protection to investors than the U.S. regulations
provide. Therefore, trading on non-U.S. exchanges
involves more risks than similar trading on U.S.
exchanges.
The Unregulated Nature Of The Forward Markets
Creates Counterparty Risks That Do Not Exist In Futures Trading
Forward contracts are entered into between private
parties off an exchange, and are thus not subject to
exchange regulations as to quantity, method of
settlement, time for delivery, etc. Furthermore,
forward contracts are not regulated by the CFTC or by
any other U.S. government agency, and forward contracts
are not guaranteed by an exchange or its clearinghouse.
If a series takes a position as a principal with a
counterparty that fails, a default would most likely
result, depriving that series of any profit potential
or forcing the series to cover its commitments for
resale, if any, at the then current market price.
Because each series executes its forward trading
exclusively with Prudential Securities (and its
affiliate, Prudential-Bache Global Markets Inc.) as
principal, liquidity problems might be greater in a
series' forward trading than they would be if trades
were placed with and through a larger number of forward
market participants. If governmental authorities
impose exchange and credit controls or fix currency
exchange rates, trading in certain currencies might be
eliminated or substantially reduced, and the series'
forward trading might be limited to less than desired
levels.
Effect Of The European Monetary Union
The January 1, 1999 conversion of most European
currencies to a single euro-currency, or continuing
market reaction to that conversion or to any nation's
withdrawal from the European Monetary Union, may
adversely affect the trading advisors' trading and
investing opportunities. The process of conversion is
an ongoing one, with further steps, including the
withdrawal of national bank notes and coins from
circulation, to continue through early 2002. The
conversion to a single euro-currency is a very
significant and novel political and economic event, and
there can be no certainty about the direct or indirect
future effects on the European currency markets and, in
turn, the Series.
19
Trading Advisor Risks
Each Series Relies On Its Trading Advisor For Success
The trading advisor for each series makes the
commodity trading decisions for that series.
Therefore, the success of each series largely depends
on the judgment and ability of its trading advisor. We
cannot assure you that a trading advisor's trading for
any series will prove successful under all or any
market conditions.
We Cannot Assure You That The Trading Advisors Or Their
Trading Strategies Will Continually Serve The Series
We cannot assure you that: (i) a trading advisor
or the Trust will not exercise its rights to terminate
an advisory agreement for a series under certain
conditions, (ii) the advisory agreement with a trading
advisor will be renewed on the same terms as the
current advisory agreement for that trading advisor
once it expires or (iii) if any series retains a new
trading advisor, that the new advisor will be retained
on terms as favorable to the series as those negotiated
with that series' current trading advisor or that the
new advisor will be required to recoup any losses
sustained by the prior advisor before the new advisor
is entitled to receive incentive fees.
Each Trading Advisor's Past Performance Record Is Inconsistent
The performance records of each trading advisor
reflect significant variations in profitability and
draw-downs from period to period.
Other Clients Of Each Trading Advisor May Compete With Each Series
Each trading advisor manages large amounts of other
funds and advises other clients at the same time as it
is managing series assets; consequently, each series
may experience increased competition for the same
positions.
Possible Adverse Effects Of Increasing The Assets Under
Each Trading Advisor's Discretion
No trading advisor has agreed to limit the amount
of additional equity that it may manage. If a trading
advisor accepts more equity than it has capacity for,
the trading advisor's strategies may not function to
create profit. "Capacity" is the amount that a trading
advisor can trade effectively without exceeding its
trading and risk management capabilities.
Trust And Offering Risks
You Will Have A Limited Ability To Transfer Your Interests,
And Your Ability To Liquidate Your Interests May Be Impeded
There is not expected to be any primary or
secondary market for the interests. In addition, the
trust agreement restricts your ability to transfer,
assign, and redeem interests. You will be charged a
redemption fee, unless certain conditions are met.
These redemption fees, if applicable, are paid to the
managing owner. If a substantial number of limited
owners redeem their interests in a series, that series
could be required to liquidate positions at unfavorable
prices. However, redemptions in one series will not
affect trading in any other series. Under extra-
ordinary circumstances, such as an inability to
liquidate positions, the Trust may delay redemption
payments to you beyond the payment period specified in
the trust agreement .
Each Series Will Have To Overcome Substantial Fixed
Expenses In Order To Break Even Each Year
Each series has substantial fixed overhead
expenses. At current asset levels, we estimate that
the series' gains from trading must be 4.88% per annum
(Series D), 5.31% per annum (Series E) and 5.00% per
annum (Series F) in order to break even. This break
even amount will increase if redemption fees are
imposed upon you because you decide to redeem any
interests held by you for 12 months or less, and will
decrease if asset levels increase substantially.
20
The Payment Of Quarterly Incentive Fees Does Not Assure Profits
Each series also pays its trading advisor a
quarterly incentive fee based upon any new high net
trading profits earned by that trading advisor on the
net asset value of the series for which the trading
advisor has trading responsibility. These profits
include unrealized appreciation on open positions.
Accordingly, it is possible that a series will pay an
incentive fee on trading profits that do not become
realized (in whole or in part). Each series' trading
advisor will retain all incentive fees paid, even if
that series incurs a subsequent loss after payment of
any quarter's fees. Because incentive fees are paid
quarterly, it is possible that an incentive fee may be
paid during a year in which the net asset value per
interest of a series ultimately declines from the
outset due to losses occurring after the date of an
incentive fee payment or because of the non-realization
of profits on which an incentive fee was paid.
The Trust Is Subject To Conflicts Of Interest
A number of actual and potential conflicts of
interest exist and will continue to exist among the
managing owner, Prudential Securities, Prudential
Securities Group Inc. and the trading advisors.
Conflicts involving (i) the brokerage fee, (ii)
effecting transactions or trading for their own
accounts and other accounts, (iii) Prudential
Securities' advising on redemptions, (iv) other
commodity funds sponsored by Prudential Securities, (v)
management of other accounts by the trading advisors
and (vi) engaging in forward transactions, may each
create an incentive for Prudential Securities and its
affiliates, the managing owner and the trading advisors
to benefit themselves rather than you. However, no
specific policies regarding conflicts of interest have
been adopted by the Trust or by any of the series.
You Have Limited Rights
You will exercise no control over the Trust's
business. However, certain actions, such as
termination or dissolution of a series, may be taken or
approved upon the affirmative vote of limited owners
holding interests representing at least a majority
(over 50%) of the net asset value of the series
(excluding interests owned by the managing owner and
its affiliates).
Failure Of The Trust's Clearing Broker Or Other Counterparties
You may lose some or all of your investment in the
event of the bankruptcy of Prudential Securities or of
any counterparty with whom it trades.
There Was No Independent Investigation Of The Terms Of
The Offering Or The Trust's Structure
Prudential Securities is an affiliate of the
managing owner and made no independent investigation of
the terms of this offering or the structure of the
Trust. Except for the agreements with the trading
advisors and the trustee, the terms of this offering
and the structure of the Trust have not been
established as the result of arms-length negotiation.
Tax Risks
Your Tax Liability Is Anticipated To Exceed Distributions To You
For U.S. federal income tax purposes, the amount of
your taxable income or loss for each taxable year of
the Trust will be determined on the basis of your
allocable share of ordinary income and loss generated
from the series in which you have purchased interests,
as well as capital gains and losses recognized by the
series during each year. If the series in which you
own interests has taxable income for a year, that
income will be taxable to you in accordance with your
allocable share of Trust income from that series,
whether or not any amounts have been or will be
distributed to you. If you are an employee benefit
plan or an individual retirement account or other tax-
exempt limited owner, under certain circumstances, all
or part of such income may be taxable to you. Also,
the series in which you have an interest might sustain
losses after the end of a profitable year, so that if
you did not redeem your interests as of such year-end,
you might never receive the profits on which you have
been taxed. The managing
21
owner, in its discretion, will determine whether, and
in what amount, the Trust will make distributions.
There is no present intention to make distributions.
Accordingly, it is anticipated that you will incur tax
liabilities as a result of being allocated taxable
income from a series even though you will not receive
current cash distributions with which to pay such taxes.
Deductions May be Limited
Your ability to claim current deductions for
certain expenses and losses, including capital losses
of the series in which you have interests, is subject
to various limitations.
Taxes And Economics May Not Match During A Calendar Year
The income tax effects of a series' transactions to
you may differ from the economic consequences of those
transactions to you during a calendar year.
Partnership Treatment Is Not Assured
The Trust has received an opinion of counsel from
Rosenman & Colin LLP to the effect that, under current
U.S. federal income tax law, each series in the Trust
will be treated as a partnership for U.S. federal
income tax purposes, provided that (i) at least 90% of
each series' annual gross income consists of
"qualifying income" as defined in the Internal Revenue
Code and (ii) each series is organized and operated in
accordance with its governing agreements and applicable
law. The managing owner believes that each series
currently meets this income test and that it is likely,
but not certain, that each series will continue to meet
the income test. An opinion of counsel is subject to
any changes in applicable tax laws and is not binding
on the Internal Revenue Service or the courts.
If a series of the Trust were to be treated as a
corporation instead of as a partnership for U.S.
federal income tax purposes, (i) the net income of that
series would be taxed at corporate income tax rates,
thereby substantially reducing that series'
profitability, (ii) you would not be allowed to deduct
your share of losses of that series and (iii)
distributions to you, other than liquidating
distributions, would constitute dividends to the extent
of the current or accumulated earnings and profits of
that series, and would be taxable as such.
There Is The Possibility Of A Tax Audit
We cannot assure you that a series' tax returns
will not be audited by a taxing authority or that an
audit will not result in adjustments to the series'
returns. If an audit results in an adjustment, you may
be required to file amended returns and to pay
additional taxes plus interest.
You are strongly urged to consult your own tax
advisor and counsel about the possible federal, state
and local tax consequences to you of an investment in
the Trust. Tax consequences may differ for different
investors, and you could be affected by future changes
in the tax laws.
Regulatory Risks
Government Regulations May Change
Commodity pool regulations are constantly changing
and there is no way to predict the impact of future
changes on the Trust. In addition, future tax law
revisions could have a materially adverse effect on the
Trust. Concern has also been expressed about
speculative pools of capital trading in the currency
markets, because these pools have the potential to
disrupt central banks' attempts to influence exchange
rates. In the current environment, you must recognize
the possibility that future regulatory changes may
alter, perhaps to a material extent, the nature of an
investment in any series of the Trust.
22
CFTC Registrations Could Be Terminated
If the Commodity Exchange Act registrations or
National Futures Association memberships of the
managing owner, any of the trading advisors or
Prudential Securities are no longer effective, these
entities would not be able to act for the Trust.
The foregoing risk factors are not a complete
explanation of all the risks involved in purchasing
interests in a fund that invests in the highly
speculative, highly leveraged trading of futures,
forwards and options. You should read this entire
prospectus before determining to subscribe for
interests.
23
ACTUAL AND POTENTIAL CONFLICTS OF INTEREST
While the managing owner, Prudential Securities and
its affiliates and the trading advisors seek to avoid
conflicts of interest to the extent feasible and to
resolve all conflicts that may arise equitably and in a
manner consistent with their responsibilities to the
Trust and the various series, no specific policies
regarding conflicts of interest have been or are
intended to be adopted by the Trust or by any of the
series. The following actual and potential conflicts
of interest do and may continue to exist.
Conflicts Related To The Payment Of The Brokerage Fee
To Prudential Securities
The Brokerage Fee May Not Be The Lowest Available Fee
Because the managing owner is an affiliate of
Prudential Securities, the fixed fee Prudential
Securities receives was not the result of arm's-length
negotiations, and the fixed fee may not be comparable
to the fee each series would be charged if the fee were
negotiated with an unrelated party. Furthermore, other
customers of Prudential Securities may pay commissions
that are effectively lower than the fixed fee payable
by a series (e.g., if Prudential Securities determines
that the size of any such other account, the
anticipated volume and frequency of its trading and the
costs associated with the servicing of that account,
and/or any other reasons, justify a lower rate). To
the extent that other brokers would charge lower
commission rates than those charged by Prudential
Securities, each series will pay effectively higher
commissions for similar trades. However, the managing
owner, in accordance with its obligation under the
NASAA guidelines to seek the best price and services
available for commodity brokerage transactions,
believes that limited owners receive additional
administrative benefits through the series' brokerage
arrangements with Prudential Securities, as well as
several other benefits from investing in the Trust that
might not otherwise be available to them for an
investment as reasonable as the minimum investment in
the Trust (e.g., limited liability, investment
diversification and administrative convenience).
Selection Of Trading Advisors May Benefit
Prudential Securities
The managing owner is
responsible for selecting the trading advisors and is
responsible for selecting any new commodity trading
advisors for any series. Because Prudential Securities
receives the same fee regardless of how many
transactions are effected for a series, the managing
owner may have an incentive to select trading advisors
that do not trade frequently, rather than trading
advisors with better track records who do trade
frequently. The trust agreement requires the managing
owner to determine whether each series is receiving the
best price and services available under the
circumstances and whether the rates are competitive,
and, if necessary, to renegotiate the fee structure to
obtain such rates and services for the each series. In
making the foregoing determinations, the managing owner
may not rely solely on a comparison of the fees paid by
other major commodity pools.
Prudential Securities Financial Advisors Have An
Incentive To Discourage Investor Redemptions
Since Prudential Securities financial advisors receive
continuing compensation that is paid from the fixed fee
that is paid to Prudential Securities, and since such
compensation is paid by Prudential Securities in
proportion to the number of then outstanding interests
for which each financial advisor is providing ongoing
services, Prudential Securities financial advisors have
a financial incentive to advise you not to redeem
interests in any series. However, Prudential
Securities' financial advisors are expected to act in
your best interests, notwithstanding any personal
interests to the contrary.
The Trust's Foreign Exchange Dealer Will Not Be Independent
The Trust, acting through its trading advisors,
executes over-the-counter, spot, forward and option
foreign exchange transactions with Prudential
Securities. Prudential Securities then engages in
back-to-back trading with its affiliate, Prudential-
Bache Global Markets Inc. Because Prudential-Bache
Global Markets Inc., Prudential Securities and the
managing owner are wholly owned subsidiaries of
Prudential Securities Group Inc., the managing owner
has an incentive to utilize Prudential Securities and
Prudential-Bache Global Markets Inc. as the Trust's
foreign exchange dealer and counterparty, even though
other entities may offer better terms. However, since
the managing owner has a fiduciary obligation to the
Trust, the managing owner does not utilize affiliated
entities for foreign exchange trading if the managing
owner determines that it would not be in the best
interest of the Trust to do so.
24
Other Activities Of Prudential Securities And The Managing Owner
The officers, directors, and employees of the
managing owner and of Prudential Securities and the
agents and correspondents of Prudential Securities from
time to time may trade in commodities for their own
accounts and for the account of Prudential Securities
itself. In addition, Prudential Securities is a
futures commission merchant, handling customer business
in commodities. Thus, Prudential Securities may effect
transactions for itself, its officers, directors,
employees or customers, agents or correspondents (or
employees of such agents or correspondents) or the
managing owner. These transactions might be effected
when similar series trades are not executed or are
executed at less favorable prices, or these persons or
entities might compete with a series in bidding or
offering on purchases or sales of contracts without
knowing that series also is so bidding or offering. In
very illiquid markets, such activities could adversely
affect series transactions. Although you will not be
permitted to inspect such persons' trading records in
light of their confidential nature, the managing owner
has access to these records.
Management Of Other Accounts By The Trading Advisors
The trading advisors are permitted to manage and
trade accounts for other investors (including other
commodity pools) and to trade commodities for their own
accounts and the accounts of their principals. The
trading records for these accounts are not available
for inspection by limited owners. The trading advisors
are free to trade accounts for others, so long as each
trading advisor's ability to carry out its obligations
and duties to the series for which it has trading
responsibility under the advisory agreements is not
materially impaired thereby. However, various
conflicts may arise as a result.
Other Accounts Managed By The Trading Advisors May
Compete With The Series
The trading advisors may
compete with the series in bidding or offering on
purchases or sales of contracts through the same or a
different trading program than that to be used by a
series, and there can be no assurance that any such
trades will be consistent with those of the series, or
that the trading advisors or their principals will not
be the other party to a trade entered into by any
series. The trading advisor's management of other
clients' accounts may increase the level of competition
among other clients and a series for the execution of
the same or similar transactions and may affect the
priority of order entry.
Trading Advisor May Receive Higher Compensation
From Other Clients
Because the financial incentives of
a trading advisor in other accounts managed by it may
exceed any incentives payable by a series, the trading
advisor might have an incentive to favor those accounts
over a series in trading.
25
STRUCTURE OF THE TRUST
The Trust was formed on April 22, 1999 as a
Delaware Business Trust with separate series, pursuant
to the requirements of the Delaware Business Trust Act.
The Trust's registered office is c/o Wilmington Trust
Company, Rodney Square North, 1110 North Market Street,
Wilmington, Delaware 19890. The Delaware Business
Trust Act provides that, except as otherwise provided
in the trust agreement, interest-holders in a Delaware
Business Trust have the same limitation of liability as
do shareholders of private, for-profit, Delaware cor-
porations. The trust agreement confers substantially
the same limited liability, and contains the same
limited exceptions thereto, as would a limited partner-
ship agreement for a Delaware limited partnership
engaged in like transactions as the Trust. In
addition, pursuant to the trust agreement, the managing
owner of the Trust is liable for obligations of a
series in excess of that series' assets. Limited
owners do have any such liability.
Overview Of The Series
Currently, the Trust's interests are offered in
three separate and distinct series: Series D, Series E
and Series F. The investment objective of each series
is to increase the value of your interests over the
long term (capital appreciation) while attempting to
control risk and volatility. Each series engages in
the speculative trading of a diversified portfolio of
futures, forward (including interbank foreign
currencies) and options contracts and may, from time to
time, engage in cash and spot transactions. Each
series has its own professional commodity trading
advisor (sometimes referred to simply as a trading
advisor or collectively as the trading advisors) that
manages 100% of that series' assets and makes that
series' trading decisions. Currently between 15% and
40% of each series' assets normally are committed as
margin for commodities trading, but from time to time
these percentages may be substantially more or less.
See "TRADING LIMITATIONS AND POLICIES."
The trading advisors for the series were selected
based upon the managing owner's evaluation of each
trading advisor's past performance, trading portfolios
and strategies, as well as how each trading advisor's
performance, trading portfolio and strategies
complement and differ from that of the other trading
advisors. The managing owner is authorized under the
advisory agreements, however, to utilize the services
of additional trading advisors for any series. For
each of Series D, Series E and Series F, the managing
owner allocates 100% of the proceeds from the offering
of each series' interests to the trading advisor for
that series for commodities trading purposes. It is
currently contemplated that each series' trading
advisor will continue to be allocated 100% of
additional capital raised from that series during the
continuous offering of interests. The trading advisors
are not affiliated with the Trust, the trustee, the
managing owner or Prudential Securities, but
Bridgewater Associates does currently act as a
commodity trading advisor to another public fund
sponsored by Prudential Securities. If a trading
advisor's trading reaches a level where certain
position limits restrict its trading, that trading
advisor will modify its trading instructions for the
series and its other accounts in a good faith effort to
achieve an equitable treatment of all accounts. None
of the trading advisors nor any of their principals
currently have any beneficial interest in the Trust,
but some or all of such persons may acquire such an
interest in the future. For a summary of the advisory
agreements between each trading advisor, the Trust, and
the managing owner, see the section in this prospectus
"SUMMARY OF AGREEMENTS-Advisory Agreements."
Description Of Sections To Follow
The pages that follow contain capsule summaries of
each series performance from inception to date in
accordance with CFTC rules, a description of each
series' trading advisor and its principals and a
general description of the trading strategies and
trading portfolios each trading advisor employs while
trading on behalf of the Trust, along with past
performance capsule summaries of all other accounts
managed by the trading advisors for the various periods
shown. The trading advisor descriptions were derived
by the managing owner in part from information
contained in each trading advisor's CFTC Disclosure
Document, which each trading advisor itself prepared.
Because the trading advisors' trading strategies are
proprietary and confidential, the descriptions that
follow are general in nature.
26
PERFORMANCE OF EACH SERIES
Set forth hereafter in summary form is the actual
performance of each series from the start of trading
through March 31, 2001.
The information in the capsules has not been audited.
However, the managing owner represents and warrants
that the capsules are accurate in all material
respects. It should not be assumed that each series
will experience results in the future that are
comparable to the results experienced to date.
PAST PERFORMANCE FOR EACH SERIES IS FOUND ON PAGES 28 TO 39
PAST PERFORMANCE IS NOT NECESSARILY INDICATIVE OF FUTURE RESULTS
27
Past Performance Of Series D
Capsule Performance of World Monitor Trust II - Series D
Commodity Trading Advisor: Bridgewater Associates
Rates of Return
(Computed on a Daily Basis)
Month 2001 2000
January (2.78)%
February (3.54)%
March (5.72) (2.07)%
April (1.59)%
May 9.10%
June (2.07)%
July (1.80)%
August (8.01)%
September (6.36)%
October (7.84)%
November 3.81%
December 5.00%
Annual (11.58)% (12.51)%
Name of Pool: World Monitor Trust II -- Series D
Type of Pool: Publicly-Offered
Start Date: March 13, 2000
Aggregate subscriptions: $8,187,244 (as of March 31, 2001)
Current net asset value per interest: $77.36 (as of March 31, 2001)
"Draw-down" means losses experienced
by World Monitor Trust II -- Series D
over a specified period.
Largest monthly draw-down: (8.01)% August 2000
"Largest monthly draw-down" means
the greatest percentage decline in
Net Asset Value due to losses
sustained by World Monitor Trust
II -- Series D from the beginning
to the end of a calendar month.
Largest peak-to-valley draw-down: (26.42)% June 2000 to March 2001
"Largest peak-to-valley draw-down"
means the greatest cumulative
percentage decline in month-end
Net Asset Value of World Monitor
Trust II -- Series D due to losses
sustained during a period in which
the initial month-end Net Asset
Value of World Monitor Trust II --
Series D is not equaled or
exceeded by a subsequent month-end
Net Asset Value of World Monitor
Trust II -- Series D.
"Rate of Return" is calculated
daily by dividing net performance
by beginning equity. The daily
returns are then compounded to
arrive at the rate of return for
the month, which is in turn
compounded to arrive at the rate
of return for the year to date.
Past Performance Is Not Necessarily Indicative Of Future Results
28
Management's Discussion And Analysis Of Financial
Condition And Results Of Operations -- Series D
Liquidity and Capital Resources
Series D commenced operations on March 13, 2000
with gross proceeds of $5,279,158 allocated to
commodities trading. Additional contributions raised
through the continuous offering for the period from
March 13, 2000 (commencement of operations) through
December 31, 2000 resulted in additional gross proceeds
to Series D of $2,949,494. Additional Limited
Interests of Series D will continue to be offered on a
weekly basis at the net asset value per Interest until
the subscription maximum is sold.
Limited Interests in Series D may be redeemed on a
weekly basis, but are subject to a redemption fee if
transacted within one year of the effective date of
purchase. Redemptions from March 13, 2000
(commencement of operations) to December 31, 2000 were
$1,306,910 and $35,592 for Limited Interests and
general interests, respectively. Additionally,
Interests owned in any series of World Monitor Trust II
(Series D, E or F) may be exchanged, without any
charge, for Interests of one or more other series of
World Monitor Trust II on a weekly basis for as long as
Limited Interests in those series are being offered to
the public. Future contributions, redemptions and
exchanges will impact the amount of funds available for
investment in commodity contracts in subsequent
periods.
At December 31, 2000, 100% of Series D's net assets
were allocated to commodities trading. A significant
portion of the net assets was held in cash, which is
used as margin for trading in commodities. Inasmuch as
the sole business of Series D is to trade in
commodities, Series D continues to own such liquid
assets to be used as margin. Prudential Securities
credits Series D with interest income on 100%
of its average daily equity maintained in cash in its
accounts with Prudential Securities during each
month at the 13-week Treasury bill discount rate. This
rate is determined weekly by Prudential Securities
and represents the rate awarded to all bidders during
each week's auction of 13-week Treasury bills.
The commodities contracts are subject to periods of
illiquidity because of market conditions, regulatory
considerations and other reasons. For example,
commodity exchanges limit fluctuations in certain
commodity futures contract prices during a single day
by regulations referred to as "daily limits." During a
single day, no trades may be executed at prices beyond
the daily limit. Once the price of a futures contract
for a particular commodity has increased or decreased
by an amount equal to the daily limit, positions in the
commodity can neither be taken nor liquidated unless
traders are willing to effect trades at or within the
limit. Commodity futures prices have occasionally
moved the daily limit for several consecutive days with
little or no trading. Such market conditions could
prevent Series D from promptly liquidating its
commodity futures positions.
Since Series D's business is to trade futures and
forward contracts, its capital is at risk due to
changes in the value of these contracts (market risk)
or the inability of counterparties to perform under the
terms of the contracts (credit risk). Series D's
exposure to market risk is influenced by a number of
factors including the volatility of interest rates and
foreign currency exchange rates, the liquidity of the
markets in which the contracts are traded and the
relationships among the contracts held. The inherent
uncertainty of Series D's speculative trading as well
as the development of drastic market occurrences could
result in monthly losses considerably beyond Series D's
experience to date and could ultimately lead to a loss
of all or substantially all of investors' capital. The
Managing Owner attempts to minimize these risks by
requiring Series D and its trading advisor to abide by
various trading limitations and policies which include
limiting margin amounts, trading only in liquid markets
and permitting the use of stop loss provisions. See
Note F to the financial statements for a further
discussion on the credit and market risks associated
with Series D's futures and forward contracts.
Series D does not have, nor does it expect to have,
any capital assets.
Results of Operations
Series D commenced trading operations on March 13,
2000, and as such, no comparative information to prior
periods is available.
As of December 31, 2000, Series D reported a net
asset value per Interest of $87.49, a decrease of
12.51% from the March 13, 2000 initial net asset value
per Interest of $100.00. The MAR (Managed Account
Reports)
29
Fund/Pool Index, which tracks the performance
of approximately 300 futures funds, returned 9.33% for
the March through December 2000 period. Past
performance is not necessarily indicative of future
results.
Series D's gross trading losses for the period from
March 13, 2000 (commencement of operations) to December
31, 2000 were $657,000. A detailed discussion of the
trading results is presented below.
Net losses for Series D were experienced in the
currency and interest rate sectors. Profits were the
result of gains in the stock index and metal sectors.
The euro began 2000 lower versus the U.S. dollar,
Japanese yen and British pound before rallying slightly
in June as a result of solid European economic data and
sentiment that the currency was undervalued. However,
gains on long euro positions in the second quarter were
offset by losses during the third quarter. Despite a
brief rally after intervention by the European Central
Bank and other G-7 central banks to boost the failing
euro in September, the euro settled back down more than
$0.02 below its intervention peaks and long positions
incurred losses. Long euro positions produced some
gains during the fourth quarter as the euro rose
against the U.S. dollar and Japanese yen after hitting
an all time low in October, yet euro positions produced
a net loss for the year. The Swiss franc spent most of
the second and third quarters of 2000 drifting lower
against the U.S. dollar, tracking the euro's trend and
incurring losses for long positions. The Swiss franc
and other foreign currencies rose against the U.S.
dollar in the fourth quarter due to a weakening U.S.
economy. Gains in long Swiss franc positions during
the fourth quarter were not enough to cover losses
incurred during the rest of the year. Prior to
commencement of Series D's operations in March 2000,
the Japanese yen rallied sharply, gaining on the U.S.
dollar and most other currencies in the final months of
Japan's fiscal year (which ended March 31st). This was
attributed to positive sentiment regarding Japan's
economy. In May, the yen rose slightly against the
U.S. dollar supported by expectations of a possible
change in the Bank of Japan's (BOJ) zero-interest rate
policy and continued to rise when the BOJ increased
short-term interest rates in August. Long yen
positions produced gains for Series D during the second
and third quarters of the year. Political and economic
uncertainty in Japan during the fourth quarter caused
the yen to fall against the U.S. dollar and short
Japanese yen positions resulted in gains.
Global bond markets began 2000 on a strong note.
Despite rate hikes and news of robust worldwide
economic growth, global bond markets continued to rally
partially due to investors seeking refuge from volatile
equity markets. Long U.S. and euro bond positions
resulted in gains during the second quarter of the
year. Negative equity performance throughout the third
and fourth quarters and mounting fears of a global
economic slowdown contributed to a bond market rally
toward year end as investors continued their flight to
quality from the stock market. Prices of long- and
short-term interest rate instruments rose and Series D
incurred losses in short U.S. and euro bond positions
during the last two quarters of the year.
Extreme volatility in world financial markets
during the first half of 2000 resulted in losses for
equity index positions. During the second half, equity
markets continued to experience volatility, but markets
trended downward as global economies began showing
signs of slowing down. Most major indices ended the
year lower resulting in gains for short positions
during the fourth quarter.
Long copper positions provided positive performance
for Series D throughout most of the year as strong
demand and fear of inflation drove prices higher. In
addition, the high cost of energy, which is used in the
production of base metals, caused a decrease in metal
supply driving prices higher and resulting in gains for
long positions.
Interest income is earned on the average daily
equity maintained in cash with Prudential
Securities at the 13-week Treasury bill
discount rate and, therefore, varies
weekly according to interest rates, trading
performance, contributions and redemptions. Interest
income for the period from March 13, 2000 (commencement
of operations) to December 31, 2000 was $282,000.
Commissions are calculated on Series D's net asset
value at the end of each week and, therefore, vary
according to weekly trading performance, contributions
and redemptions. Other transaction fees consist of
National Futures Association, exchange and clearing
fees as well as floor brokerage costs and give-up
charges, which are based on the number of trades the
trading advisor executes, as well as which exchange,
clearing firm or bank on, or
30
through, which the contract is traded. Commissions and
other transaction fees for the period from March 13,
2000 (commencement of operations) to December 31, 2000
were $304,000.
All trading decisions for Series D are made by
Bridgewater Associates, Inc. (the "Trading Advisor").
Management fees are calculated on Series D's net asset
value at the end of each week and, therefore, are
affected by weekly trading performance, contributions
and redemptions. Management fees for the period from
March 13, 2000 (commencement of operations) to December
31, 2000 were $58,000.
Incentive fees are based on the "New High Net
Trading Profits" generated by the Trading Advisor, as
defined in the advisory agreement among Series D, the
Managing Owner and the Trading Advisor. Incentive fees
for the period from March 13, 2000 (commencement of
operations) to December 31, 2000 were $27,000.
General and administrative expenses for the period
from March 13, 2000 (commencement of operations) to
December 31, 2000 were $70,000. These expenses include
reimbursements of costs incurred by the Managing Owner
on behalf of Series D, in addition to accounting,
audit, tax and legal fees as well as printing and
postage costs related to reports sent to limited
owners. The total amount of general and administrative
expenses charged to Series D in any year is limited to
1.5% of its net asset value during such year. Because
applicable expenses exceeded their limits, a portion of
the costs associated with services performed for Series
D by the Managing Owner was borne by the Managing Owner
or its affiliates.
New Accounting Guidance
In June 2000, FASB issued Statement No. 138,
Accounting for Certain Derivative Instruments and
Certain Hedging Activities--an amendment of FASB
Statement No. 133 ("SFAS 138"), which became effective
for Series D on July 1, 2000. SFAS 138 amends the
accounting and reporting standards of FASB Statement
No. 133 for certain derivative instruments and certain
hedging activities. SFAS 138 has not had a material
effect on the carrying value of assets and liabilities
within the financial statements.
Inflation
Inflation has had no material impact on operations
or on the financial condition of Series D from
inception through December 31, 2000.
PLEASE TURN TO PAGES 40 TO 42 FOR A DESCRIPTION OF
BRIDGEWATER ASSOCIATES AND ITS PRINCIPALS AND TRADING
PROGRAMS AND TO PAGES 43 TO 48 FOR ITS RECORD
PERFORMANCE FOR ALL ACCOUNTS UNDER ITS MANAGEMENT FOR
THE PAST FIVE YEARS
31
Past Performance Of Series E
Capsule Performance of World Monitor Trust II -- Series E
Commodity Trading Advisor: Graham Capital
Rates of Return
(Computed on a Daily Basis)
Month 2001 2000
January (2.13)%
February 2.51%
March 10.56%
April (0.80)%
May (4.54)%
June (5.59)%
July (0.63)%
August 4.94%
September (0.77)%
October 2.39%
November 12.57%
December 12.88%
Annual 10.93% 20.38%
Name of Pool: World Monitor Trust II -- Series E
Type of Pool: Publicly-Offered
Start Date: April 5, 2000
Aggregate subscriptions: $6,032,054 (as of March 31, 2001)
Current net asset value per interest: $133.52 (as of March 31, 2001)
"Draw-down" means losses
experienced by World Monitor Trust
II -- Series E over a specified period.
Largest monthly draw-down: (5.59)% June 2000
"Largest monthly draw-down" means
the greatest percentage decline in
Net Asset Value due to losses
sustained by World Monitor Trust
II -- Series E from the beginning
to the end of a calendar month.
Largest peak-to-valley draw-down: (11.15)% April 2000 to July 2000
"Largest peak-to-valley draw-down"
means the greatest cumulative
percentage decline in month-end
Net Asset Value of World Monitor
Trust II -- Series E due to losses
sustained during a period in which
the initial month-end Net Asset
Value of World Monitor Trust II --
Series E is not equaled or
exceeded by a subsequent month-end
Net Asset Value of World Monitor
Trust II -- Series E.
"Rate of Return" is calculated
daily by dividing net performance
by beginning equity. The daily
returns are then compounded to
arrive at the rate of return for
the month, which is in turn
compounded to arrive at the rate
of return for the year to date.
Past Performance Is Not Necessarily Indicative Of Future Results
32
Management's Discussion And Analysis Of Financial
Condition And Results Of Operations -- Series E
Series E commenced operations on April 6, 2000 with
gross proceeds of $5,157,459 allocated to commodities
trading. Additional contributions raised through the
continuous offering for the period from April 6, 2000
(commencement of operations) through December 31, 2000
resulted in additional gross proceeds to Series E of
$715,498. Additional Limited Interests of Series E
will continue to be offered on a weekly basis at the
net asset value per Interest until the subscription
maximum is sold.
Limited Interests in Series E may be redeemed on a
weekly basis, but are subject to a redemption fee if
transacted within one year of the effective date of
purchase. Redemptions from April 6, 2000 (commencement
of operations) to December 31, 2000 were entirely on
Limited Interests and totaled $802,411. Additionally,
Interests owned in any series of World Monitor Trust 11
(Series D, E or F) may be exchanged, without any
charge, for Interests of one or more other series of
World Monitor Trust II on a weekly basis for as long as
Limited Interests in those series are being offered to
the public. Future contributions, redemptions and
exchanges will impact the amount of funds available for
investment in commodity contracts in subsequent
periods.
At December 31, 2000, 1 00% of Series E's net
assets were allocated to commodities trading. A
significant portion of the net assets was held in cash
which is used as margin for trading in commodities.
Inasmuch as the sole business of Series E is to trade
in commodities, Series E continues to own such liquid
assets to be used as margin. Prudential Securities
credits Series E with interest income on 100% of
its average daily equity maintained in cash in its
accounts with Prudential Securities during each
month at the 13-week Treasury bill discount rate. This
rate is determined weekly by Prudential Securities
and represents the rate awarded to all bidders
during each week's auction of 13-week Treasury bills.
The commodities contracts are subject to periods of
illiquidity because of market conditions, regulatory
considerations and other reasons. For example,
commodity exchanges limit fluctuations in certain
commodity futures contract prices during a single day
by regulations referred to as "daily limits." During a
single day, no trades may be executed at prices beyond
the daily limit. Once the price of a futures contract
for a particular commodity has increased or decreased
by an amount equal to the daily limit, positions in the
commodity can neither be taken nor liquidated unless
traders are willing to effect trades at or within the
limit. Commodity futures prices have occasionally
moved the daily limit for several consecutive days with
little or no trading. Such market conditions could
prevent Series E from promptly liquidating its
commodity futures positions.
Since Series E's business is to trade futures and
forward contracts, its capital is at risk due to
changes in the value of these contracts (market risk)
or the inability of counterparties to perform under the
terms of the contracts (credit risk). Series E's
exposure to market risk is influenced by a number of
factors including the volatility of interest rates and
foreign currency exchange rates, the liquidity of the
markets in which the contracts are traded and the
relationships among the contracts held. The inherent
uncertainty of Series E's speculative trading as well
as the development of drastic market occurrences could
result in monthly losses considerably beyond Series E's
experience to date and could ultimately lead to a loss
of all or substantially all of investors' capital. The
Managing Owner attempts to minimize these risks by
requiring Series E and its trading advisor to abide by
various trading limitations and policies which include
limiting margin amounts, trading only in liquid markets
and permitting the use of stop loss provisions. See
Note F to the financial statements for a further
discussion on the credit and market risks associated
with Series E's futures and forward contracts.
Series E does not have, nor does it expect to have,
any capital assets.
Results of Operations
Series E commenced trading operations on April 6,
2000, and as such, no comparative information to prior
periods is available.
As of December 31, 2000, Series E reported a net
asset value per Interest of $120.36, an increase of
20.36% from the April 6, 2000 initial net asset value
per Interest of $100.00. This return compares favorably
to the MAR (Managed Account Reports) Fund/Pool Index,
which tracks the performance of approximately 300 futures
33
funds, and returned 10.44% for the April
through December 2000 period. Past performance is not
necessarily indicative of future results.
Series E's gross trading gains for the period from
April 6, 2000 (commencement of operations) to December
31, 2000 were $1,430,000. A detailed discussion of the
trading results is presented below.
Series E's favorable performance in 2000 was the
result of gains in the energy, currency, stock index
and interest rate sectors. Losses were experienced in
the grain and metal sectors.
Energy prices climbed throughout January and
February and into the first week of March. Increased
demand and low supplies caused oil prices to surge once
again during the second and third quarters resulting in
gains for long energy positions. Energy markets ended
a year long uptrend with natural gas surging to an all
time high in December as low supplies were strained by
unusually cold temperatures in the U.S. Losses in short
gas positions during the fourth quarter were not large
enough to offset second and third quarter gains and
positions in the energy sector produced net gains for
the year.
The euro began 2000 lower versus the U.S. dollar,
Japanese yen and British pound before rallying slightly
in June as a result of solid European economic data and
sentiment that the currency was undervalued. Long euro
positions produced gains. Despite a brief rally after
intervention by the European Central Bank and other G-7
central banks to boost the failing euro in September,
the euro settled back down more than $0.02 below its
intervention peaks and short positions resulted in
gains for Series E. The euro reversed its downtrend
during the fourth quarter as it rose against the U.S.
dollar and Japanese yen resulting in gains for long
positions. Prior to commencement of Series E's
operations in April 2000, the Japanese yen rallied
sharply, gaining on the U.S. dollar and most other
currencies in the final months of Japan's fiscal year
(which ended March 31st). This was attributed to
positive sentiment regarding Japan's economy. In May,
the yen rose slightly against the U.S. dollar supported
by expectations of a possible change in the Bank of
Japan's (BOJ) zero-interest rate policy and continued
to rise when the BOJ increased short-term interest
rates in August. Long yen positions produced gains for
Series E during the second and third quarters of the
year. Political and economic uncertainty in Japan
during the fourth quarter caused the yen to fall
against the U.S. dollar and short Japanese yen
positions resulted in gains. The British pound was
down against the U.S. dollar during the second quarter
of the year, loosely tracking the euro's downward
trend. In June, long British pound positions were
profitable for Series E as the Bank of England left
interest rates unchanged and the pound sterling bounced
back from its earlier decline. The British pound and
other foreign currencies rose against the U.S. dollar
in the fourth quarter due to a weakening U.S. economy
resulting in gains for long positions.
Global bond markets began 2000 on a strong note.
Despite rate hikes and news of robust worldwide
economic growth, global bond markets continued to rally
partially due to investors seeking refuge from volatile
equity markets. Short U.S. and euro bond positions
resulted in losses in the second quarter of the year.
Negative equity performance throughout the third and
fourth quarters and mounting fears of a global economic
slowdown contributed to a bond market rally towards
year end as investors continued their flight to quality
from the stock market. Prices of long- and short-term
interest rate instruments rose and Series E experienced
gains in long U.S., Australian and euro bond positions
during the last quarter of the year.
Extreme volatility in world financial markets
during the second quarter of 2000 led to a lack of
trending opportunities, resulting in losses for
positions in stock indices. During the second half of
the year, equity markets experienced continued
volatility, but markets trended downward as global
economies began to show signs of slowing down. Most
major indices ended the year lower resulting in gains
for short positions during the fourth quarter.
In the grain sector, long positions in corn
incurred losses during the second quarter of the year
as corn prices trended down. Favorable growing
conditions faced the corn market with a potentially
large crop, consequently prices fell. Soybean markets
rallied sharply in November following a decision by the
European Union to ban meat based animal feed, which was
expected to boost demand for soybean meal. Gains in
long soybean meal and soybean oil positions were not
sufficient to offset earlier losses in corn positions.
34
Short metal positions incurred losses for Series E
throughout much of 2000 as strong demand and fears of
inflation drove prices higher. In addition, the high
cost of energy, which is used in the production of base
metals, caused a decrease in metal supply driving
prices higher and incurring losses for short positions.
Interest income is earned on the average daily
equity maintained in cash with Prudential Securities
at the 13-week Treasury bill discount rate and,
therefore, varies weekly according to interest rates,
trading performance, contributions and redemptions. Interest
income for the period from April 6, 2000 (commencement
of operations) to December 31, 2000 was $230,000.
Commissions are calculated on Series E's net asset
value at the end of each week and therefore, vary
according to weekly trading performance, contributions
and redemptions. Other transaction fees consist of
National Futures Association, exchange and clearing
fees as well as floor brokerage costs and give-up
charges, which are based on the number of trades the
trading advisor executes, as well as which exchange,
clearing firm or bank on, or through, which the
contract is traded. Commissions and other transaction
fees for the period from April 6, 2000 (commencement of
operations) to December 31, 2000 were $250,000.
All trading decisions for Series E are made by
Graham Capital Management, L.P. (the "Trading
Advisor"). Management fees are calculated on Series
E's net asset value at the end of each week and
therefore, are affected by weekly trading performance,
contributions and redemptions. Management fees for the
period from April 6, 2000 (commencement of operations)
to December 31, 2000 were $77,000.
Incentive fees are based on the "New High Net
Trading Profits" generated by the Trading Advisor, as
defined in the Advisory Agreement among Series E, the
Managing Owner and the Trading Advisor. Incentive fees
generated for the period from April 6, 2000
(commencement of operations) to December 31, 2000 were
$239,000.
General and administrative expenses for the period
from April 6, 2000 (commencement of operations) to
December 31, 2000 were $58,000. These expenses include
accounting, audit, tax and legal fees as well as
printing and postage costs related to reports sent to
limited owners. The total amount of general and
administrative expenses charged to Series E in any year
is limited to 1.5% of its net asset value during such
year and, because applicable expenses exceeded this
limit, there were no expenses incurred to reimburse the
Managing Owner and its affiliates for its costs
incurred on behalf of Series E for the period from
April 6, 2000 (commencement of operations) to December
31, 2000.
New Accounting Guidance
In June 2000, FASB issued Statement No. 138,
Accounting for Certain Derivative Instruments and
Certain Hedging Activities--an amendment of FASB
Statement No. 133 ("SFAS 138"), which became effective
for Series E on July 1, 2000. SFAS 138 amends the
accounting and reporting standards of FASB Statement
No. 133 for certain derivative instruments and certain
hedging activities. SFAS 138 has not had a material
effect on the carrying value of assets and liabilities
within the financial statements.
Inflation
Inflation has had no material impact on operations
or on the financial condition of Series E from
inception through December 31, 2000.
PLEASE TURN TO PAGES 49 TO 54 FOR A DESCRIPTION OF
GRAHAM CAPITAL AND ITS PRINICPALS AND TRADING PROGRAMS
AND TO PAGES 55 TO 59 FOR ITS PERFORMANCE RECORD FOR
ALL ACCOUNTS UNDER ITS MANAGEMENT FOR THE PAST FIVE
YEARS
35
Past Performance Of Series F
Capsule Performance of World Monitor Trust II - Series F
Commodity Trading Advisor: Campbell & Company
Rates of Return
(Computed on a Daily Basis)
Month 2001 2000
January (1.88)%
February 0.93%
March 6.26% (0.80)%
April (2.13)%
May 1.86%
June 0.87%
July (3.01)%
August 2.80%
September (3.35)%
October 2.67%
November 7.04%
December 1.18%
Annual 5.25% 6.91%
Name of Pool: World Monitor Trust II -- Series F
Type of Pool: Publicly-Offered
Start Date: March 1, 2000
Aggregate
subscriptions: $9,794,830 (as of March 31, 2001)
Current net
asset value per
interest: $112.51 (as of March 31, 2001)
"Draw-down" means losses experienced by
World Monitor Trust II -- Series F
over a specified period.
Largest monthly
draw-down: (3.35)% September 2000
"Largest monthly draw-down" means
the greatest percentage decline in
Net Asset Value due to losses
sustained by World Monitor Trust
II -- Series F from the beginning
to the end of a calendar month.
Largest peak-to-
valley draw-down: (3.86)% March 2000 to September 2000
"Largest peak-to-valley draw-down"
means the greatest cumulative
percentage decline in month-end
Net Asset Value of World Monitor
Trust II -- Series F due to losses
sustained during a period in which
the initial month-end Net Asset
Value of World Monitor Trust II --
Series F is not equaled or
exceeded by a subsequent month-end
Net Asset Value of World Monitor
Trust II -- Series F.
"Rate of Return" is calculated
daily by dividing net performance
by beginning equity. The daily
returns are then compounded to
arrive at the rate of return for
the month, which is in turn
compounded to arrive at the rate
of return for the year to date.
Past Performance Is Not Necessarily Indicative Of Future Results
36
Management's Discussion And Analysis Of Financial
Condition And Results Of Operations -- Series F
Liquidity and Capital Resources
Series F commenced operations on March 1, 2000 with
gross proceeds of $5,185,012 allocated to commodities
trading. Additional contributions raised through the
continuous offering for the period from March 1, 2000
(commencement of operations) through December 31, 2000
resulted in additional gross proceeds to Series F of
$3,002,818. Additional Limited Interests of Series F
will continue to be offered on a weekly basis at the
net asset value per Interest until the subscription
maximum is sold.
Limited Interests in Series F may be redeemed on a
weekly basis, but are subject to a redemption fee if
transacted within one year of the effective date of
purchase. Redemptions from March 1, 2000 (commencement
of operations) to December 31, 2000 were entirely on
Limited Interests and totaled $818,791. Additionally,
Interests owned in any series of World Monitor Trust 11
(Series D, E or F) may be exchanged, without any
charge, for Interests of one or more other series of
World Monitor Trust 11 on a weekly basis for as long as
Limited Interests in those series are being offered to
the public. Future contributions, redemptions and
exchanges will impact the amount of funds available for
investment in commodity contracts in subsequent
periods.
At December 31, 2000, 100% of Series F's net assets
were allocated to commodities trading. A significant
portion of the net assets was held in cash which is
used as margin for trading in commodities. Inasmuch as
the sole business of Series F is to trade in
commodities, Series F continues to own such liquid
assets to be used as margin. Prudential Securities
credits Series F with interest income on 100%
of its average daily equity maintained in cash in
its accounts with Prudential Securities during each
month at the 13-week Treasury bill discount rate. This
rate is determined weekly by Prudential Securities
and represents the rate awarded to all bidders during
each week's auction of 13-week Treasury bills.
The commodities contracts are subject to periods of
illiquidity because of market conditions, regulatory
considerations and other reasons. For example,
commodity exchanges limit fluctuations in certain
commodity futures contract prices during a single day
by regulations referred to as "daily limits." During a
single day, no trades may be executed at prices beyond
the daily limit. Once the price of a futures contract
for a particular commodity has increased or decreased
by an amount equal to the daily limit, positions in the
commodity can neither be taken nor liquidated unless
traders are willing to effect trades at or within the
limit. Commodity futures prices have occasionally
moved the daily limit for several consecutive days with
little or no trading. Such market conditions could
prevent Series F from promptly liquidating its
commodity futures positions.
Since Series F's business is to trade futures
contracts, its capital is at risk due to changes in the
value of these contracts (market risk) or the inability
of counterparties to perform under the terms of the
contracts (credit risk). Series F's exposure to market
risk is influenced by a number of factors including the
volatility of interest rates and foreign currency
exchange rates, the liquidity of the markets in which
the contracts are traded and the relationships among
the contracts held. The inherent uncertainty of Series
F's speculative trading as well as the development of
drastic market occurrences could result in monthly
losses considerably beyond Series F's experience to
date and could ultimately lead to a loss of all or
substantially all of investors' capital. The Managing
Owner attempts to minimize these risks by requiring
Series F and its trading advisor to abide by various
trading limitations and policies which include limiting
margin amounts, trading only in liquid markets and
permitting the use of stop loss provisions. See Note F
to the financial statements for a further discussion on
the credit and market risks associated with Series F's
futures contracts.
Series F does not have, nor does it expect to have,
any capital assets.
Results of Operations
Series F commenced trading operations on March 1,
2000, and as such, no comparative information to prior
periods is available.
As of December 31, 2000, Series F reported a net
asset value per Interest of $106.90, an increase of
6.9% from the initial net asset value per Interest of
$100.00. The MAR (Managed Account Reports) Fund/Pool Index,
37
which tracks the performance of approximately
300 futures funds, returned 9.33% for the March through
December 2000 period. Past performance is not
necessarily indicative of future results.
Series F's gross trading gains for the period from
March 1, 2000 (commencement of operations) to December
31, 2000 were $839,000. A detailed discussion of the
trading results is presented below.
Net profits for Series F were the result of gains
in the energy, currency and interest rate sectors.
Losses were experienced in the stock index and metal
sectors.
Energy prices climbed throughout January and
February and into the first week of March. Increased
demand and low supplies caused oil prices to surge once
again during the second and third quarters resulting in
gains for long energy positions. Energy markets ended
a year-long uptrend with natural gas surging to an all
time high in December as low supplies were strained by
unusually cold temperatures in the U.S. Long natural
gas positions produced gains.
The euro began 2000 lower versus the U.S. dollar,
Japanese yen and British pound before rallying slightly
in June as a result of solid European economic data and
sentiment that the currency was undervalued. Despite a
brief rally after intervention by the European Central
Bank and other G-7 central banks to boost the failing
euro in September, the euro settled back down more than
$0.02 below its intervention peaks and short positions
resulted in gains for the Series F. The euro reversed
its downtrend during the fourth quarter as it rose
against the U.S. dollar and Japanese yen resulting in
gains for long positions. The Japanese yen rallied
sharply, gaining on the U.S. dollar and most other
currencies in the final months of Japan's fiscal year
(which ended March 31st) as Series F entered the
Japanese yen market. This was attributed to positive
sentiment regarding Japan's economy. In May, the yen
rose slightly against the U.S. dollar supported by
expectations of a possible change in the Bank of
Japan's (BOJ) zero-interest rate policy and continued
to rise when the BOJ increased short-term interest
rates in August. Short yen positions resulted in
losses. Political and economic uncertainty in Japan
during the fourth quarter caused the yen to fall
against the U.S. dollar; short Japanese yen positions
resulted in gains. The British pound was down against
the U.S. dollar during the first half of the year,
loosely tracking the euro's downward trend. In June,
long British pound positions were profitable for Series
F as the Bank of England left interest rates unchanged
and the pound sterling bounced back from its earlier
decline. The British pound and other foreign
currencies rose against the U.S. dollar in the fourth
quarter due to a weakening U.S. economy. This resulted
in gains for long British pound, Australian dollar and
Canadian dollar positions.
Global bond markets began 2000 on a strong note.
Despite rate hikes and news of robust worldwide
economic growth, global bond markets continued to rally
partially due to investors seeking refuge from volatile
equity markets. Short U.S. and euro bond positions
resulted in losses in the first half of the year.
Negative equity performance throughout the third and
fourth quarters and mounting fears of a global economic
slowdown contributed to a bond market rally towards
year end as investors continued their flight to quality
from the stock market. Prices of long- and short-term
interest rate instruments rose and Series F experienced
gains in long U.S., Japanese and euro bond positions
during the last quarter of the year.
Extreme volatility in world financial markets
during the second quarter of 2000 led to a lack of
trending opportunities, resulting in losses for equity
index positions. During the second half, equity
markets continued to experience continued volatility,
but markets trended downward as global economies began
showing signs of slowing down. Most major indexes
ended the year lower resulting in losses for long
positions during the fourth quarter.
Short metal positions provided negative performance
for Series F throughout most of the year as strong
demand and fears of inflation drove prices higher. In
addition, the high cost of energy, which is used in the
production of base metals, caused a decrease in metal
supply driving prices higher and incurring losses for
short positions.
Interest income is earned on the average daily
equity maintained in cash with Prudential Securities
at the 13-week Treasury bill discount rate and,
therefore, varies weekly according to interest rates, trading
performance, contributions and redemptions. Interest
income for the period from March 1, 2000 (commencement
of operations) to December 31, 2000 was $334,000.
38
Commissions are calculated on Series F's net asset
value at the end of each week and therefore, vary
according to weekly trading performance, contributions
and redemptions. Other transaction fees consist of
National Futures Association, exchange and clearing
fees as well as floor brokerage costs and give-up
charges, which are based on the number of trades the
trading advisor executes, as well as which exchange,
clearing firm or bank on, or through, which the
contract is traded. Commissions and other transaction
fees for the period from March 1, 2000 (commencement of
operations) to December 31, 2000 were $351,000.
All trading decisions for Series F are made by
Campbell & Company, Inc. (the "Trading Advisor").
Management fees are calculated on Series F's net asset
value at the end of each week and therefore, are
affected by weekly trading performance, contributions
and redemptions. Management fees for the period from
March 1, 2000 (commencement of operations) to December
31, 2000 were $111,000.
Incentive fees are based on the "New High Net
Trading Profits" generated by the Trading Advisor, as
in the Advisory Agreement among Series F, the Managing
Owner and the Trading Advisor. An incentive fee of
$70,000 was generated for the period from March 1, 2000
(commencement of operations) to December 31, 2000.
General and administrative expenses for the period
from March 1, 2000 (commencement of operations) to
December 31, 2000 were $84,000. These expenses include
reimbursements of costs incurred by the Managing Owner
on behalf of Series F, in addition to accounting,
audit, tax and legal fees as well as printing and
postage costs related to reports sent to limited
owners. The total amount of general and administrative
expenses charged to Series F in any year is limited to
1.5% of its net asset value during such year; because
applicable expenses exceeded this limit, a portion of
the costs associated with services performed for Series
F by the Managing Owner was borne by the Managing Owner
or its affiliates.
New Accounting Guidance
In June 2000, FASB issued Statement No. 138,
Accounting for Certain Derivative Instruments and
Certain Hedging Activities-an amendment of FASB
Statement No. 133 ("SFAS 138"), which became effective
for Series F on July 1, 2000. SFAS 138 amends the
accounting and reporting standards of FASB Statement
No. 133 for certain derivative instruments and certain
hedging activities. SFAS 138 has not had a material
effect on the carrying value of assets and liabilities
within the financial statements.
Inflation
Inflation has had no material impact on operations
or on the financial condition of Series F from
inception through December 31, 2000.
PLEASE TURN TO PAGES 60 TO 64 FOR A DESCRIPTION OF
CAMPBELL & COMPANY AND ITS PRINICPALS AND TRADING
PROGRAMS AND TO PAGES 65 TO 69 FOR ITS PERFORMANCE
RECORD FOR ALL ACCOUNTS UNDER ITS MANAGEMENT FOR THE
PAST FIVE YEARS
39
SERIES D
Bridgewater Associates has been allocated 100% of
Series D assets. In its trading, Bridgewater
Associates utilizes its Aggressive Pure Alpha Futures
Only System.
Bridgewater Associates And Its Principals
Bridgewater Associates has been registered as a
registered investment adviser with the SEC since
November 1989 and a commodity trading advisor
registered with the CFTC since May 1992, and it is a
member of the National Futures Association. Its
executive offices are located at 1 Glendinning Place,
Westport, Connecticut 06880.
Raymond T. Dalio has been the president of
Bridgewater Associates since its founding in 1973, and
he is a principal of the firm. Mr. Dalio received his
M.B.A. in finance from Harvard Business School in 1973.
Mr. Dalio has been involved in analyzing the world's
major markets by identifying the economic conditions
that affect the directions of markets. From May 1973
until January 1974, he was Director of Commodities at
Dominick and Dominick, a Wall Street-based brokerage
house. Mr. Dalio then joined Shearson-Hayden Stone
(now Salomon Smith Barney, Inc.) where he was in charge
of institutional futures business. In 1975, he left
Shearson-Hayden Stone to devote his full time and
efforts to trading his own account and operating
Bridgewater Group entities.
Robert P. Prince, a vice president and principal of
Bridgewater Associates, is director of research and
trading. Mr. Prince became a C.P.A. in 1984, and he
received his M.B.A. from the University of Tulsa in
1985. Prior to joining Bridgewater Associates in
August of 1986, he spent three years as the Vice
President and Manager of the Treasury Division of the
First National Bank of Tulsa. He gained experience
using interest rate futures, swaps, and options in
hedging and risk management.
Giselle F. Wagner is currently a vice president and
chief operating officer of Bridgewater Associates, and
she is a principal of the firm. Ms. Wagner received
her B.A. in Economics from Smith College in 1976, her
M.B.A. in Finance from Columbia in 1978, and her
certified financial analyst status in 1992. From 1978
to 1984, she worked for Chemical Bank (now Chase
Manhattan Bank) as Vice President in the Treasury
Division. From 1984 to 1988, she worked for Morgan
Stanley (now Morgan Stanley Dean Witter). In 1988, Ms.
Wagner joined Bridgewater Associates.
Peter R. La Tronica is a vice president and
controller of Bridgewater Associates, and he is a
principal of the firm. After graduating from
Northeastern University in 1979, Mr. La Tronica joined
Merrill Lynch & Co. During his tenure at Merrill Lynch
& Co. and certain of its affiliates, he served in
various capacities including assistant director
commodity compliance and operations manager. From May
of 1984 to August 1985, Mr. La Tronica was assistant
vice president and assistant manager of the New York
Institutional Futures Office for Dean Witter Reynolds,
Inc. From August 1985 to June 1987, he served as
assistant Vice President of Rudolf Wolff Futures Inc.
(acquired in 1986 by Elders Finance Inc.) in charge of
Operations and Compliance. In June of 1987, Mr. La
Tronica joined Donaldson, Lufkin & Jenrette as Vice
President of Option and Arbitrage Operations in the
Equities Division. In March 1988, Mr. La Tronica
joined Benefit Concepts N.Y. Inc., an insurance
marketing firm, as associate in charge of product
development.
All of the companies mentioned in the above
biographical information not otherwise identified were
or are futures commission merchants registered under
the Commodity Exchange Act and members of the National
Futures Association.
40
Bridgewater Associates' Trading Strategy
Series D is traded pursuant to the Aggressive Pure
Alpha Futures Only System, a systematic trading
program, that is traded in accordance with the policies
described below.
Pure Alpha Trading System
Bridgewater Associates' trading strategy is both
fundamental and technical. Fundamental analysis uses
the theory that prices are primarily determined by
macro-economic, supply/demand influences. Bridgewater
Associates has developed what it believes to be precise
rules for identifying shifts in the economic/market
environment as they affect the price structure of
investment assets. These rules express quantitatively
the net strength of the pressures of fundamental
influences on prices, based on the leading
relationships between economic statistics and market
movements. The rules are programmed into computerized
trading systems that are used interactively to identify
the relative attractiveness of alternative markets.
Bridgewater Associates recognizes that its
fundamental systems cannot fully gauge all price
influences (e.g., shifts in sentiment and political
changes) and are not designed to identify the optimal
time and price for establishing and/or liquidating
positions. Technical analysis uses the theory that a
study of the markets themselves will provide a means of
anticipating future price trends. Accordingly,
Bridgewater Associates has also developed technical
systems to be used in conjunction with its fundamental
systems. The signals generated by the technical
systems are used to confirm or rebut the buy and sell
signals generated by the fundamental systems.
Bridgewater Associates weights its fundamental
readings more heavily than its technical readings in
determining the sizes of its positions.
The Aggressive Pure Alpha Futures Only System
The Aggressive Pure Alpha Futures Only System is
substantially similar to Bridgewater Associates Pure
Alpha System. The principal differences are (i)
certain of the products traded and (ii) the amount of
leverage used. The Pure Alpha System trades cash
bonds, a product that a publicly offered commodity pool
cannot trade. Capital normally allocated to cash bonds
will be reallocated to the other markets the advisor
trades in an attempt to realize the same overall
portfolio return as the strategy would have if it used
cash bonds. In addition, the Aggressive Pure Alpha
System is traded at 1.5 times the actual funds
allocated to trading, while the Pure Alpha System uses
different leverage. The Aggressive Pure Alpha System
focuses on futures and forward contracts on financial
instruments, interest rates, stock indices, and metals,
although other markets may be traded. Bridgewater
Associates follows more than 25 markets worldwide and
may take a position for Series D in all, some or none
of these markets at any point in time. As applicable
regulatory authorities approve instruments or
additional items, such as other stock market indices
and sovereign debt instruments, Bridgewater Associates
expects to trade such instruments for Series D.
Series D assets are traded pursuant to the
Aggressive Pure Alpha Futures Only System, and are
invested in futures markets utilizing leverage, or
margin. The margin-to-equity ratio tends to fluctuate
between 5% and 30%, typically being in the range of
7.5% and 15%. See "RISK FACTORS -- Futures, Forward,
And Options Trading Is Volatile And Highly Leveraged."
41
Allocation Among Markets Traded By Bridgewater Associates
Set forth below is a bar graph showing the market
sectors that are traded by Bridgewater Associates as of
February 28, 2001. As of that date, investor funds are
exposed to these sectors in approximately the
percentage allocations stated; however, these
percentage allocations are subject to change at
Bridgewater Associates' discretion. Actual allocations
change as market conditions and trading opportunities
change, and it is likely that the targeted risk
allocations may vary for Series D during future
periods, although the focus will remain on the currency
and financial instruments markets.
Market Sector Percentage
Interest Rates 50%
Currencies 40
Stock Indices 8
Metals 2
Total 100%
(GRAPH)
42
Bridgewater Associate's Past Performance For All Of Its Clients
Capsule summaries D(1) and D(2) contain actual
performance information for the periods indicated.
Aggressive Pure Alpha Futures Only System
The following is a capsule summary of the past
performance for the Aggressive Pure Alpha Futures Only
System as of February 28, 2001, the trading strategy which
is used to trade Series D.
Name of commodity
trading advisor: Bridgewater Associates
Program: Aggressive Pure Alpha Futures Only System
Start Date: June 1, 1985 (All trading by
Bridgewater Associates)
August 26, 1998 (Aggressive Pure
Alpha Futures Only System)
No. Accounts: 3
Aggregate $$ In All
Programs: $ 14,400,000,000 (All programs
excluding notional; estimate)
$ 15,800,000,000 (All programs
including notional; estimate)
$$ In This Program: $ 20,900,000 (Aggressive Pure Alpha
Futures Only System excluding notional)
$ 20,900,000 (Aggressive Pure Alpha
Futures Only System including notional)
Largest monthly draw-
down: (8.60)% August 2000
"Largest monthly draw-down" means
the greatest decline in month-end
net asset value due to losses
sustained by the program on a
composite basis for any particular
month or an individual account for
any particular month.
Largest peak-to-
valley draw-down: (27.20)% August 1999 to October 2000
"Largest peak-to-valley draw-down"
means the greatest cumulative
percentage decline in month-end net
asset value due to losses sustained
by the program on a composite basis
or an individual account during any
period in which the initial month-
end net asset value is not equaled
or exceeded by a subsequent month-
end net asset value.
Closed accounts: Profitable = 0
Unprofitable = 0
CAPSULE D(1) -- AGGRESSIVE PURE ALPHA FUTURES ONLY SYSTEM
MONTHLY/ANNUAL RATES OF RETURN*
Month 2001 2000 1999 1998
January (2.47)% (1.30)% 0.69%
February (3.43) 4.30 3.79
March (4.71) (1.91)
April (1.44) (0.66)
May 10.06 2.13
June (1.87) 0.57
July (1.78) 0.75
August (8.27) (1.50) (0.56)%
September (6.00) (1.38) 2.78
October (7.95) (2.16) 10.18
November 3.88 (3.03) 2.19
December 5.17 (0.47) 5.83
Annual/YTD (5.82)% (11.08)% (3.35)% 21.77%
(5 months)
* All annual rates of return are computed on a compounded monthly basis
PAST PERFORMANCE IS NOT NECESSARILY INDICATIVE OF FUTURE RESULTS
43
CAPSULE D(2)
PAST PERFORMANCE OF OTHER PROGRAMS OFFERED BY BRIDGEWATER ASSOCIATES AND ITS
AFFILIATES THAT WILL NOT BE USED TO TRADE SERIES D ASSETS
Date Aggregate Dollars
Name of Date CTA in All Programs Dollars in This Program
Commodity CTA Began Number (in thousands) (in thousands)
Trading Began Trading of (Excluding (Including (Excluding (Including
Advisor Program Trading Program Accounts Notional) Notional) Notional) Notional)
$ $ $ $
Bridgewater
Associates Pure Alpha3,4 6/85 12/91 3 14,400,000 15,800,000 327,000 327,000
Pure Alpha
Bridgewater Bond and
Associates Currency
Only3 6/85 7/97 2 14,400,000 15,800,000 34,000 146,000
Constrained
Bridgewater Pure
Associates Alpha3 6/85 1/89 4 14,400,000 15,800,000 576,000 616,000
Bridgewater Global
Associates Bond
Overlay3 6/85 5/95 0 14,400,000 15,800,000 0 0
Bridgewater Short-Term
Associates Emerging
Markets3 6/85 4/97 0 14,400,000 15,800,000 0 0
Bridgewater Inflation
Associates Indexed
Linked
Bond
Accounts-
Leveraged3 6/85 4/94 3 14,400,000 15,800,000 161,000 161,000
Bridgewater Institutional
Associates Account with
Global
Bond and
Equity
Benchmark3 6/85 3/94 1 14,400,000 15,800,000 721,000 721,000
Bridgewater Diversified
Associates Global
Bond3 6/85 3/96 2 14,400,000 15,800,000 859,000 859,000
Bridgewater Inflation
Associates Linked
Bonds3 6/85 1/97 0 14,400,000 15,800,000 0 0
Bridgewater Inflation
Associates Linked
Bonds and
Nominal
Bonds
Unleveraged3 6/85 8/97 13 14,400,000 15,800,000 954,000 954,000
Bridgewater Active
Associates International
Bond Alpha
Only
Account 6/85 11/99 1 14,400,000 15,800,000 24,000 248,000
Bridgewater Global
Associates9 Asset
Allocation
Speculative5 6/85 1/89 1 14,400,000 15,800,000 2,000 2,000
ANNUAL RATES OF RETURN*
Largest
Name of Largest Peak-to-
Commodity Monthly Valley 2001
Trading Draw- Draw- Closed Accounts (through
Advisor Program Down(1) Down(2) Profitable Unprofitable 1/31) 2000 1999 1998 1997 1996
% % % % % % % %
Bridgewater (6.05) (14.10)
Associates Pure Alpha3,4 10/00 7/00-10/00 2 0 0.87 (0.04) 5.64 26.74 15.07 24.37
Pure Alpha
Bridgewater Bond and
Associates Currency (0.89) (2.42) 1.94
Only3 10/00 8/00-10/00 0 0 (0.43) 4.57 3.48 9.04 (6 mos) --
Constrained
Bridgewater Pure (1.69) (3.90)
Associates Alpha3 10/00 8/00-10/00 2 0 0.63 4.57 5.15 8.80 5.41 4.21
Bridgewater Global
Associates Bond (1.68) (2.44) 0.50
Overlay3 3/97 12/96-3/97 1 0 -- -- -- (1 mo) 0.40 4.87
Bridgewater Short-Term
Associates Emerging (4.30) (17.58) 4.61 (11.55)
Markets3 8/97 7/97-1/98 0 1 -- -- -- (7 mos) (9 mos) --
Bridgewater Inflation
Associates Indexed
Linked
Bond
Accounts- (7.15) (9.25) 8.45 4.00
Leveraged3 2/96 1/96-2/96 3 0 2.47 (7 mos) -- (3 mos) 11.84 15.21
Bridgewater Institutional
Associates Account with
Global
Bond and
Equity (9.65) (25.87)
Benchmark3 10/00 7/00-11/00 0 0 (0.28) (18.26) 9.52 54.74 32.43 35.98
Bridgewater Diversified
Associates Global (4.03) (4.03) 18.52
Bond3 3/97 3/97 0 0 1.59 12.01 (3.48) 10.68 14.77 (10 mos)
Bridgewater Inflation
Associates Linked (2.54) (4.56) 8.80
Bonds3 8/97 2/97-4/97 2 0 -- -- -- (11 mos) 8.25 --
Bridgewater Inflation
Associates Linked
Bonds and
Nominal
Bonds (2.75) (8.44) 9.23
Unleveraged3 4/99 1/99-6/99 1 0 1.42 11.76 (2.30) 14.36 (5 mos) --
Bridgewater Active
Associates International
Bond Alpha
Only (0.71) (1.25) 6.61
Account 3/00 8/00-10/00 0 0 (0.06) 2.35 (0.51) (11 mos) -- --
Bridgewater Global
Associates9 Asset
Allocation (3.27) (8.06)
Speculative5 8/00 6/00-10/00 2 1 (0.57) 0.84 4.25 19.04 10.99 17.64
44
Date Aggregate Dollars
Name of Date CTA in All Programs Dollars in This Program
Commodity CTA Began Number (in thousands) (in thousands)
Trading Began Trading of (Excluding (Including (Excluding (Including
Advisor Program Trading Program Accounts Notional) Notional) Notional) Notional)
$ $ $ $
Bridgewater Aggressive
Associates9. Pure
Alpha3 6/85 7/97 1 14,400,000 15,800,000 6,000 6,000
Bridgewater Pure
Associates Alpha
Futures
Only3,6 6/85 1/98 4 14,400,000 15,800,000 17,000 44,000
Bridgewater Long
Associates Duration
Global
Bond3 6/85 8/95 0 14,400,000 15,800,000 0 0
Bridgewater Long-
Associates Term
Emerging
Markets3 6/85 5/96 3 14,400,000 15,800,000 183,000 183,000
Bridgewater Index
Associates Overlay7 6/85 7/98 1 14,400,000 15,800,000 12,000 78,000
Bridgewater Global
Associates Tactical
Asset
Allocation 6/85 5/99 1 14,400,000 15,800,000 6,000 106,000
Bridgewater Aggressive
Associates Pure
Alpha 6/85 12/99 1 14,400,000 15,800,000 40,000 93,000
Bridgewater Aggressive
Associates Pure
Alpha
Futures
Only-B 6/85 9/99 1 14,400,000 15,800,000 47,000 47,000
Bridgewater Aggressive
Associates Pure
Alpha
Futures
Only-C 6/85 12/99 2 14,400,000 15,800,000 4,000 18,000
Bridgewater Pure
Associates Alpha
Futures
Only-B 6/85 5/99 1 14,400,000 15,800,000 276 4,000
Bridgewater Pure
Associates Alpha
Futures
Only-C 6/85 1/99 7 14,400,000 15,800,000 43,000 108,000
Bridgewater Pure
Associates Alpha
with
Canadian
Bond
Benchmark 6/85 11/99 1 14,400,000 15,800,000 25,000 25,000
Bridgewater Passive
Associates9 International
Bond
Account 6/85 11/99 1 14,400,000 15,800,000 28,000 128,000
Bridgewater Pure
Associates Alpha
with a
Passive
U.S. Bond
Benchmark 6/85 2/00 1 14,400,000 15,800,000 6,000 6,000
Bridgewater Passive
Associates U.S. Bond 6/85 2/00 1 14,400,000 15,800,000 587,000 587,000
ANNUAL RATES OF RETURN*
Largest
Name of Largest Peak-to-
Commodity Monthly Valley 2001
Trading Draw- Draw- Closed Accounts (through
Advisor Program Down(1) Down(2) Profitable Unprofitable 1/31) 2000 1999 1998 1997 1996
% % % % % % % %
Bridgewater Aggressive
Associates9. Pure (15.02) (28.97)
Alpha3 8/98 7/00-10/00 0 0 (0.80) (11.64) 2.16 66.67 14.58 --
Bridgewater Pure
Associates Alpha
Futures (7.96) (20.57)
Only3,6 10/00 8/99-10/00 3 3 (2.64) (9.80) (2.51) 19.71 -- --
Bridgewater Long
Associates Duration
Global (16.11) (27.48) 9.51
Bond3 2/96 12/98-12/99 2 0 -- (2 mos) (25.39) 50.31 34.74 11.85
Bridgewater Long-
Associates Term
Emerging (25.55) (24.48) 21.77
Markets3 8/98 5/98-8/98 0 0 6.46 16.46 18.62 (0.13) 17.41 (8 mos)
Bridgewater Index (15.03) (23.27) (5.96)
Associates Overlay7 8/98 3/00-11/00 0 0 2.67 (15.53) 16.37 (6 mos) -- --
Bridgewater Global
Associates Tactical
Asset (0.29) (0.75) (0.64)
Allocation 9/99 7/99-12/99 0 0 0.01 0.75 (8 mos) -- -- --
Bridgewater Aggressive
Associates Pure (7.11) (18.07) 0.05
Alpha 10/00 7/00-10/00 0 0 (0.47) (4.47) (1 mo) -- -- --
Bridgewater Aggressive
Associates Pure
Alpha
Futures (6.82) (18.44) (1.46)
Only-B 8/00 6/00-10/00 0 0 (1.60) (3.71) (4 mos) -- -- --
Bridgewater Aggressive
Associates Pure
Alpha
Futures (9.49) (25.68) 0.44
Only-C 8/00 6/00-10/00 0 1 (2.63) (14.01) (1 mo) -- -- --
Bridgewater Pure
Associates Alpha
Futures (5.40) (16.24) (1.79)
Only-B 8/00 8/99-10/00 0 1 (1.43) (6.96) (8 mos) -- -- --
Bridgewater Pure
Associates Alpha
Futures (5.53) (15.37)
Only-C 8/00 6/00-10/00 2 2 (1.29) (3.40) 0.84 -- -- --
Bridgewater Pure
Associates Alpha
with
Canadian
Bond (5.77) (14.25) (1.19)
Benchmark 10/00 7/00-10/00 0 0 (0.53) 0.57 (2 mos) -- -- --
Bridgewater Passive
Associates9 International
Bond (4.33) (13.40) (2.18)
Account 4/00 11/99-10/00 0 0 0.12 (6.89) (2 mos) -- -- --
Bridgewater Pure
Associates Alpha
with a
Passive
U.S. Bond (7.98) (10.40) 31.28
Benchmark 9/00 8/00-10/00 0 0 (1.48) (11 mos) -- -- -- --
Bridgewater Passive (3.60) (3.81) 34.35
Associates U.S. Bond 9/00 3/00-4/00 0 0 (0.49) (11 mos) -- -- -- --
45
Date Aggregate Dollars
Name of Date CTA in All Programs Dollars in This Program
Commodity CTA Began Number (in thousands) (in thousands)
Trading Began Trading of (Excluding (Including (Excluding (Including
Advisor Program Trading Program Accounts Notional) Notional) Notional) Notional)
$ $ $ $
Bridgewater Constrained
Associates Pure Alpha-B 6/85 2/00 1 14,400,000 15,800,000 228,000 228,000
Bridgewater Pure
Associates Alpha
with
Customized
UK Bond
Benchmark 6/85 5/00 1 14,400,000 15,800,000 49,000 49,000
Bridgewater Pure
Associates Alpha
Futures
Only-D 6/85 6/00 2 14,400,000 15,800,000 28,000 28,000
Bridgewater Constrained
Associates Pure Alpha-C 6/85 8/00 1 14,400,000 15,800,000 360,000 360,000
Bridgewater Inflation
Associates Linked
Bonds 100%
Hedged to
Swiss Franc 6/85 10/00 1 14,400,000 15,800,000 57,000 57,000
Bridgewater Global
Associates Bond and
Currency-A
(Unhedged) 6/85 2/90 13 14,400,000 15,800,000 5,800,000 6,300,000
Bridgewater Global
Associates Bond and
Currency-B
(Hedged) 6/85 3/93 1 14,400,000 15,800,000 132,000 132,000
Bridgewater Global
Associates Bond and
Currency-C
(25%
Hedged) 6/85 5/00 1 14,00,000 15,800,000 215,000 215,000
Bridgewater Global
Associates Bond and
Currency-D
(Non-U.S.
Hedged) 6/85 7/94 2 14,400,000 15,800,000 343,000 343,000
Bridgewater Global
Associates Bond and
Currency-E
(Non-U.S.
Unhedged) 6/85 8/99 4 14,400,000 15,800,000 1,300,000 1,300,000
Bridgewater Global
Associates Bond and
Currency-F
(Non-U.S.
50% Hedged) 6/85 4/99 1 14,400,000 15,800,000 549,000 549,000
Bridgewater Global
Associates Bond and
Currency-G
(Excluding
Yen,
Unhedged) 6/85 8/92 1 14,400,000 15,800,000 132,000 132,000
ANNUAL RATES OF RETURN*
Largest
Name of Largest Peak-to-
Commodity Monthly Valley 2001
Trading Draw- Draw- Closed Accounts (through
Advisor Program Down(1) Down(2) Profitable Unprofitable 1/31) 2000 1999 1998 1997 1996
% % % % % % % %
Bridgewater Constrained (5.32) (13.33) (0.93)
Associates Pure Alpha-B 10/00 7/00-10/00 0 0 0.09 (11 mos) -- -- -- --
Bridgewater Pure
Associates Alpha
with
Customized
UK Bond (6.31) (15.65) 0.91
Benchmark 8/00 7/00-10/00 0 0 1.23 (8 mos) -- -- -- --
Bridgewater Pure
Associates Alpha
Futures (8.93) (24.70) (17.36)
Only-D 8/00 6/00-10/00 0 0 (2.72) (7 mos) -- -- -- --
Bridgewater Constrained (4.74) (7.70) 2.61
Associates Pure Alpha-C 10/00 8/00-10/00 0 0 (1.05) (5 mos). -- -- -- --
Bridgewater Inflation
Associates Linked
Bonds 100%
Hedged to 3.09
Swiss Franc -- -- 0 0 0.62 (3 mos)- -- -- -- --
Bridgewater Global
Associates Bond and
Currency-A (3.68) (8.42)
(Unhedged) 4/00 10/99-10/00 3 1 (0.15) (2.95) (2.72) 16.98 6.47 8.68
Bridgewater Global
Associates Bond and
Currency-B (2.40) (3.95)
(Hedged) 2/96 8/00-10/00 0 0 0.71 (6.33) (0.04) 16.93 13.16 14.79
Bridgewater Global
Associates Bond and
Currency-C
(25% (2.34) (6.13) 4.58
Hedged) 10/00 7/00-10/00 0 0 0.03 (5 mos) -- -- -- --
Bridgewater Global
Associates Bond and
Currency-D
(Non-U.S. (1.84) (3.42)
Hedged) 2/96 8/00-10/00 0 0 1.31 7.03 3.08 17.88 14.75 18.12
Bridgewater Global
Associates Bond and
Currency-E
(Non-U.S. (4.91) (13.52) (0.29)
Unhedged) 4/00 10/00-10/00 0 0 (0.59) (2.52) (5 mos) -- -- --
Bridgewater Global
Associates Bond and
Currency-F
(Non-U.S. (2.54) (5.25) (0.88)
50% Hedged) 4/00 8/00-10/00 1 0 0.41 2.66 (9 mos) -- -- --
Bridgewater Global
Associates Bond and
Currency-G
(Excluding
Yen, (3.22) (14.32)
Unhedged) 4/00 1/99-10/00 0 0 (0.45) 5.13 (9.64) 24.85 5.84 12.10
46
Date Aggregate Dollars
Name of Date CTA in All Programs Dollars in This Program
Commodity CTA Began Number (in thousands) (in thousands)
Trading Began Trading of (Excluding (Including (Excluding (Including
Advisor Program Trading Program Accounts Notional) Notional) Notional) Notional)
$ $ $ $
Bridgewater Global
Associates Bond and
Currency-H
(Excluding
Yen and
U.S. Dollar,
Hedged) 6/85 4/00 1 14,400,000 15,800,000 37,000 37,000
Bridgewater Global
Associates Bond and
Currency-I
(Hedged to
Australian
Dollar) 6/85 5/98 1 14,400,000 15,800,000 61,000 61,000
Bridgewater Global
Associates Bond and
Currency-J 6/85 3/97 1 14,400,000 15,800,000 41,000 41,000
Bridgewater Global
Associates Bond and
Currency-K
(U.S.
Lehman
Aggregate
Benchmark) 6/85 1/99 1 14,400,000 15,800,000 380,000 380,000
Bridgewater Global
Associates Bond and
Currency-L
(Hedged to
Australian
Dollar) 6/85 10/92 1 14,400,000 15,800,000 56,000 56,000
Bridgewater Global
S.A., Inc.8 Bond and
Currency-M 6/85 7/97 0 14,400,000 15,800,000 -- --
ANNUAL RATES OF RETURN*
Largest
Name of Largest Peak-to-
Commodity Monthly Valley 2001
Trading Draw- Draw- Closed Accounts (through
Advisor Program Down(1) Down(2) Profitable Unprofitable 1/31) 2000 1999 1998 1997 1996
% % % % % % % %
Bridgewater Global
Associates Bond and
Currency-H
(Excluding
Yen and
U.S. Dollar, (1.12) (3.09) 5.17
Hedged) 10/00 8/00-10/00 0 0 0.56 (9 mos) -- -- -- --
Bridgewater Global
Associates Bond and
Currency-I
(Hedged to
Australian (1.48) (3.08) 9.22
Dollar) 6/99 5/99-8/99 0 0 1.08 10.94 (1.20) (8 mos) -- --
Bridgewater Global
Associates Bond and (1.88) (5.96) 11.16
Currency-J 8/00 1/99-1/00 0 0 0.23 6.46 (4.50) 23.17 (10 mos) --
Bridgewater Global
Associates Bond and
Currency-K
(U.S.
Lehman
Aggregate (1.40) (2.79)
Benchmark) 2/99 2/99-1/00 0 0 1.71 11.14 (1.79) -- -- --
Bridgewater Global
Associates Bond and
Currency-L
(Hedged to
Australian (2.59) (3.95)
Dollar) 2/96 7/00-10/00 0 0 0.54 7.20 (1.73) 20.71 11.07 13.30
Bridgewater Global
S.A., Inc.8 Bond and (0.76) (0.76) 1.51 7.11
Currency-M 2/99 2/99 1 0 -- (4 mos) 18.84 (6 mos) -- --
__________________
* The CFTC accepts three different methods of showing
the composite rate of return achieved by accounts, some
of which are traded at different degrees of leverage.
These methods are: the fully funded subset method, the
time-weighted method and the only accounts traded method.
Although each method uses a different approach, all methods
are intended to produce substantially the same rate of return.
All annual rates of return are computed on
a compounded monthly basis. Rates of return are
calculated by dividing net performance by nominal account
size of the account.
1. "Largest monthly draw-down" means the greatest
decline in month-end net asset value due to losses
sustained by the program on a composite basis for
any particular month or any particular account for
any particular month.
2. "Largest peak-to-valley draw-down" means the
greatest cumulative percentage decline in month-end
net asset value due to losses sustained by the program
on a composite basis or an individual account during any
period in which the initial month-end
net asset value is not equaled or exceeded by a subsequent
month-end net asset value.
3. Each of these programs represents a variation of
Bridgewater Associates' Pure Alpha Strategy. There are
three principal differences among these accounts: (a)
the amount of leverage used to trade the account, (b)
the nature of the products traded, e.g.,
emerging market bonds, 10 year bonds, currency
only, etc. and (c) the manner in which cash in
the account is invested, T-bills or stock indices.
Certain programs are offered by both Bridgewater
Associates and its affiliate Bridgewater Associates, S.A.
4. For period January 1994 to April 1998, there
were no fully funded accounts, therefore, rates
of return are based on the subset at nominal account size.
5. This is a program that had been offered to retain accounts
that is no longer being offered. It was not based on the
Pure Alpha Strategy.
6. Rates of return are calculated by dividing net performance
by beginning equity.
7. This is a passive equity strategy that is not based on the
Pure Alpha Strategy.
8. On November 2000 Bridgewater S.A., Inc. merged into its
affiliate Bridgewater Associates. This program was previously
offered by Bridgewater S.A., Inc.
PAST PERFORMANCE IS NOT NECESSARILY INDICATIVE OF FUTURE RESULTS
47
The first seven programs listed in Capsule
D(2) are based on the Fully Funded Subset method
for computing the rate of return. The monthly
rates of return for accounts excluded from the
Fully Funded Subset, that is those which are
partially funded, will often be different from
the rate of return for the Fully Funded Subset.
Accounts not included in the Fully Funded Subset
for any particular period may include: accounts
opened or closed during the period; accounts
which have material additions or withdrawals
during the period; and the accounts which are
being phased into the program and, consequently,
do not have a complete set of positions that the
other accounts in the program have. The rates
of return for these excluded accounts may be
significantly higher or lower than the rate of
return for the Fully Funded Subset. The
following chart is provided so that you can
determine the rate of return which was received
at different funding levels. This chart does
not apply to Series D and the Aggressive Pure
Alpha Futures System.
ACTUAL RATE RATES OF RETURN BASED ON VARIOUS
OF RETURN (1) FUNDING LEVELS (3)
20.00% 26.67% 40.00% 80.00%
15.00 20.00 30.00 60.00
10.00 13.33 20.00 40.00
5.00 6.67 10.00 20.00
3.00 4.00 6.00 12.00
1.00 1.33 2.00 4.00
(1.00) (1.33) (2.00) (4.00)
(3.00) (4.00) (6.00) (12.00)
(5.00) (6.67) (10.00) (20.00)
(10.00) (13.33) (20.00) (40.00)
100.00% 75.00% 50.00% 25.00%
LEVEL OF FUNDING (2)
Footnotes to Rate Conversion Chart:
(1) This column represents the range of actual
rates of return for fully-funded accounts
reflected in the accompanying performance
table.
(2) This represents the percentage of actual funds
divided by the fully-funded trading level.
(3) This represents the rate of return experienced
by a customer at various levels of funding
traded by the trading advisor. The rates of
return for accounts that are not fully-funded
are inversely proportional to the actual rates
of return based on the percentage level of
funding.
48
SERIES E
Graham Capital has been allocated 100% of the
Series E assets. In its trading for Series E, Graham
Capital utilizes its Global Diversified Program trading
strategy.
Graham Capital And Its Principals
Graham Capital was organized as a Delaware limited
partnership in May 1994. The general partner of Graham
Capital is KGT, Inc., a Delaware corporation of which
Kenneth G. Tropin is the president and sole
shareholder. The limited partner of Graham Capital is
KGT Investment Partners, L.P., a Delaware limited
partnership of which KGT, Inc. is also a general
partner and in which Mr. Tropin is the principal
investor. Graham Capital became registered as a
commodity pool operator and commodity trading advisor
under the Commodity Exchange Act on July 27, 1994, and
it became a member of the National Futures Association
on the same date. Graham Capital maintains its only
business office at Stamford Harbor Park, 333 Ludlow
Street, Stamford, CT 06902; telephone (203) 975-5700.
Kenneth G. Tropin is the president, the founder and
a principal of Graham Capital. As president of Graham
Capital, Mr. Tropin is responsible for the investment
management strategies of the organization. He has
developed Graham Capital's core trading programs.
Prior to organizing Graham Capital, Mr. Tropin
served as the president, the chief executive officer
and a Director of John W. Henry & Co. Inc. from March
1989 to September 1993. Mr. Tropin was formerly senior
vice president and Director of Managed Futures and
Precious Metals at Dean Witter Reynolds Inc. He joined
Dean Witter Reynolds Inc. from Shearson in February
1982 to run the Managed Futures Department, and in
October 1984 Mr. Tropin assumed responsibility for Dean
Witter Precious Metals as well. In November 1984, Mr.
Tropin was appointed president of Demeter Management
Corporation, an affiliate of Morgan Stanley Dean Witter
& Co., which functions as the general partner to and
the manager of Morgan Stanley Dean Witter futures
funds.
In February 1986, Mr. Tropin was instrumental in
the foundation of the Managed Futures Trade
Association. Mr. Tropin was elected Chairman of the
Managed Futures Trade Association in March 1986 and
held this position until 1991. In June 1987, Mr.
Tropin was appointed president of Dean Witter Futures
and Currency Management Inc., an affiliate of Dean
Witter Reynolds Inc.
Thomas P. Schneider is an executive vice president,
the chief trader and a principal of Graham Capital. He
is responsible for managing Graham Capital's futures
trading operations, including order execution, policies
and procedures and maintaining relationships with
independent executing brokers and futures commission
merchants.
Mr. Schneider graduated from the University of
Notre Dame in 1983 with a B.B.A. in Finance, and he
received his M.B.A. from the University of Texas at
Austin in 1994. From June 1985 through September 1993,
Mr. Schneider was employed by ELM Financial, Inc., a
commodity trading advisor in Dallas, Texas. While
employed at ELM Financial, Inc., Mr. Schneider held
positions of increasing responsibility and was
ultimately chief trader, vice president, and principal
of ELM Financial, Inc., responsible for 24-hour trading
execution, compliance, and accounting. In January
1994, Mr. Schneider began working as chief trader for
Chang Crowell Management Corporation, a commodity
trading advisor in Norwalk, Connecticut. He was
responsible for streamlining operations for more
efficient order execution and for maintaining and
developing relationships with over 15 futures
commission merchants on a global basis. In addition to
his responsibilities as chief trader, Mr. Schneider has
been a National Futures Association arbitrator since
1989 and served on the Managed Futures Association's
Trading and Markets Committee.
Robert G. Griffith is an executive vice president,
the director of research, the chief technology officer
and a principal of Graham Capital, and he is
responsible for the management of all research
activities and technology resources of Graham Capital,
including portfolio management, asset allocation and
trading system development. Mr. Griffith is in charge
of the day-to-day administration of Graham Capital's
trading systems and the management
49
of Graham Capital's
database of price information on more than 100 markets.
Mr. Griffith also assists Mr. Tropin in numerous
research initiatives as well as various administrative
responsibilities. Prior to joining Graham Capital, Mr.
Griffith's company, Veridical Methods, Inc., provided
computer programming and consulting services to such
firms as GE Capital, Lehman Brothers and Morgan
Guaranty Trust. He received his B.B.A. in Management
Information systems from the University of Iowa in
1979.
Anthony Bryla is the chief financial officer and a
principal of Graham Capital, and is responsible for the
management of all accounting and finance activities at
Graham Capital. Mr. Bryla is in charge of the daily
and monthly performance reporting, company accounting
and treasury functions, as well as policies and
procedures. Prior to joining Graham Capital in
September 1995, Mr. Bryla was an assistant accounting
manager at OMR Systems Corp. where he provided back-
office and accounting services for such clients as
Merrill Lynch and Chase Manhattan Bank and where he
held positions of increasing responsibility since
February 1989. Mr. Bryla is a C.P.A. and is a member
of the New Jersey Society of C.P.A.s, and he graduated
from Rutgers University with a B.A. in Business
Administration in 1982.
Paul Sedlack is the chief operating officer, the
general counsel and a principal of Graham Capital. He
oversees the operation of the marketing, finance and
administration departments, and is responsible for
legal and compliance matters. Mr. Sedlack began his
career at the law firm of Coudert Brothers in New York
in 1986 and was resident in Coudert Brothers' Singapore
office from 1988 to 1989. Prior to joining Graham
Capital in June 1998, Mr. Sedlack was a partner at the
law firm of McDermott, Will & Emery in New York,
focusing on securities and commodities laws pertaining
to the investment management and related industries.
Mr. Sedlack received a JD from Cornell Law School in
1986 and an M.B.A. in Finance in 1983 and a BS in
Engineering in 1982, both from State University of New
York at Buffalo.
Kevin O'Connor is a senior vice president, senior
trader and principal of Graham Capital. Mr. O'Connor
is a senior member of the trading staff responsible for
executing trades in accordance with Graham Capital's
futures trading systems, and he works closely with Mr.
Schneider in managing the firm's daily futures trading
operations. Prior to joining Graham Capital, from June
1992 until June 1995, Mr. O'Connor was a vice president
and controller for Luck Trading Company, a commodity
trading advisor in New York City. From January 1981
until June 1992, Mr. O'Connor was a controller and
senior trader for Futures Investment Company, a
commodity trading advisor based in Greenwich, CT. Mr.
O'Connor graduated from Providence College in 1980 with
a BS in Accounting.
Fred J. Levin is the chief economist, a senior
discretionary trader and a principal of Graham Capital
specializing in fixed income markets with particular
emphasis on short-term interest rates. Prior to
joining Graham Capital in March 1999, Mr. Levin was
employed as director of research at Aubrey G. Lanston &
Co. Inc. from 1998. From 1991 to 1998, Mr. Levin was
the chief economist and a trader at Eastbridge Capital.
From 1988 to 1991, Mr. Levin was the chief economist
and a trader at Transworld Oil. From 1982 to 1988, Mr.
Levin was the chief economist, North American
Investment Bank at Citibank. From 1970 to 1982, Mr.
Levin headed the domestic research department and
helped manage the open market desk at the Federal
Reserve Bank of New York. Mr. Levin received an M.A.
in economics from the University of Chicago in 1968 and
a B.S. from the University of Pennsylvania, Wharton
School in 1964.
50
Graham Capital's Trading Strategy
Graham Capital has both systematic and
discretionary trading programs. Graham Capital uses
systematic trading programs or models to produce
trading signals on a largely automated basis when
applied to market data. Graham Capital also uses a
discretionary trading program for which trades are
determined subjectively on the basis of its traders'
assessments of market conditions, rather than through
application of an automated system. The investment
objective of each Graham Capital trading strategy is to
provide clients with significant potential for capital
appreciation in both rising and falling markets during
expanding and recessionary economic cycles.
Systematic Trading
Graham Capital's trading systems rely primarily on
technical rather than fundamental information as the
basis for their trading decisions. Graham Capital's
systems are based on the expectation that they can over
time successfully anticipate market events using
quantitative mathematical models to determine their
trading activities, as opposed to attempting properly
to forecast price trends using subjective analysis of
supply and demand.
Graham Capital's core trading systems are primarily
very long term in nature and are designed to
participate selectively in potential profit
opportunities that can occur during periods of
sustained price trends in a diverse number of U.S. and
international markets. The primary objective of the
core trading systems is to establish positions in
markets where the price action of a particular market
signals the computerized systems used by Graham Capital
that a potential trend in prices is occurring. The
systems are designed to analyze mathematically the
recent trading characteristics of each market and
statistically compare such characteristics to the long-
term historical trading pattern of the particular
market. As a result of this analysis, the systems will
utilize proprietary risk management and trade filter
strategies that are intended to benefit from sustained
price trends while reducing risk and volatility
exposure.
Graham Capital utilizes discretion in connection
with its systematic trading programs in determining
which markets warrant participation in the programs,
market weighting, leverage and timing of trades for new
accounts. Graham Capital also may utilize discretion
in establishing positions or liquidating positions in
unusual market conditions where, in its sole
discretion, Graham Capital believes that the risk-
reward characteristics have become unfavorable.
Discretionary Trading
The Discretionary Trading Group (referred to as the
DTG) was established at Graham Capital in February
1998. Unlike Graham Capital's systematic trading
programs, which are based almost entirely on
computerized mathematical models, the DTG determines
its trades subjectively on the basis of personal
assessment of trading data and trading experience. One
of the significant advantages Graham Capital's traders
benefit from is Graham Capital's experience in
systematic trading and trend identification. This
experience has proven helpful in enabling the DTG to
take advantage of significant market trends when they
occur and, equally important, the DTG has the potential
to profit from trend reversals as well. Additionally,
Graham Capital makes available extensive technical and
fundamental research resources to the DTG in an effort
to improve its competitive performance edge over time.
The DTG's performance results generally are not
correlated to the results of other discretionary
traders or Graham Capital's systematic trading
programs. Importantly, the DTG can generate successful
performance results in trading range type markets where
there are few long-term trends.
Graham Capital's Trading Programs
The various futures interests markets that are
traded pursuant to each Graham Capital systematic
trading program are identified on the following pages.
Graham Capital conducts ongoing research regarding
expanding the number of futures interests markets each
program trades to further the objective of portfolio
diversification. Particular futures interests markets
may be added to or deleted from a program at any time
without notice. Portfolios may be rebalanced with
respect to the weighting of existing markets at any
time without notice. Additions, deletions and
rebalancing decisions with respect to each program are
made based on a variety of factors,
51
including performance, risk, volatility, correlation, liquidity
and price action, each of which factors may change at
any time.
Series E is currently traded pursuant to the Global
Diversified Program described below.
Global Diversified Program. The Global Diversified
Program, the trading program which is used by Graham
Capital, utilizes multiple computerized trading models
which are designed to participate in the potential
profit opportunities during sustained price trends in
approximately 80 global markets. This program features
broad diversification in both financial and non-
financial markets.
The strategies that are utilized are primarily long
term in nature and are intended to generate significant
returns over time with an acceptable degree of risk and
volatility. On a daily basis, the computer models
analyze the recent price action, the relative strength
and the risk characteristics of each market and compare
statistically the quantitative results of this data to
years of historical data on each market.
Graham Capital currently trade 100% of the Series E
assets pursuant to its Global Diversified Program, as
described above, at 1.5 times the leverage it normally
applies for such program. Margin requirements over
time normally are expected to average about 15% to 20%
of equity for accounts traded pursuant to the Global
Diversified Program; thus, margin requirements for
Series E over time are expected to average about 20% to
30% of Series E's net assets. Increased leverage will
alter risk exposure and may lead to greater profits and
losses and trading volatility. See "RISK FACTORS-
Futures, Forwards And Options Trading Is Volatile And
Highly Leveraged." Subject to the prior approval of
the managing owner, Graham Capital may, at any time,
trade a portion of the Series E assets pursuant to one
or more of Graham Capital's other systematic programs
and/or its discretionary trading program, and at an
increased or reduced rate of leverage.
Graham Selective Trading Program. The Graham
Selective Trading Program (referred to as the GST) was
developed in 1997 and utilizes a completely different
trading system than the other Graham Capital programs.
The GST uses a mathematical model to identify certain
price patterns that have very specific characteristics
indicating that there is a high probability that a
significant directional move will occur. Although the
system does not trade against the market trend, it is
not a true trend-following system inasmuch as it will
only participate in very specific types of market moves
that meet the very restrictive criteria of the model.
In general, the GST will participate only in market
moves that are characterized by a substantial increase
in volatility. As a result, it frequently will not
participate in market trends in which virtually all
other trend-following systems would have a position.
The program trades in approximately 55 markets with
approximate weightings, as of February 28, 2001, of 29%
in foreign exchange, 24% in global interest rates, 16%
in agricultural futures, 11% in metal futures, 11% in
stock index futures and 9% in energy futures. Due to
the extremely selective criteria of the GST model, the
program will normally maintain a neutral position in
approximately 50% to 60% of the markets in the
portfolio.
Discretionary Trading Group Program. Unlike Graham
Capital's systematic trading programs, which are based
almost entirely on computerized mathematical models,
Graham Capital's DTG (described above) determines
trades for the Discretionary Trading Group Program
subjectively on the basis of personal judgment and
trading experience. The Discretionary Trading Group
Program generally utilizes fundamental information as
well as certain technical data as the basis for its
trading strategies. Fundamental considerations relate
to the underlying economic and political forces that
ultimately determine the true value of a particular
financial instrument or commodity. Fundamental
analysis of the DTG may involve a short or long-term
time horizon. Technical data considered by the DTG
include price patterns, volatility, trading volumes and
level of open interest.
The Discretionary Trading Group Program trades
global fixed income, foreign exchange and other futures
and forward markets. The Discretionary Trading Program
may trade call or put options in these markets.
Non-Trend Based Program. Today's markets include
many trend-following and counter-trend traders
attempting to identify major trends and reversals
thereof. Graham Capital's Non-Trend Program (NTB)
utilizes multiple computerized trading models that for
the most part do not rely on price trends. The NTB
program forecasts market direction based on changes in
fundamental data, such as supply and demand data,
inflation rates, interest rates and shifts in the
business cycle. By using non-trend-following methods
it is possible to trade with considerable success in
markets irrespective of the existence of price trends.
As of February 28, 2001, the NTB had approximately
52
45% weighting in currency forwards, 22% weighting in energy
futures, 11% weighting in futures contracts based on
interest rates, 11% in metal futures and 11% stock
index futures.
The NTB program seeks to capture currency gains
based on the momentum of interest rate expectations,
absolute levels of the interest rate differentials and
relative shapes of yield curves. The NTB program
forecasts energy market direction from changes in
supply/demand, the commitment of traders' report and
other factors.
For trading fixed income markets, the NTB program
creates a macroeconomic index based on economic release
data, inflation data and interest rate sensitive
stocks. For base metal trading, the NTB program seeks
to identify shifts in supply/demand that are consistent
with the current business cycle to anticipate market
direction relying on inputs such as cost of carry,
supply/demand measures, inflation, currency movement
and interest rate sensitive stocks. For equities, the
NTB program creates a composite indicator that
positions the system long or short the S&P 500 relying
on stock market fundamental indicators such as
price/earnings ratios, dividend yields, inflation,
currency movement and interest rates.
K4 Program. Similar to the GST program, the K4
program uses a mathematical model to identify certain
price patterns that have very specific characteristics
indicating that there is a high probability that a
significant directional move will occur. The K4
program differs from the GST program in many respects,
including a tendency to enter markets at different
times and the use of other significantly different
parameters. The K4 program will normally enter or exit
a position only when a significant price and volatility
spike takes place and is designed to have a high
percentage of winning trades. K4 will normally
maintain a neutral position in 50% of the markets in
the portfolio.
The K4 program trades in approximately 65 markets
with weightings, as of February 28, 2001, of about 31%
in foreign exchange, 27% in global interest rates, 14%
in stock index futures, 11% in agricultural futures, 9%
in metals and 8% in energy futures.
53
Allocation Among Markets Traded By Graham Capital
Set forth below is a bar graph showing the market
sectors that are traded by Graham Capital pursuant to
its Global Diversified Program as of February 28, 2001.
As of that date, investor funds are exposed to these
sectors in approximately the percentage allocations
stated; however, these percentage allocations are
subject to change at Graham Capital's discretion.
Actual allocations change as market conditions and
trading opportunities change, and it is likely that the
targeted risk allocations may vary for Series E during
future periods, although the focus will remain on a
diversified portfolio:
Market Sector Percentage
Currencies 26%
Interest Rates 26
Stock Indices 16
Agricultural Products/Softs 15
Energy Products 9
Metals 8
Total 100%
(GRAPH)
54
Graham Capital's Past Performance For All Of Its Clients
Capsule summaries E(1), E(2), and E(3) contain
actual performance information for the periods indicated.
Global Diversified Program
The following is a capsule summary of the past
performance for Graham Capital's Global Diversified
Program as of February 28, 2001, the trading strategy
which currently is used to trade Series E (although at
150% leverage).
Name of commodity
trading advisor: Graham Capital
Program: Global Diversified Program
Start Date: February 2, 1995 (All trading by
Graham Capital)
February 2, 1995 (Global
Diversified Program)
No. Accounts: 5
Aggregate $$ In All
Programs: $741,181,000 (All programs
including notional)
$$ in this Program: $152,489,000 (Global Diversified
Program including notional)
Largest monthly draw-
down: (6.93)% February 1996
"Largest monthly draw-down" means
the greatest decline in month-end
net asset value due to losses
sustained by the program on a
composite basis for any particular
month or an individual account for
any particular month.
Largest peak-to-
valley draw-down: (13.74)% April 1998 to July 1998
"Largest peak-to-valley draw-down"
means the greatest cumulative
percentage decline in month-end
net asset value due to losses
sustained by the program on a
composite basis or an individual
account during any period in which
the initial month-end net asset
value is not equaled or exceeded
by a subsequent month-end net
asset value.
Closed Accounts: Profitable = 9
Unprofitable = 2
RATE OF RETURN INFORMATION IS ON FOLLOWING PAGE
55
CAPSULE E(1) -- GRAHAM CAPITAL GLOBAL DIVERSIFIED PROGRAM
MONTHLY/ANNUAL RATES OF RETURN*
MONTH 2001 2000 1999 1998 1997 1996
January (1.40) 1.17% (0.08)% 1.65% 4.19% 7.43%
February 1.56 (1.08) 0.95 1.41 (1.53) (5.69)
March 0.51 (5.09) 4.56 0.90 1.25
April (2.91) 2.63 (3.02) (4.71) 3.47
May (2.52) (4.14) (0.82) (1.35) (0.31)
June (3.32) 5.65 (5.95) (0.84) 1.26
July (0.63) (1.86) (3.49) 3.72 (0.45)
August 4.29 3.37 11.01 (2.64) (1.62)
September (1.16) 1.07 6.93 2.11 1.21
October 2.21 (3.61) 3.24 4.14 5.71
November 10.06 1.66 (2.80) 0.50 3.26
December 9.23 5.14 0.09 1.85 (1.05)
Annual 0.14% 15.83% 5.12% 12.20% 6.04% 14.70%
PAST PERFORMANCE IS NOT NECESSARILY INDICATIVE OF FUTURE RESULTS
*The rate of return percentage for each month is
obtained by dividing the net income for the month by
the net asset value as of the beginning of the month
(including contributions made at the start of the
month). In months where asset changes are made mid-
month, rates of return are calculated for each segment
of the month and compounded. For this purpose, "net
income" represents the gross income for the month in
question, net of all expenses and performance
allocations. The rate of return percentage for each
year is determined by calculating the percentage return
on an investment made as of the beginning of each year.
Specifically, a running index is calculated monthly,
compounded by the rate of return, the annual percentage
being the change in this index for the year divided by
the year's initial index. Graham Capital advises
exempt accounts for qualified eligible clients the
performance of which is not included in the composite
performance record.
56
The following is a capsule summary of the past
performance for Graham Capital's Global Diversified
Program Traded at 150% Leverage as of February 28, 2001,
the trading strategy which currently is used to trade
Series E.
Name of commodity
trading advisor: Graham Capital
Program: Global Diversified Program Traded
at 150% Leverage
Start Date: February 2, 1995 (All trading by
Graham Capital)
May 1, 1997 (Global Diversified
Program at 150% leverage)
No. Accounts: 7
Aggregate $$ In All
Programs: $741,181,000 (All programs
including notional)
$$ in this Program: $72,864,000 (Global Diversified
Program including notional)
Largest monthly draw-
down: (9.84)% June 1998
"Largest monthly draw-down" means
the greatest decline in month-end
net asset value due to losses
sustained by the program on a
composite basis for any particular
month or an individual account for
any particular month.
Largest peak-to-
valley draw-down: (20.01)% April 1998 to July 1998
"Largest peak-to-valley draw-down"
means the greatest cumulative
percentage decline in month-end
net asset value due to losses
sustained by the program on a
composite basis or an individual
account during any period in which
the initial month-end net asset
value is not equaled or exceeded
by a subsequent month-end net asset value.
Closed Accounts: Profitable = 12
Unprofitable = 2
RATE OF RETURN INFORMATION IS ON FOLLOWING PAGE
57
CAPSULE E(2) -- GRAHAM CAPITAL GLOBAL DIVERSIFIED PROGRAM
TRADED AT 150% LEVERAGE
MONTHLY/ANNUAL RATES OF RETURN*
MONTH 2001 2000 1999 1998 1997
January (1.93)% 2.38% (0.62)% 2.14%
February 2.96 (1.83) 1.35 1.71
March 0.46 (7.79) 6.52
April (3.58) 4.02 (4.42)
May (3.81) (6.25) (1.08) (1.62)%
June (5.35) 8.05 (9.21) (1.12)
July (1.05) (2.59) (5.22) 5.04
August 6.18 5.00 17.07 (3.79)
September (0.97) 2.03 9.34 2.93
October 3.22 (5.46) 4.97 5.72
November 14.80 2.26 (3.40) 1.30
December 13.77 7.52 0.12 2.94
Annual 0.98% 24.33% 6.17% 17.00% 11.56%
PAST PERFORMANCE IS NOT NECESSARILY INDICATIVE OF FUTURE RESULTS
*The rate of return percentage for each month is
obtained by dividing the net income for the month by
the net asset value as of the beginning of the month
(including contributions made at the start of the
month). In months where asset changes are made mid-
month, rates of return are calculated for each segment
of the month and compounded. For this purpose, "net
income" represents the gross income for the month in
question, net of all expenses and performance
allocations. The rate of return percentage for each
year is determined by calculating the percentage return
on an investment made as of the beginning of each year.
Specifically, a running index is calculated monthly,
compounded by the rate of return, the annual percentage
being the change in this index for the year divided by
the year's initial index. Graham Capital advises
exempt accounts for qualified eligible clients the
performance of which is not included in the composite
performance record.
58
CAPSULE E(3)
PAST PERFORMANCE OF OTHER PROGRAMS OFFERED BY GRAHAM CAPITAL THAT
WILL NOT INITIALLY BE USED TO TRADE SERIES E ASSETS
Date
Name of Date CTA
Commodity CTA Began Number Aggregate Dollars
Trading Began Trading of In All Programs Dollars in This Program
Advisor Program Trading Program Accounts (inlcuding Notional) (Including Notional)
Graham Selective
Capital Trading
Program 2/2/95 1/7/98 2 $741,181,000 $87,765,000
Graham Non-Trend
Capital Based Program 2/2/95 1/4/99 1 $741,181,000 $93,219,000
Graham Non-Trend
Capital Based Program
at 150%
Leverage 2/2/95 6/1/99 3 $741,181,000 $32,105,000
Graham Discretionary
Capital Trading
Program 2/2/95 1/4/99 1 $741,181,000 $5,055,000
Graham
Capital K4 Program 2/2/95 1/4/99 1 $741,181,000 $113,487,000
Graham Global FX
Capital Program 2/2/95 5/21/97 3 $741,181,000 $34,909,000
Graham International
Capital Financial
Program 2/2/95 1/2/96 0 $741,181,000 $0
Graham Natural
Capital Resource
Program 2/2/95 9/27/96 0 $741,181,000 $0
ANNUAL RATE OF RETURN*
Largest
Name of Largest Peak-to-
Commodity Monthly Valley 2001
Trading Draw- Draw- Closed Accounts (through
Advisor Program Down(1) Down(2) Profitable Unprofitable 2/01) 2000 1999 1998 1997 1996
% % % % % % % %
Graham Selective
Capital Trading (3.00) (7.21)
Program 6/98 2/00-6/00 0 0 5.44 7.07 0.91 25.86 -- --
Graham Non-Trend (5.01) (8.48)
Capital Based Program 10/99 5/99-10/99 1 0 (2.02) 11.86 0.46 -- -- --
Graham Non-Trend
Capital Based Program
at 150% (8.42) (14.33)
Leverage 10/99 6/99-10/99 1 1 (2.67) 21.01 (9.67) -- -- --
Graham Discretionary
Capital Trading (2.22) (4.18)
Program 8/99 6/99-8/99 0 0 4.63 8.20 (1.03) -- -- --
Graham (4.83) (8.00)
Capital K4 Program 2/00 2/00-6/00 1 0 7.50 16.39 7.25 -- -- --
Graham Global FX (4.29) (9.79)
Capital Program 10/99 4/98-7/99 1 3 (2.72) 3.62 (1.37) (3.52) 5.19 --
Graham International
Capital Financial (8.41) (18.07)
Program 6/98 4/98-6/98 -- -- -- -- -- 8.15 5.14 13.98
Graham Natural
Capital Resource (6.68) (19.22)
Program 10/97 2/97-11/97 -- -- -- -- -- 4.71 (15.22) 2.80
_________________
* The rate of return percentage for each month is obtained by dividing the net income
for the month by the net asset value as of the beginning of the month (including
contributions made at the start of the month). In months where asset changes are
made mid-month, rates of return are calculated for each segment of the month and
compounded. For this purpose, "net income" represents the gross income for the
month in question, net of all expenses and performance allocations. The rate of
return percentage for each year is determined by calculating the percentage return
on an investment made as of the beginning of each year. Specifically, a running
index is calculated monthly, compounded by the rate of return, the annual
percentage being the change in this index for the year divided by the year's
initial index. Graham Capital advises exempt accounts for qualified eligible
clients the performance of which is not included in the composite performance
record.
1 "Largest monthly draw-down" means the greatest decline in month-end net asset value
due to losses sustained by the program on a composite basis for any particular
month or an individual account for any particular month.
2 "Largest peak-to-valley draw-down" means the greatest cumulative percentage decline
in month-end net asset value due to losses sustained by the program on a composite
basis or an individual account during any period in which the initial month-end net
asset value is not equaled or exceeded by a subsequent month-end net asset value
PAST PERFORMANCE IS NOT NECESSARILY INDICATIVE OF FUTURE RESULTS
59
SERIES F
Campbell & Company has been allocated 100% of the
Series F assets. In its trading for Series F, Campbell
& Company currently utilizes the FME Small Portfolio,
one of its systematic trading programs.
Campbell & Company And Its Principals
Campbell & Company is a Maryland corporation
organized in April 1978 as a successor to a partnership
originally formed in January 1974. Campbell & Company
became registered as a commodity trading advisor in May
1978 and as a commodity pool operator in September
1982, and Campbell & Company is a member of the
National Futures Association. Campbell & Company's
main business office is located at 210 West
Pennsylvania Avenue, Suite 770, Towson, Maryland 21204;
telephone (410) 296-3301.
D. Keith Campbell, born in 1942, has served as the
Chairman of the Board of Directors of Campbell &
Company since it began operations, was President until
January 1, 1994, and Chief Executive Officer until
January 1, 1998. Mr. Campbell is the majority
stockholder. From 1971 through June 1978, he was a
registered representative of a futures commission
merchant. Mr. Campbell has acted as a commodity
trading advisor since January 1972 when, as general
partner of the Campbell Fund, a limited partnership
engaged in commodity futures trading, he assumed sole
responsibility for trading decisions made on behalf of
the Fund. Since then, he has applied various technical
trading models to numerous discretionary futures
trading accounts. Mr. Campbell is registered with the
CFTC and NFA as a commodity pool operator. Mr.
Campbell is an Associated Person of Campbell & Company.
Bruce L. Cleland, born in 1947, joined Campbell &
Company in January 1993 and serves as President, Chief
Executive Officer and a Director. Prior to 1994, he was
Executive Vice President. From May 1986 through
December 1992, Mr. Cleland served in various principal
roles with the following firms: President,
Institutional Brokerage Corp., a floor broker;
President, Institutional Advisory Corp., a commodity
trading advisor and commodity pool operator; President,
F&G Management, Inc., a commodity trading advisor;
President, Hewlett Trading Corporation, a commodity
pool operator. Prior to this, Mr. Cleland was employed
by Rudolf Wolff Futures Inc., a futures commission
merchant, where he served as President until 1986. Mr.
Cleland graduated in 1969 from Victoria University in
Wellington, New Zealand where he received a Bachelor of
Commerce and Administration degree. Mr. Cleland is an
Associated Person of Campbell & Company.
Theresa D. Becks, born in 1963, joined Campbell &
Company in 1991 and serves as the Chief Financial
Officer, Secretary, Treasurer, and a Director. In
addition to her role as CFO, Ms. Becks also oversees
administration and compliance. From December 1987 to
June 1991, she was employed by Bank of Maryland Corp, a
publicly held company, as a Vice President and Chief
Financial Officer. Prior to that time, she worked with
Ernst & Young. Ms. Becks is a C.P.A. and has a B.S. in
Accounting from the University of Delaware. Ms. Becks
is an Associated Person of Campbell & Company.
Richard M. Bell, born in 1952, began his employment
with Campbell & Company in May 1990 and serves as a
Senior Vice President-Trading. His duties include
managing daily trade execution for the assets under
Campbell & Company's management. From September 1986
through May 1990, Mr. Bell was the managing general
partner of several partnerships registered as broker-
dealers involved in market making on the floor of the
Philadelphia Stock Exchange ("PHLX") and Philadelphia
Board of Trade ("PBOT"). From July 1975 through
September 1986, Mr. Bell was a stockholder and
Executive Vice-President of Tague Securities, Inc., a
registered broker-dealer. Mr. Bell graduated from
Lehigh University with a B.S. in Finance. Mr. Bell is
an Associated Person of Campbell & Company.
William C. Clarke, III, born in 1951, joined
Campbell & Company in June 1977 and serves as an
Executive Vice President and Director. Mr. Clarke
holds a B.S. in Finance from Lehigh University where he
graduated in 1973. Mr. Clarke currently oversees all
aspects of research, which involves the development of
proprietary trading models and portfolio management
methods. Mr. Clarke is an Associated Person of
Campbell & Company.
Xiaohua Hu, born in 1963, serves as a Vice
President-Research and has been employed by Campbell &
Company since 1994. From 1992 to 1994, he was employed
in Japan by Line System as a software engineer, where
60
he participated in the research and development of
computer software, including programs for production
systems control and software development. Mr. Hu
received his B.A. in Manufacturing Engineering from
Changsha University of Technology in China in 1982. He
went on to receive an M.A. and Ph.D. in Systems and
Information Engineering from the Toyohashi University
of Technology in Japan, in 1987 and 1992 respectively.
During his studies at Toyohashi, Mr. Hu was also a
Visiting Researcher in Computer Science and Operations
Research and published several research papers.
Phil Lindner, born in 1954, serves as Vice
President-Information Technology. He has been employed
by Campbell & Company since October 1994. He was
appointed the IT Director in March 1996 and Vice
President in January 1998. Prior to joining Campbell &
Company, Mr. Lindner worked as a programmer and manager
for Amtote, a provider of race track computer systems.
James M. Little, born in 1946, joined Campbell &
Company in April 1990 and serves as Executive Vice
President-Client Development and a Director. Mr.
Little holds a B.S. in Economics and Psychology from
Purdue University. From March 1989 through April 1990,
Mr. Little was a registered representative of A.G.
Edwards & Sons, Inc. From January 1984 through March
1989, he was the Chief Executive Officer of James
Little & Associates, Inc., a commodity pool operator
and broker-dealer. Mr. Little is the co-author of The
Handbook of Financial Futures, and is a frequent
contributor to investment industry publications. Mr.
Little is an Associated Person of Campbell & Company.
V. Todd Miller, born in 1962, serves as a Vice
President-Research and has been employed by Campbell &
Company since 1994. From 1993 to 1994, Mr. Miller was
an assistant professor in the department of Computer
Information Science at the University of Florida, where
he taught classes in object oriented programming,
numerical analysis and programming in C, C++ and LISP.
Mr. Miller holds a variety of degrees from the
University of Florida, including an Associates degree
in architecture and a B.A. in Business with a
concentration in computer science. In 1988, he
received his M.A. in Engineering with a concentration
in artificial intelligence. Mr. Miller completed his
education in 1993 with a Ph.D. in Engineering with a
concentration in computer simulation.
Albert Nigrin, born in 1961, serves as a Vice
President-Research and has been employed by Campbell &
Company since 1995. From 1991 to 1995, Mr. Nigrin was
an assistant professor in the department of Computer
Science and Information Systems at American University
in Washington D.C., where he taught classes in
artificial intelligence, computer programming and
algorithms to both graduate and undergraduate students.
While teaching, he also wrote and published Neural
Networks for Pattern Recognition. Mr. Nigrin received
a B.A. in Electrical Engineering in 1984 from Drexel
University. He then proceeded directly to a Ph.D.
program and received his degree in Computer Science in
1990 from Duke University, where his doctoral studies
concentrated in the areas of artificial intelligence
and neural networks.
Markus Rutishauser, born in 1961, serves as Vice
President-Data Operations and has been employed by
Campbell & Company since October 1993. Prior to
joining Campbell, Mr. Rutishauser worked two years at
Maryland National Bank in Baltimore as an Assistant
Vice President in Foreign Exchange trading. Prior to
that, he was employed by Union Bank of Switzerland,
spending four years in their Zurich office and another
four years in their New York office, in the Foreign
Exchange Department. Mr. Rutishauser graduated from
the University of Fairfield with a degree in Finance.
He subsequently completed his M.B.A. at the University
of Baltimore in January 1996. Mr. Rutishauser is an
Associated Person of Campbell & Company.
C. Douglas York, born in 1958, has been employed by
Campbell & Company since November 1992 and serves as a
Senior Vice President-Trading. His duties include
managing daily trade execution for foreign exchange
markets. From January 1991 to November 1992, Mr. York
was the Global Foreign Exchange Manager for Black &
Decker. He holds a B.A. in Government from Franklin
and Marshall College. Mr. York is an Associated Person
of Campbell & Company.
Principals of Campbell & Company may trade futures
interests for their own accounts. In addition,
Campbell & Company manages proprietary accounts for its
deferred compensation plan for certain principals.
Campbell & Company and its principals reserve the right
to trade for their own accounts. There are no written
procedures that govern proprietary trading by
principals. Trading records for all proprietary
trading are available for review by the Trust upon
reasonable notice.
61
Campbell & Company's Trading Strategy
Campbell & Company makes trading decisions for all
clients' accounts using proprietary technical trading
models which analyze market statistics. Clients are
cautioned that since the trading models are
proprietary, it is not possible to determine whether
Campbell & Company is following the models or not.
There can be no assurance that the trading models
currently being used will produce results similar to
those produced in the past.
Campbell & Company trades the following seven
portfolios: (i) the Financial, Metal & Energy Large
Portfolio (sometimes referred to as the FME Large
Portfolio); (ii) the Financial, Metal & Energy Small
Portfolio (sometimes referred to as the FME Small
Portfolio); (iii) the Foreign Exchange Portfolio; (iv)
the Global Diversified Large Portfolio; (v) the Global
Diversified Small Portfolio; (vi) the Interest Rates,
Stock Indices and Commodities Portfolio and (vii) the
Ark Portfolio. The managing owner and Campbell &
Company have agreed that Campbell & Company, for the
present, trades on behalf of Series F utilizing only
the FME Small Portfolio, which is described below.
Campbell & Company trading models are designed to
detect and exploit medium-term to long-term price
changes, while also applying proven risk management and
portfolio management principles.
Campbell & Company believes that utilizing multiple
trading models for the same client account provides an
important level of diversification, and is most
beneficial when multiple contracts of each market are
traded. More or fewer trading models than are
currently used may be used in the future. Every
trading model may not trade every market. It is
possible that one trading model may establish a long
position while another trading model establishes a
short position in the same market. Since it is
unlikely that both positions would prove profitable, in
retrospect, one or both trades will appear to have been
unnecessary. It is Campbell & Company's policy to
follow trades signaled by each trading model
independent of what the other models may be
recommending.
Over the course of a long-term trend, there are
times when the risk of the market may not appear to be
justified by the potential reward. In such
circumstances, some of Campbell & Company's trading
models may exit a winning position prior to the end of
a price trend. While there is some risk to this method
(for example, being out of the market during a
significant portion of a price trend), our research
indicates that this is well compensated for by the
decreased volatility of performance which may result.
Campbell & Company's trading models may include
trend-following trading models, counter-trend trading
models and trading models that do not seek to identify
or follow price trends at all. Campbell & Company
expects to develop additional trading models and to
modify models currently in use and to employ such
models for Series F. The models currently in use by
Campbell & Company may be eliminated from use if
Campbell & Company believes such action is warranted.
While Campbell & Company normally follows a
disciplined systematic approach to trading, on
occasion, it may override the signals generated by the
trading models. Such action may not be beneficial to
the results achieved.
Campbell & Company applies risk management and
portfolio management strategies to measure and manage
overall portfolio risk. These strategies include
portfolio structure, risk balance, capital allocation
and risk limitation. One objective of risk and
portfolio management is to determine periods of
relatively high and low portfolio risk, and when such
points are reached, Campbell & Company may reduce or
increase position size accordingly. It is possible,
however, that during periods of reduction in position
size, the return that would have been realized had the
account been fully invested would be reduced.
Campbell & Company estimates that, based on the
amount of margin required to maintain positions in the
markets currently traded, aggregate margin for all
positions held in a client's account will range between
20% and 40% of the account's net assets. From time to
time, margin commitments may be above or below these
ranges.
The number of contracts that Campbell & Company
believes can be bought or sold in a particular market
without undue adverse price movement may at times be
limited because of illiquidity. In such cases, a
client's portfolio would be influenced by liquidity
factors because its positions in such markets might be substantially
62
smaller than its positions in other
markets that offer greater liquidity. Campbell &
Company may, from time to time, add or delete contracts
from Series F's portfolio, or increase or decrease the
total number of contracts held, based on increases or
decreases in the assets in an account, changes in
market conditions, perceived changes in portfolio-wide
risk factors or other factors that Campbell & Company
deems relevant.
Financial, Metal & Energy Portfolios
Currently, two versions of the Financial Metal &
Energy Portfolio are offered by Campbell & Company, the
FME Small Portfolio and the FME Large Portfolio. The
FME Small Portfolio trades in foreign currencies,
precious and base metals, energy products, stock
indices and interest rates. The FME Large Portfolio is
the same as the FME Small Portfolio but adds certain
contracts that trade in the forward foreign currency
markets which do not have futures equivalents. The FME
Large Portfolio is appropriate for accounts greater
than $10 million. Prior to February 1995, all
Financial, Metal & Energy accounts were traded together
in the FME Large Portfolio. The FME Small Portfolio
began in February 1995, when accounts smaller than $10
million were transferred from the FME Large Portfolio
to the FME Small Portfolio. Since Series F commenced
trading with $5 million, it has selected initially to
trade the Series F assets pursuant to the FME Small
Portfolio. The FME Large Portfolio may by utilized to
trade Series F assets at a later date.
63
Allocation Among Markets Traded By Campbell & Company
Set forth below is a bar graph showing the market
sectors that are traded by the FME Small Portfolio, as
of February 28, 2001. As of that date, investor funds
are exposed to these sectors in approximately the
percentage allocations stated; however, these
percentage allocations are subject to change at
Campbell & Company's discretion. Actual allocations
change as market conditions and trading opportunities
change, and it is likely that the targeted risk
allocations may vary for Series F during future
periods, although the focus will remain on a
diversified portfolio:
Market Sector Percentage
Currencies 46%
Interest Rates 19
Energy 18
Stock Indices 16
Precious and Base Metals 1
Total 100%
(GRAPH)
64
Campbell & Company's Past Performance For All Of Its Clients
Capsule summaries F(1), F(2) and F(3) contain
actual performance information for the periods
indicated.
FME Small Portfolio
The following is a capsule summary of the past
performance for Campbell & Company's FME Small
Portfolio as of February 28, 2001, the trading strategy
which currently is used to trade Series F.
Name of commodity
trading advisor: Campbell & Company
Program: FME Small Portfolio
Start Date: January 1972 (All trading by Campbell & Company)
February 1995 (FME Small Portfolio)
No. Accounts: 30
Aggregate $$ In All
Programs: $2,307,600,000 (All programs
including notional)
$$ in this Account: $155,200,000 (FME Small Portfolio
including notional)
Largest monthly draw-
down: (5.99)% April 1998
"Largest monthly draw-down" means
the greatest decline in month-end
net asset value due to losses
sustained by the program on a
composite basis for any particular
month or an individual account for
any particular month.
Largest peak-to-
valley draw-down: (7.61)% February 1997 to May 1997
"Largest peak-to-valley draw-down"
means the greatest cumulative
percentage decline in month-end
net asset value due to losses
sustained by the program on a
composite basis or an individual
account during any period in which
the initial month-end net asset
value is not equaled or exceeded
by a subsequent month-end net asset value.
Closed accounts: Profitable = 61
Unprofitable = 6
RATE OF RETURN INFORMATION IS ON FOLLOWING PAGE
65
CAPSULE F(1) -- COMPOSITE OF ALL THE FME SMALL PORTFOLIO ACCOUNTS
MONTHLY/ANNUAL RATES OF RETURN*
MONTH 2001 2000 1999 1998 1997 1996
January (1.22) 3.23% (4.61)% 2.80% 3.85% 8.80%
February 0.13 (0.52) 1.34 (2.34) 1.63 (5.20)
March (2.03) 1.60 5.81 (1.75) 4.33
April (2.55) 5.20 (5.99) (3.03) 2.57
May 2.47 (3.15) 4.21 (3.01) (2.11)
June 0.77 4.95 1.51 3.62 1.41
July (2.92) (0.64) (4.04) 8.81 (1.71)
August 3.44 1.18 9.95 (5.94) 3.52
September (4.25) 1.55 3.68 4.53 1.92
October 2.90 (3.85) 5.52 2.32 12.85
November 5.50 0.78 (0.91) 0.59 12.11
December 4.17 2.80 1.10 5.41 (4.12)
Annual (1.09)% 10.08% 6.80% 22.16% 17.30% 37.83%
* Campbell & Company has adopted a method of
computing "Rate of Return" and performance disclosure,
referred to as the "Fully-Funded Subset" method,
pursuant to an Advisory published by the CFTC. The
Fully-Funded Subset refers to that subset of accounts
included in the applicable composite which is funded
entirely by Actual Funds (as defined in the Advisory).
To qualify for the use of the Fully-Funded Subset
method, the Advisory requires that certain computations
be made in order to arrive at the Fully-Funded Subset
and that the accounts for which the performance is so
reported meet two tests which are designed to provide
assurance that the Fully-Funded Subset and the
resultant rates of return are representative of the
trading program. The rate of return is calculated by
dividing net performance of the Fully-Funded Subset by
the beginning net assets (plus additions, less
withdrawals for that month) of the Fully-Funded Subset,
except in periods of significant additions or
withdrawals to the accounts in the Fully-Funded Subset.
In such instances, the Fully-Funded Subset is adjusted
to exclude accounts with significant additions or
withdrawals which would materially distort the rate of
return pursuant to the Fully-Funded Subset method.
PAST PERFORMANCE IS NOT NECESSARILY INDICATIVE OF FUTURE RESULTS
66
FME Large Portfolio
The following is a capsule summary of the past
performance for Campbell & Company's FME Large
Portfolio as of February 28, 2001. Although series F
is currently traded pursuant to the FME Small Portfolio
strategy, the FME Large Portfolio strategy may be used
in the future to trade Series F assets.
Name of commodity
trading advisor: Campbell & Company
Program: FME Large Portfolio
Start Date: January 1972 (All trading by Campbell & Company)
April 1993 (FME Large Portfolio)
No. Accounts: 17
Aggregate $$ In All
Programs: $2,307,600,000 (All programs
including notional)
$$ in this Account: $2,068,400,000 (FME Large
Portfolio including notional)
Largest monthly draw-
down: (5.88)% April 1998
"Largest monthly draw-down" means
the greatest decline in month-end
net asset value due to losses
sustained by the program on a
composite basis for any particular
month or an individual account for
any particular month.
Largest peak-to-
valley draw-down: (7.57)% February 1997 to May 1997
"Largest peak-to-valley draw-down"
means the greatest cumulative
percentage decline in month-end
net asset value due to losses
sustained by the program on a
composite basis or an individual
account during any period in which
the initial month-end net asset
value is not equaled or exceeded
by a subsequent month-end net asset value.
Closed accounts: Profitable = 3
Unprofitable = 0
RATE OF RETURN INFORMATION IS ON FOLLOWING PAGE
67
CAPSULE F(2) -- COMPOSITE OF ALL THE FME LARGE PORTFOLIO ACCOUNTS
MONTHLY/ANNUAL RATES OF RETURN*
MONTH 2001 2000 1999 1998 1997 1996
January (1.09) 3.70% (4.83)% 3.25% 5.26% 5.46%
February 0.70 (0.35) 1.45 (2.38) 2.26 (5.63)
March (1.96) 0.87 4.95 (2.08) 5.62
April (1.86) 5.60 (5.88) (3.84) 3.49
May 2.74 (3.25) 4.34 (1.84) (1.71)
June 1.96 4.63 2.04 2.23 1.29
July (1.72) (0.15) (3.68) 9.27 0.01
August 3.08 1.22 9.23 (5.14) 1.78
September (3.23) 1.75 2.97 4.23 2.47
October 3.19 (4.25) 4.41 2.39 12.06
November 5.98 0.53 (0.50) 0.57 12.22
December 2.38 3.64 0.64 4.95 (4.29)
Annual (0.40)% 14.32% 6.81% 20.07% 18.75% 35.96%
* The "Rate of Return" for a period is calculated
by dividing the net profit or loss by the assets at the
beginning of such period. Additions and withdrawals
occurring during the period are included as an addition
to or deduction from beginning net assets in the
calculations of "Rates of Return," except for accounts
which close on the last day of a period in which case
the withdrawal is not subtracted from beginning net
assets for purposes of this calculation. The "Rate of
Return" is calculated using the Only Accounts Traded
(sometimes referred to as the OAT method) method of
computation. This computation method is one of the
methods approved by the CFTC to reduce the distortion
caused by significant additions or withdrawals of
capital during a month. The OAT method excludes from
the calculation of rate of return those accounts which
had material intra-month additions or withdrawals and
accounts which were open for only part of the month.
In this way, the composite rate of return is based on
only those accounts whose rate of return is not
distorted through intra-month capital changes.
PAST PERFORMANCE IS NOT NECESSARILY INDICATIVE OF FUTURE RESULT
68
CAPSULE F(3)
PAST PERFORMANCE OF OTHER PROGRAMS OFFERED BY CAMPBELL & COMPANY
AND ITS AFFILIATES THAT WILL NOT BE USED TO TRADE SERIES F ASSETS
Date Aggregate Dollars
Name of Date CTA in All Programs Dollars in This Program
Commodity CTA Began Number (in thousands) (in thousands)
Trading Began Trading of (Excluding (Including (Excluding (Including
Advisor Program Trading Program Accounts Notional) Notional) Notional) Notional)
$ $ $ $
Campbell Foreign
& Company Exchange
Portfolio 4/72 11/90 3 2,194,200 2,307,600 10,500 33,500
Campbell Global
& Company Diversified
Large
Portfolio 4/72 2/86 1 2,194,200 2,307,600 35,000 35,000
Campbell Global
& Company Diversified
Small
Portfolio 4/72 6/97 2 2,194,200 2,307,600 2,400 2,400
Campbell ARK
& Company Portfolio 4/72 9/96 10 2,194,200 2,307,600 2,300 2,600
Campbell Interest
& Company Rates,
Stock
Indices &
Commodities
Portfolio 4/72 2/96 1 2,194,200 2,307,600 10,500 10,500
ANNUAL RATES OF RETURN*
Largest
Name of Largest Peak-to-
Commodity Monthly Valley 2001
Trading Draw- Draw- Closed Accounts through
Advisor Program Down(1) Down(2) Profitable Unprofitable 2/01 2000 1999 1998 1997 1996
% % % % % % % %
Campbell Foreign
& Company Exchange (7.85) (12.39)
Portfolio 2/98 12/97-2/98 1 1 (1.77) 11.38 7.19 4.25 18.19 43.04
Campbell Global
& Company Diversified
Large (7.22) (7.22)
Portfolio 2/96 1/96-2/96 5 0 0.42 11.18 4.57 12.47 14.95 26.78
Campbell Global
& Company Diversified
Small (5.92) (9.73)
Portfolio 4/98 1/00-9/00 8 0 (0.49) 17.59 2.51 17.51 13.85(3) --
Campbell ARK (11.86) (11.86)
& Company Portfolio 7/98 6/98-7/98 10 2 (0.38) 28.86 28.27 2.48 20.49 19.94(4)
Campbell Interest
& Company Rates,
Stock
Indices &
Commodities (6.75) (9.94)
Portfolio 10/98 11/96-4/97 0 0 2.62 18.12 6.85 27.08 20.15 25.73(5)
_________________________________
* The CFTC accepts three different methods of showing
the composite rate of return achieved by accounts, some
of which are traded at different degrees of leverage.
These methods are: the fully-funded subset method, the
time-weighted method and the only accounts traded method.
Although each method uses a different approach, all methods
are intended to produce substantially the same rate of return.
All annual rates of return are computed on a compounded monthly
basis.
1 "Largest monthly draw-down" means the greatest decline in
month-end net asset value due to losses sustained by the
program on a composite basis for any particular month or
an individual account for any particular month.
2 "Largest peak-to-valley draw-down" means the
greatest cumulative percentage decline in month-end
net asset value due to losses sustained by the program
on a composite basis or an individual account during any
period in which the initial month-end net asset value is
not equaled or exceeded by a subsequent month-end net asset value.
3 June 1997 to December 1997
4 September 1996 to December 1996
5 February 1996 to December 1996
PAST PERFORMANCE IS NOT NECESSARILY INDICATIVE OF FUTURE RESULT
69
TRADING LIMITATIONS AND POLICIES
The following limitations and policies are
applicable to each series. A trading advisor sometimes
may be prohibited from taking positions for a series
that it would otherwise prefer to acquire because of
the need to comply with these limitations and policies.
The managing owner monitors compliance with the trading
limitations and policies set forth below, and it may
impose additional restrictions upon the activities of
any trading advisor (through modification of the
limitations and policies) as it deems appropriate and
in the best interests of each series.
The managing owner:
- -Will not approve a material change in the
following trading limitations and policies
for any series without obtaining the prior
written approval of limited owners holding
interests representing at least a majority
(over 50%) of the net asset value of that
series (excluding interests owned by the
managing owner and its affiliates).
- -May, without obtaining approval from the
limited owners, impose additional
limitations on the activities of each series
or on the types of instruments in which a
trading advisor can invest if the managing
owner determines that additional limitations
(i) would be necessary to assure that 90% of
the series' income is qualifying income or
(ii) would be in the best interests of a
series.
Trading Limitations
A series will not:
- -Engage in pyramiding its commodities
positions (i.e., use unrealized profits on
existing positions to provide margin for the
acquisition of additional positions in the
same or a related commodity), but a series
may take into account open trading equity on
existing positions in determining whether to
acquire additional commodities positions.
- -Borrow or loan money (except with respect to
the initiation or maintenance of the series'
commodities positions or obtaining lines of
credit for the trading of forward currency
contracts; provided, however, that each
series is prohibited from incurring any
indebtedness on a non-recourse basis).
- -Permit rebates to be received by the
managing owner or its affiliates or permit
the managing owner or any affiliate to
engage in any reciprocal business
arrangements that would circumvent the
foregoing prohibition.
- -Permit any trading advisor to share in any
portion of the commodity brokerage fees paid
by a series.
- -Commingle its assets, except as permitted by
law.
- -Permit the churning of its commodity
accounts.
70
Trading Policies
Subject to the foregoing limitations, each trading
advisor has agreed to abide by the trading policies of
the Trust, which currently are as follows:
- -Series funds generally will be invested in
contracts that are traded in sufficient
volume which, at the time such trades are
initiated, are reasonably expected to permit
entering and liquidating positions.
- -Stop or limit orders may, in a trading
advisor's discretion, be given with respect
to initiating or liquidating positions in
order to attempt to limit losses or secure
profits; if stop or limit orders are used,
however, there can be no assurance that
Prudential Securities will be able to
liquidate a position at a specified stop or
limit order price, due to either the
volatility of the market or the inability to
trade because of market limitations.
- -A series generally will not initiate an open
position in a futures contract (other than a
cash settlement contract) during any
delivery month in that contract, except when
required by exchange rules, law or exigent
market circumstances; this policy does not
apply to forward and cash market
transactions.
- -A series may occasionally make or accept
delivery of a commodity including, without
limitation, currencies; a series also may
engage in an exchange of futures for
physicals transaction, as permitted on the
relevant exchange, involving currencies and
metals and other commodities.
- -A series may employ trading techniques such
as spreads; an example of a spread position
is when a series owns a futures contract
which expires in one month and sells a
futures contract for the same commodity in a
later month.
- -A series will not initiate open positions
that would result in net long or short
positions requiring as margin or premium for
outstanding positions in excess of 15% of a
series' net asset value for any one
commodity, or in excess of 66.67% of a
series' net asset value for all commodities
combined; under certain market conditions,
such as where there is an inability to
liquidate open commodities positions because
of daily price fluctuations, the managing
owner may be required to commit as margin in
excess of the foregoing limits, and in such
a case the managing owner will cause the
trading advisor to reduce its open futures
and option positions to comply with these
limits before initiating new commodities
positions.
- -If a series engages in transactions in
forward currency contracts other than with
or through Prudential Securities and/or
Prudential-Bache Global Markets, Inc., it
will engage in such transactions only with
or through a bank that has, as of the end of
its last fiscal year, an aggregate balance
in its capital, surplus and related accounts
of at least $100 million and through other
broker-dealer firms whose aggregate balance
in their capital, surplus, and related
accounts is at least $50 million; if
transactions are effected for a series in
the forward markets, the only forward
markets that are permitted to be utilized
without the managing owner's consent are the
interbank foreign currency markets and the
London Metal Exchange; the utilization of
other forward markets requires the consent
of the managing owner.
71
DESCRIPTION OF THE TRUST,
TRUSTEE, MANAGING OWNER AND AFFILIATES
(CHART)
The Trust was formed on April 22, 1999 under the
Delaware Business Trust Act. The sole trustee of the
Trust is Wilmington Trust Company, which delegated its
duty and authority for the management of the Trust to
the managing owner. The managing owner is a
wholly-owned subsidiary of Prudential Securities, the
Trust's commodity broker and selling agent, which in
turn is wholly-owned by Prudential Securities Group
Inc., an indirect wholly-owned subsidiary of The
Prudential Insurance Company of America.
Prudential Securities Group Inc., Prudential
Securities and the managing owner may each be deemed to
be, and the trustee is not deemed to be, a "promoter"
of the Trust within the meaning of the Securities Act
of 1933. None of the foregoing persons is an
"affiliate" (as that term is used for purposes of the
Securities Act of 1933) of any of the trading advisors.
Prudential Securities Group Inc. and the managing owner
may each be deemed to be a "parent" of the Trust within
the meaning of the federal securities laws.
A brief description of the trustee, Prudential
Securities Group Inc., Prudential Securities, the
managing owner and the officers and directors of the
managing owner follows.
72
The Trustee
Wilmington Trust Company, a Delaware banking
corporation, is the sole trustee of the Trust. Its
principal offices are located at Rodney Square North,
1100 North Market Street, Wilmington, Delaware 19890-
0001. Wilmington Trust Company is not affiliated with
Prudential Securities Group Inc., Prudential
Securities, the managing owner, or the trading
advisors. It has delegated its duty and authority for
the management of the business and affairs of the Trust
to the managing owner. Wilmington Trust Company will
accept service of legal process upon the Trust in the
State of Delaware. The managing owner will notify the
limited owners of any change of the trustee.
Prudential Securities Group Inc.
Prudential Securities Group Inc. acts solely as a
holding company. Its principal subsidiary is
Prudential Securities, the Trust's selling agent, and
commodity broker. Prudential Securities Group Inc. is
an indirect wholly owned subsidiary of The Prudential
Insurance Company of America, a major mutual insurance
company.
Prudential-Bache Global Markets Inc.
Prudential-Bache Global Markets Inc. is a foreign
exchange dealer which engages in over-the-counter,
spot, forward and foreign exchange transactions with,
among others, Prudential Securities. It is an
affiliate of Prudential Securities, and it is wholly
owned by Prudential Securities Group Inc.
The Managing Owner
Prudential Securities Futures Management Inc., a
Delaware corporation formed in May 1973, is the
managing owner of the Trust. The managing owner has
been registered under the Commodity Exchange Act as a
commodity pool operator since June 1989 and as a
commodity trading advisor since November 1990 and is a
member of the National Futures Association. The
managing owner's main business office is located at One
New York Plaza, 13th floor, New York, New York 10292-
2013; phone (212) 778-7866.
The most recent statement of financial condition of
the managing owner and report of the independent
accountants thereon is set forth under "FINANCIAL
STATEMENTS -- The Managing Owner."
Directors And Officers Of The Managing Owner
The current officers and directors of the managing
owner, described in alphabetical order, are as follows:
Thomas T. Bales, born 1959, is a Vice President of
the managing owner. He is also a First Vice President
of Futures Administration in the Futures Division for
Prudential Securities, and he serves in various
capacities for other affiliated companies. Prior to
joining the Futures Division, Mr. Bales served as in-
house counsel in the Law Department of Prudential
Securities from October 1987 through May 1996.
Mr. Bales joined Prudential Securities in November 1981
as an Analyst in the Credit Analysis Department and
later served as a Section Manager.
Barbara J. Brooks, born 1948, became the Treasurer
and Chief Financial Officer of the managing owner in
May 1990, at which time she also became the Treasurer
and Chief Financial Officer of Seaport Futures
Management, Inc. (referred to as Seaport Futures), an
affiliate of the managing owner. In 1998, she
relinquished her position as Treasurer of the managing
owner and Seaport Futures. She is a Senior Vice
President of Prudential Securities and is the Vice
President-Finance and the Chief Financial Officer of
various entities affiliated with Prudential Securities.
She has been employed by Prudential Securities since
1983. Ms. Brooks is a certified public accountant.
73
David Buchalter, born 1958, has been the Secretary
of both the managing owner and Seaport Futures since
October 1996. Mr. Buchalter is a Senior Vice President
and is Senior Counsel in the Law Department of
Prudential Securities. Prior to joining Prudential
Securities in January 1992, Mr. Buchalter was
associated with the law firm of Rosenman & Colin LLP
from April 1988 to January 1992. Prior to that, from
May 1983 though March 1988, Mr. Buchalter served as in-
house counsel for Shearson Lehman Hutton, Inc. and its
predecessor firm, E.F. Hutton & Co., Inc.
Steven Carlino, born 1964, has been a Vice
President and the Chief Accounting Officer of the
managing owner since June 1995 and also has held such
position with Seaport Futures since such date. In
1998, Mr. Carlino also assumed the office of Treasurer
of the managing owner and Seaport Futures. Mr. Carlino
is a First Vice President of Prudential Securities and
also serves in various capacities for other affiliated
companies. Prior to joining Prudential Securities in
October 1992, he was employed by Ernst & Young LLP for
six years. Mr. Carlino is a certified public
accountant.
Guy S. Scarpaci, born 1947, has been a Director of
the managing owner since July 1987 and was Assistant
Treasurer from May 1988 until December 1989. In
addition, Mr. Scarpaci has been a Director of Seaport
Futures since May 1989. Mr. Scarpaci was first
affiliated with the managing owner in July 1987. Mr.
Scarpaci has been employed by Prudential Securities in
positions of increasing responsibility since August
1974, and he is currently a First Vice President of the
Futures Division.
Eleanor L. Thomas, born 1954, has been President
of the managing owner since September
2000 and a Director since April 1999.
She has been President and Director of Seaport
Futures since April 1999, and has held various
positions of increasing responsibility in both Seaport
Futures and the managing owner since joining Prudential
Securities in 1993. Ms. Thomas is a First Vice
President and the Director of the Futures and Hedge
Fund Group at Prudential Securities. She is
responsible for origination, asset allocation, due
diligence, marketing and sales for the group's product
offerings. Prior to joining Prudential Securities in
March 1993, she was with MC Baldwin Financial Company
from June 1990 through February 1993 and Arthur
Anderson & Co. from 1986 through May 1990. She
graduated from Long Island University with a
B.A. in English Literature, and graduated from
Baruch College in 1986 with an M.B.A. in Accounting.
Ms. Thomas is a certified public accountant.
Tamara B. Wright, born 1959, has been a Senior Vice
President of the managing owner and Seaport Futures
since October 1998 and a Director of the managing owner
since December 1998. She is also a Senior Vice
President and the Chief Administrative Officer for the
International Division at Prudential Securities. In
this capacity, her responsibilities include financial
management, risk management, systems implementation,
employment matters and internal control policies and
procedures. Previously, Mrs. Wright served as Director
of Consumer Markets Risk Management, where she led the
Domestic and International Branch efforts in ensuring
the timely resolution of audit, compliance and legal
concerns. Prior to joining the firm, Mrs. Wright was a
manager with PricewaterhouseCoopers LLP in its
Management Consulting division in New York, New York.
74
Description And Past Performance Of Other Pools
Sponsored By The Managing Owner And Its Affiliate
Following is a description of the various funds
sponsored by the managing owner and its affiliate,
Seaport Futures. The January 1, 1996 through February
28, 2001 trading record for the various funds is
provided in the performance table and the explanatory
notes on the following pages.
Type of Fund Name of Fund
Public commodity
funds for which the
managing owner is
the general partner
(or managing owner)
and the commodity
pool operator: Prudential-Bache Capital Return
Futures Fund 2, L.P. (PBCRFF2)
Prudential Securities OptiMax
Futures Fund 2, L.P. (PBOFF2) [e]
Prudential Securities Aggressive
Growth Fund, L.P. (PSAGF) [k]
Diversified Futures Trust I (DFT)
Prudential Securities Strategic
Trust (PRUST) [f]
World Monitor Trust -- Series A (WMTA)
World Monitor Trust -- Series B (WMTB)
World Monitor Trust -- Series C (WMTC)
Non-public commodity
funds for which the
managing owner is
the general partner
(or the managing
owner) and the
commodity pool
operator: Signet Partners II, L.P. (SPLP2) [d]
Diversified Futures Trust II (DFTII)
Prudential Securities Foreign
Financials Fund, L.P. (PSFFF) [g]
Offshore investment
funds for which the
managing owner is
investment manager
(j): Devonshire Multi-Strategy Fund [h, i]
Prudential-Bache International
Futures Fund A, PLC (PBIFFA) [h, n]
Prudential-Bache International
Futures Fund B, PLC (PBIFFB)[h]
Prudential-Bache International
Futures Fund C, PLC (PBIFFC)[h]
Prudential-Bache International
Futures Fund D, PLC (PBIFFD)[h]
Prudential-Bache International
Futures Fund E, PLC (PBIFFE)[h]
Prudential-Bache International
Futures Fund F, PLC (PBIFFF)[h]
Global Equilibrium Fund[h]
Public commodity
funds for which
Seaport Futures is
general partner and
commodity pool
operator: Prudential-Bache Diversified
Futures Fund L.P. (PBDFF)
Prudential-Bache Capital Return
Futures Fund L.P. (PBCRFF) [l]
Prudential-Bache Capital Return
Futures Fund 3, L.P. (PBCRFF3) [k]
Prudential-Bache OptiMax Futures
Fund L.P. (PBOFF) [m]
75
CAPSULE D
PERFORMANCE OF OTHER POOLS OPERATED BY PRUDENTIAL
SECURITIES FUTURES MANAGEMENT INC. AND AFFILIATE [a]
(SEE ACCOMPANYING NOTES ON FOLLOWING TWO PAGES)
ANNUAL RATE OF RETURN
(COMPUTED ON A COMPOUNDED DAILY BASIS)[j]
WORST WORST
MONTHLY PEAK TO
AGGREGATE CURRENT PERCENT VALLEY
TYPE INCEPTION SUB- TOTAL DRAW- DRAW- 2001
NAME OF OF OF CRIPTIONS NAV DOWN DOWN (through
POOL POOL TRADING ($ X 1,000) ($ X 1,000) [b] [c] 1996 1997 1998 1999 2000 2/28)
PRUDENTIAL-
BACHE
DIVERSIFIED
FUTURES
FUND L.P. -9.62% -40.96%
(PBDFF) 3,5,6,8,10 10/88 29,747 8,776 10/99 7/99-9/00 24.81% 9.03% 1.96% -18.48% 0.06% -2.80%
PRUDENTIAL-
BACHE
CAPITAL
RETURN
FUTURES
FUND L.P.(1) 1a,3,5, -10.30% -20.27%
(PBCRFF) 7,8,10 5/89 137,705 --- 11/98 11/98-4/00 8.58% 7.93% -1.09% -11.13% -6.29% --
PRUDENTIAL-
BACHE
CAPITAL
RETURN
FUTURES
FUND 2 L.P. 1a,3,5, -8.72% -27.59%
(PBCRFF2) 7,8,9 10/89 100,000 13,294 4/98 1/98-9/00 19.10% 11.40% -7.44% -5.14% -2.26% -2.87%
PRUDENTIAL-
BACHE
CAPITAL
RETURN
FUTURES
FUND 3 L.P.
[k] 1a,3,5, -11.77% -23.66%
(PBCRFF3) 7,8,10 5/90 64,863 --- 4/98 12/96-4/98 16.79% -7.97% -10.29% -1.70% --- --
PRUDENTIAL-
BACHE
OPTIMAX
FUTURES
FUND L.P.
- -OPTIMAX
[m] 3,5,7, -7.82% -27.23%
(PBOFF) 8,10,11 4/96 69,603 --- 10/99 5/99-6/00 11.68% 17.49% 17.54% -7.16% -17.91% --
PRUDENTIAL-
BACHE
OPTIMAX
FUTURES
FUND
L.P. - 3,5,7, -2.53% -2.53%
A (PBOFF) 10,11 2/91 63,356 --- 2/96 2/96 -0.41% --- --- --- --- --
PRUDENTIAL-
BACHE
OPTIMAX
FUTURES
FUND L.P. 3,5,7, -4.74% -20.28%
- -B (PBOFF) 8,10,11 2/91 6,247 --- 2/96 8/93-3/96 -1.59% --- --- --- --- --
PRUDENTIAL
SECURITIES
OPTIMAX
FUTURES
FUND 2,
L.P. -
OPTIMAX
2[e] 3,5,7, -9.08% -16.58%
(PBOFF2) 8,9,12 4/97 17,416 --- 4/98 8/97-5/98 --- -3.67% -9.97% --- --- --
PRUDENTIAL
SECURITIES
OPTIMAX
FUTURES
FUND 2,
L.P. - A 3,5,7, -4.68% -11.42%
(PBOFF2) 9,12 1/92 15,197 --- 12/96 2/96-7/96 3.88% 0.86% --- --- --- --
PRUDENTIAL
SECURITIES
OPTIMAX
FUTURES
FUND 2,
L.P. - B 3,5,7, -9.27% -20.94%
(PBOFF2) 8,9,12 1/92 2,219 --- 2/96 6/95-7/96 5.24% 0.68% --- --- --- --
PRUDENTIAL
SECURITIES
FOREIGN
FINANCIALS
FUND
L.P. [g] -9.96% -23.59%
(PSFFF) 2,4,6,8,9 1/93 4,198 --- 2/99 12/96-5/97 6.65% -1.35% 36.68% -11.00% --- --
PRUDENTIAL
SECURITIES
AGGRESSIVE
GROWTH
FUND L.P.
[k] 3,5a,7, -7.65% -20.42%
(PSAGF) 8,9 8/93 20,335 --- 10/97 10/98-10/99 7.89% -2.31% 13.11% -17.54% --- --
DIVERSIFIED
FUTURES
TRUST I -9.38% -36.76%
(DFT) 3,5a,6,8,9 1/95 65,908 28,508 11/98 7/99-9/00 23.49% 8.82% 4.80% -13.48% 9.87% -2.53%
SIGNET
PARTNERS
II, LP
[d] -6.37% -8.41%
(SPLP2) 2,4,7,8,9 2/96 1,531 --- 8/97 8/97-1/98 9.70% 6.10% -0.70% --- --- --
PRUDENTIAL
SECURITIES
STRATEGIC
TRUST [f] -15.84% -38.56
(PRUST) 3,5a,6,8,9 5/96 63,403 11,809 4/98 3/99-10/00 3.47% -0.49% 20.25% 3.35% -31.01% -5.06%
PRUDENTIAL-
BACHE
INTERNATIONAL
FUTURES
FUND A
PLC [h, n] -21.94% -46.41%
(PBIFA) 2,4,6,9,13 6/96 38,707 --- 2/00 3/99-8/00 12.30% -0.36% 34.14% 3.33% -42.62% --
PRUDENTIAL-
BACHE
INTERNATIONAL
FUTURES
FUND C
PLC [h] -9.30% -42.57%
(PBIFC) 2,4,6,9,13 6/96 35,093 8,031 2/99 1/99-10/00 22.70% -3.59% 35.42% -18.91% -22.86% -6.29%
PRUDENTIAL-
BACHE
INTERNATIONAL
FUTURES
FUND B
PLC [h] -9.13% -46.09%
(PBIFB) 2,4,6,9,13 7/96 104,964 34,484 6/00 7/99-9/00 28.50% 13.77% 3.49% -21.61% 9.95% 5.44%
PRUDENTIAL-
BACHE
INTERNATIONAL
FUTURES
FUND D
PLC [h] -10.22% -30.18%
(PBIFD) 2,4,7,9,13 10/96 31,164 8,532 2/00 3/99-9/00 -1.10% 14.36% 23.87% -2.00% -14.71% -2.90%
PRUDENTIAL-
BACHE
INTERNATIONAL
FUTURES
FUND E
PLC [h] -9.41% -36.47%
(PBIFE) 2,4,6,9,13 1/97 21,843 2,616 8/97 10/98-9/00 --- 2.20% 12.23% -17.26% -10.22% -8.45%
PRUDENTIAL-
BACHE
INTERNATIONAL
FUTURES
FUND F
PLC [h] -9.50% -27.51%
(PBIFF) 2,4,6,9,13 9/97 41,850 19,090 10/97 10/98-9/00 --- -4.60% 47.90% -6.38% -2.80% 2.57%
DIVERSIFIED
FUTURES
TRUST II -10.48% -39.93%
(DFTII) 2,5,6,8,9 3/97 51,757 12,863 10/99 7/99-9/00 --- 6.26% 6.82% -17.76% 5.14% -1.50%
DEVONSHIRE
MULTI-
STRATEGY
FUND [h, i] -3.88% -8.55%
(DEVON) 2,4,8,9,14 2/98 13,552 --- 4/98 4/98-8/98 --- --- -7.70% -1.19% --- --
GLOBAL
EQUILIBRIUM
FUND -8.29% -8.29%
[h] (GEF) 2,4,7,8,9,15 12/99 29,451 18,791 1/00 1/00 --- --- --- 3.80% 0.67% -1.24%
WORLD
MONITOR
TRUST -
SERIES A -8.41% -38.99%
(WMTA) 3,5a,6,8,9 6/98 33,979 9,016 3/00 5/99-9/00 --- --- -1.69% -21.42% -1.93% 2.69%
WORLD
MONITOR
TRUST -
SERIES B -7.08% -27.08%
(WMTB) 3,4,6,8,9 6/98 29,234 16,872 9/00 10/99-10/00 --- --- 11.98% 8.62% 0.20% -1.34%
WORLD
MONITOR
TRUST -
SERIES C -14.56% -40.30%
(WMTC) 3,4,6,8,9 6/98 23,214 8,936 2/00 7/99-6/00 --- --- 4.22% -7.91% -2.81% -5.32%
PAST PERFORMANCE IS NOT NECESSARILY INDICATIVE OF FUTURE RESULTS
76
Key to type of pool
1 Principal-protected pool currently
1a Principal-protected pool initially, but not currently
2 Privately offered pool
3 Publicly offered pool
4 Open ended pool
5 Closed ended pool
5a Initially open ended, currently closed ended
6 Single advisor pool
7 More than one advisor
8 Non-principal protected pool
9 CPO is Prudential Securities Futures Management Inc.
10 CPO is Seaport Futures Management, Inc.
11 Following the expiration of the principal-protected
feature of the A Units on March 31, 1996, the A & B
Units merged into OptiMax Units on April 1, 1996
12 Following the expiration of the principal-protected
feature of the A Units on March 31, 1997, the A & B
Units merged into OptiMax 2 Units on April 1, 1997
13 Offshore pool offered to Non-U.S. persons authorized
and supervised by the Central Bank of Ireland
14 Offshore fund-of-funds offered to Non-U.S. persons.
15 Offshore fund offered to non-U.S. persons trading in both
securities and commodities.
[a] All performance is presented as of February 28, 2001
[b] "Worst monthly percent draw-down" means greatest
percentage decline in net asset value since January 1, 1996
due to losses sustained by a pool, account, or other trading program
from the beginning to the end of a calendar month
[c] "Worst peak to valley draw-down" means greatest
cumulative percentage decline in month-end net asset
value due to losses sustained by a pool, account or other trading
program during a period in which the initial month-end
net asset value is not equaled or exceeded by a subsequent
month-end net asset value since January 1, 1996. "Draw-
down" means losses
experienced by the pool over a specified period.
[d] Liquidated April 1998
[e] Liquidated May 1998
[f] Name change from Willowbridge Strategic Trust to
Prudential Securities Strategic Trust during August 1998
[g] Liquidated March 1999
[h] These are non-U.S. investment funds, which are available
only to non-U.S. residents. They are organized as
investment companies incorporated in non-U.S. jurisdictions.
Eligibility notices under CFTC Rule 4.7 have been filed in
connection with these funds.
[i] Liquidated May 1999
[j] Rate of return is calculated each day by dividing net
performance by beginning equity. The daily returns are then
compounded to arrive at the rate of return for the month,
which is in turn compounded to arrive at the annual rate of
return.
[k] Liquidated October 1999
[l] Liquidated April 2000
[m] Liquidated July 2000
[n] Liquidated September 2000
NOTES TO PERFORMANCE TABLE CONTINUED ON FOLLOWING PAGE
PAST PERFORMANCE IS NOT NECESSARILY INDICATIVE OF FUTURE RESULT
77
Note To Performance Table Continued:
Management Fees, Incentive Fees and Brokerage Commissions
Name of Fund Management Fee Incentive Fee Brokerage Commission
PBDFF 2 (8) 20 (8) 8 (1)
PBCRFF 2 (8) 20 (8) 8
PBCRFF2 2-4 15-20 8 (2)
PBCRFF3 2 17 7.5 (plus transaction costs)
PBOFF 2-3 17-23 8 (plus transaction costs)
PBOFF2 2-3 15-20 8 (plus transaction costs)
PSFFF 1.9 20 (3)
PSAGF 2 15-23 8 (plus transaction costs)
DFT 2 (8) 20 (8) 7.75
DFTII 2 (8) 20 (8) 6.75
SPLP2 2.5 20 $10 per round-turn
PBIFA 3 20 5.75 (plus transaction costs)
PBIFB 2 (8) 20 (8) 5.75 (plus transaction costs)
PBIFC 2 20 5.75 (plus transaction costs)
PBIFD 2 20 5.75 (plus transaction costs)
PBIFE 2 20 5.75 (plus transaction costs)
PSIFF 2 25 5.75 (plus transaction costs)
PRUST .9756-2(4) 20 7.5 (4)
DEVON 1 (5) 3.75 (5) (5)
GEF 2 20(6) (7)
WMTA 2 23 7.75
WMTB 2 20 7.75
WMTC 2 20(9) 7.75
(1) Decreased from 9% to 8% during August 1998.
(2) Decreased from 8.5% to 8% during August 1998.
(3) Prior to April 1, 1994, PSFFF was charged
on a per transaction basis at the rate of
$35 per round-turn. From April 1, 1994
through July 25, 1997, PSFFF was charged a
flat annual 8% fee, plus general and
administrative costs. From July 26, 1997
until its liquidation, PSFFF was charged a
flat annual 8.8% fee.
(4) PRUST pays different management fees to
each of its trading advisors. One of the
advisors was replaced in October, resulting
in a decrease from 3% to 2% of the highest
management fee paid. The brokerage
commission decreased from 7.75% to 7.5%
during September 1998.
(5) DEVON only invested in other funds.
Accordingly, it did not have a direct
brokerage commission expense. However, as
an investor in other funds, DEVON paid its
pro rata share of management and incentive
fees and brokerage commissions paid by those
funds. The management and incentive fees
shown in this chart only represent the fees
paid directly to the managing owner and do
not reflect DEVON's pro rata portion of the
management and incentive fees in the funds
in which it invested.
(6) Incentive fees applicable only to one of
GEF's two advisors.
(7) Flat fee equal to 2.25% (plus transaction
costs).
(8) Management fee decreased from 4% to 2% and
incentive fees increased from 15% to 20%, in
each case during October 2000.
(9) Decreased from 23% to 20% when the trading
advisor was replaced during 2000.
78
Prudential Securities
Prudential Securities, a Delaware corporation
formed in March 1981, is the selling agent and the
commodity broker for the Trust. Prudential Securities,
in its capacity as selling agent for the Trust, is
registered as a broker-dealer with the SEC and is a
member of the NASD. It is also registered as a futures
commission merchant under the Commodity Exchange Act
and is a member of the National Futures Association.
Prudential Securities is a clearing member of the
Chicago Board of Trade, Chicago Mercantile Exchange,
Commodity Exchange, Inc. and all other major U.S.
commodity exchanges. Prudential Securities' main
business office is located at One Seaport Plaza, New
York, New York 10292-2013; telephone (212) 214-1000.
Prudential Securities Litigation And Settlements
From time to time, Prudential Securities and its
principals are involved in legal actions, some of which
individually, and all of which in the aggregate, seek
significant or indeterminate damages. However, except
for the actions described below, during the five years
preceding the date of this prospectus, there has been no
administrative, civil or criminal action against
Prudential Securities or any of its principals which is
material, in light of all the circumstances, to an
investor's decision to invest in the Trust.
On March 10, 1994, Prudential Securities agreed to
the entry of a Consent Order issued by the State of
Missouri, Commissioner of Securities. The allegations
against Prudential Securities were that the firm failed
to supervise a former registered representative, in
violation of Missouri securities laws. Without
admitting or denying the allegations, Prudential
Securities agreed to the following: (i) to maintain and
make available to the Missouri Division of Securities
all customer and regulatory complaints concerning any
Prudential Securities employee working in a branch
located in Missouri or any security sold by such
employees; (ii) beginning 30 days from the date of the
Consent Order and continuing for a period of three
years, to include at least one public service
information piece selected by the Commissioner of
Securities in all of Prudential Securities' new account
packages mailed to Missouri residents; (iii) for a
period of three years from the date of the Consent
Order, to annually provide a notice to Prudential
Securities' Missouri customers which details the
procedures for filing a complaint with Prudential
Securities and the applicable regulatory authorities.
In addition, Prudential Securities agreed to pay a fine
in the amount of $175,000.
On October 27, 1994, Prudential Securities and
Prudential Securities Group Inc. entered into an
agreement with the Office of the U.S. Attorney for the
Southern District of New York deferring prosecution of
charges contained in a criminal complaint. The
complaint alleged that Prudential Securities committed
fraud in connection with the sale of certain oil and gas
limited partnership interests between 1983 and 1990, in
violation of federal securities laws. The terms of the
agreement were complied with in full, and accordingly,
the complaint was dismissed without prejudice in October
1997.
On February 29, 1996, the State of New Mexico
Securities Division issued a final order, subject to a
settlement whereby Prudential Securities neither
admitted nor denied allegations that Prudential
Securities failed to supervise two former employees and
a Branch Office Manager of its Phoenix branch. The
allegations included misrepresentation, fraud,
unsuitability, failure to properly register and failure
to report a suspected forgery. Prudential Securities
consented to the imposition of a censure and paid a fine
in the amount of $15,000 as well as investigative fees
in the amount of $2,000.
Stemming from final settlement agreements and
consent orders in a U.S. District Court for the Southern
District of Florida, on December 10, 1996, the
Department of Labor issued a final order imposing a
statutory civil penalty against Prudential Securities in
the amount of $61,250. The Department of Labor assessed
the above referenced automatic penalty under section
502(l) of the Employee Retirement Income Security Act of
1974, as amended, referred to as ERISA, based upon
allegations that Prudential Securities acted as a
fiduciary under such Act with respect to the Metacor,
Inc. Profit Sharing and Retirement Savings Plan and
knowingly facilitated certain transfers of funds out of
the Plan's account to a corporate account that Metacor,
Inc. maintained in one or more banks. Prudential
Securities neither admitted nor denied the Department of
Labor's allegations.
On May 20, 1997, the CFTC filed a complaint against
Prudential Securities, Kevin Marshburn (a former
Prudential Securities financial advisor) and two of
Marshburn's sales assistants. The complaint alleges, in
essence, that during the period from May 1993 through
March 1994: (i) Marshburn fraudulently allocated trades
among his personal account and certain customer
accounts, (ii) Prudential Securities, by failing to have
policies and procedures in place to
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detect and deter the
alleged allocation scheme, did not properly supervise
Marshburn and (iii) Prudential Securities failed to
maintain and produce records with respect to
transactions during the period in issue. The complaint
seeks several forms of relief against Prudential
Securities, including a cease and desist order,
suspension or revocation of registration, restitution
and civil penalties of up to $100,000 for each alleged
violation. Prudential Securities has denied the
operative allegations against it and is vigorously
defending the action.
On December 23, 1998, Prudential Securities was one
of twenty-eight market making firms that reached a
settlement with the SEC in the matter titled In the
Matter of Certain Market Making Activities on NASDAQ.
As part of the global settlement of that matter,
Prudential Securities, without admitting or denying the
factual allegations, agreed to an order which requires
that: (i) it cease and desist from committing or
causing any violations of Sections 15(c)(1) and (2) of
the Securities Exchange Act of 1934 and Rules 15C1-2
and 15C2-7 thereunder, (ii) pay a civil penalty of
$1 million and disgorgement of $1,361 and (iii) submit
certain policies and procedures to an independent
consultant for review.
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 to 1994. 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.
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DUTIES AND COMMITMENTS OF THE MANAGING OWNER
Management Of The Trust
The managing owner is responsible for the
management of each series' business and affairs but
does not (except in certain limited, and essentially
emergency, situations) direct the trading activities
for any series. This responsibility includes:
- -Renewing the advisory agreements with the
trading advisors, as well as selecting
additional and/or substitute trading
advisors; provided, however, that in no
event will the managing owner retain a
commodity trading advisor affiliated with
Prudential Securities.
- -Determining whether to retain or replace the
trustee.
- -Preparing monthly and annual reports to the
limited owners, filing reports required by
the CFTC, the SEC and any other federal or
state agencies or self-regulatory
organizations.
- -Calculating the net asset value of each
series and all fees and expenses, if any, to
be paid by each series.
- -Providing suitable facilities and procedures
for handling and executing redemptions,
exchanges, transfers and distributions (if
any) and the orderly liquidation of each
series.
- -Selecting and monitoring the Trust's
commodity clearing broker and its foreign
exchange counter parties.
Retention Of Affiliates
The managing owner may retain affiliates to provide
certain administrative services necessary to the
prudent operation of the Trust and each series so long
as the managing owner has made a good faith
determination that:
- -The affiliate that it proposes to engage is
qualified to perform such services.
- -The terms and conditions of the agreement
with an affiliate are no less favorable than
could be obtained from equally qualified,
unaffiliated third parties.
- -The maximum period covered by any such
agreement shall not exceed one year and
shall be terminable without penalty upon 60
days' prior written notice by the Trust.
The fees of any such affiliates are the responsibility
of Prudential Securities or one of its other
affiliates.
Notification Of Decline In Net Asset Value
If the estimated net asset value per interest of
your investment in the Trust declines as of the end of
any business day to less than 50% of the net asset
value per interest of that series as of the end of the
immediately preceding valuation point, the managing
owner will notify you within seven business days of
such decline. The notice will include a description of
your voting and redemption rights.
Maximum Contract Term
The Trust or any series of the Trust is prohibited
from entering into any contract with the managing owner
or its affiliates which (i) has a term of more than one
year and (ii) is not terminable by the Trust without
penalty upon 60 days' prior written notice.
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The managing owner participates in the income and
losses of each series in the proportion which its
ownership of general interests bears to the total
number of interests of a series on the same basis as
the limited owners, but the managing owner receives no
fees or other remuneration from a series.
Managing Owner's Financial Commitments
Minimum Purchase Commitment
The managing owner contributed funds to each series in order to have a 1%
interest in the capital, profits and losses of each
series, and in return it received general interests in
each series. The managing owner is required to keep
its investment in each series at an amount that gives
the managing owner at least a 1% interest in the
capital, profits and losses of each series so long as
it is acting as the managing owner of the Trust. The
managing owner may purchase limited interests in any
series and thereby become a limited owner. All
interests purchased by the managing owner are held for
investment purposes only and not for resale. No
principal of the managing owner owns any beneficial
interest in the Trust.
Net Worth Commitment
The managing owner's net
worth is set forth in its statement of financial
condition on page 152 and is significantly in excess of
the minimum net worth requirements under the NASAA
guidelines. The managing owner and Prudential
Securities Group, Inc., the company which owns
Prudential Securities, have each agreed that so long as
the managing owner remains the managing owner of the
Trust, they will not take or voluntarily permit to be
taken any affirmative action to reduce the managing
owner's net worth below any regulatory-required
amounts.
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FIDUCIARY RESPONSIBILITIES
Accountability
Pursuant to the Delaware Business Trust Act, the
trustee delegated to the managing owner responsibility
for the management of the business and affairs of the
Trust and each series, and it has neither a duty to
supervise or monitor the managing owner's performance
nor any liability for the acts or omissions of the
managing owner. The trustee retains a statutory
fiduciary duty to the Trust only for the performance of
the express obligations it retains under the trust
agreement, which are limited to the making of certain
filings under the Delaware Business Trust Act and to
the accepting of service of process on behalf of the
Trust in the State of Delaware. It owes no other
duties to the Trust, to any series or to you.
The managing owner is accountable to you as a
fiduciary and must exercise good faith and fairness in
all dealings affecting the Trust. Under the Delaware
Business Trust Act, if either of the trustee or the
managing owner has duties to the Trust or to you and
liabilities arise relating to those duties, the
trustee's and the managing owner's duties and
liabilities may be expanded or restricted by the
express provisions of the trust agreement. The
managing owner may not contract away its fiduciary
obligations.
Legal Proceedings
If you believe that the managing owner has violated
its obligations to you, you may bring a law suit
against the managing owner. If a law suit is brought,
you may look (i) to recover damages from the managing
owner, (ii) to require "accounting" -- the right to
specific and/or complete financial information
concerning the series and (iii) to seek any other
action from or by the managing owner as a court
permits. A law suit can be based on various claims,
including that the managing owner breached its
fiduciary duties, that it violated the federal
securities or commodity laws or that it committed
fraud.
Reparations And Arbitration Proceedings
You also have the right to institute a reparations
proceeding before a CFTC administrative law judge
against the managing owner (a registered commodity pool
operator), Prudential Securities (a registered futures
commission merchant) or the trading advisor of that
series (a registered commodity trading advisor) under
the Commodity Exchange Act and the rules promulgated
thereunder, as well as the right to initiate
arbitration proceedings in lieu thereof.
Basis For Liability
You should be aware, however, that certain
provisions in the advisory agreements, the brokerage
agreement and the trust agreement generally make it
more difficult to establish a basis for liability
against any trading advisor, Prudential Securities and
the managing owner than it would be absent such
provisions, including (i) each advisory agreement gives
broad discretion to each trading advisor and (ii) each
advisory agreement and the trust agreement contain
provisions which will result in a trading advisor not
being liable for certain conduct and/or another party
indemnifying a trading advisor, which means that the
other party is required to reimburse a trading advisor
for money it has lost as the result of a law suit if
the trading advisor is not responsible for the damage
caused. Payment of any indemnity to any such person by
the Trust or any series of the Trust pursuant to such
provisions would reduce the assets of the series
affected. The managing owner does not carry insurance
covering such potential losses, and the Trust carries
no liability insurance covering its potential
indemnification exposure.
83
THE OFFERING
Interests Sold to Date
The initial offering of Series D, Series E and
Series F ended on March 13, 2000, April 5, 2000 and
March 1, 2000, respectively, when a sufficient number
of subscriptions for the series were received and
accepted by the managing owner to permit the Trust to
commence trading. The total amount of subscriptions
for each of Series D, Series E and Series F received
through March 31, 2001 was as follows:
From Investors From The Managing Owner
Series D $8,187,244 $106,008
Series E $6,032,054 $75,000
Series F $9,794,830 $85,296
The Current Offering Period
Currently, interests in each series are sold once
each week until each series' subscription maximum has
been issued, either through sale or exchange. For the
purposes of describing the offering of interests during
this continuous offering period, the dealing day means
the first business day of each week. The valuation
point means the close of business on Friday of each
week. Each series' interests are sold at a price that
equals its net asset value per interest as of the
valuation point immediately preceding the dealing day
on which a subscription is eligible to become
effective.
Your subscription agreement (Exhibit D) must be
submitted to the managing owner at its principal office
at least five business days before a given dealing day,
and sufficient funds must be in your Prudential
Securities account (or your account at an additional
seller) on a timely basis. After the five business day
waiting period (two business days if you are a limited
owner purchasing additional interests, described below)
and the managing owner's approval of a subscription,
the net asset value per interest will be determined at
the next occurring valuation point, and the
subscription price per interest will be finalized. A
subscription will become effective on the immediately
following dealing day. Because of this waiting period,
the purchase price of an interest will not be fixed on
the date your subscription application is submitted,
and the net asset value of an interest may fluctuate
between the date of submission and the valuation date
on which your subscription price is finalized.
You will be admitted as a limited owner as of the
same dealing day on which your subscription becomes
effective. A confirmation of an accepted subscription
will be sent to you. In the event that funds in your
account are insufficient to cover the requested
subscription amount, or for any other reason in the
managing owner's sole discretion, the managing owner
may reject your subscription in whole or in part.
Funds from accepted subscriptions will be transferred
from your Prudential Securities account (or from your
account at an additional seller) and deposited in the
applicable series' trading account.
Purchases Of Additional Interests In A Series
If you are an existing limited owner in a
particular series and wish to purchase additional
interests in the same series, you must submit a
subscription agreement (Exhibit D) at least two
business days before any given dealing day, and your
subscription for additional interests must be approved
by the managing owner. After the two business day
waiting period and the managing owner's approval of
your subscription for additional interests, the net
asset value per interest will be determined at the next
occurring valuation point, and the subscription price
per interest will be finalized. Your subscription will
become effective on the immediately following dealing
day. Because of this waiting period, the purchase
price of additional interests will not be fixed on the
date you submit your subscription, and the net asset
value of the interests may fluctuate between the date
of your submission and the valuation date on which the
subscription price is finalized.
84
Exchange Of Interests
You may exchange interests in one series, without
charge, for interests of equivalent value of any other
series for as long as the interests of the series for
which the exchange is being made are offered for sale.
You must submit an exchange request (Exhibit C) at
least five business days before any given dealing day,
and the exchange must be approved by the managing
owner. After the five business day waiting period and
the managing owner's approval of the exchange request,
the net asset value per interest for each applicable
series (i.e., the series being exchanged from and the
series being exchanged into) will be determined at the
next occurring valuation point, and the subscription
price per interest will then be finalized. Your
exchange will become effective on the immediately
following dealing day. Because of the five business
day waiting period, the net asset value of the
interests being exchanged will not be fixed on the date
you submit your exchange request (Exhibit C), and the
net asset value of the interests -- of both the series
you are exchanging from and the series you are
exchanging into -- may fluctuate between the date of
your submission and the valuation date on which the net
asset value per interest is finalized.
An exchange will be treated as a redemption of
interests in one series and a simultaneous purchase of
interests in another series. Your exchange will be
subject to satisfying the conditions governing
redemption on the applicable dealing day (see the
section entitled "Redemption Of Interests" in this
section), as well as the requirement that interests of
the series being exchanged into are then being offered
for sale. Although an exchange will be treated, in
part, as a redemption, you will not be subject to any
redemption charges for the exchange. You may, however,
realize a taxable gain or loss in connection with any
exchange you make.
Redemption Of Interests
You may redeem all or any portion of your interests
(including interests held by your assignees) on the
first dealing day to occur at least two business days
after the date the managing owner receives your
Redemption Request (Exhibit B) in proper order (as
noted above, each such dealing day is referred to as a
redemption date). Redemptions generally are made at
the net asset value per interest determined as of the
valuation point immediately preceding the redemption
date. Your redemption is subject to changes in net
asset value between the date you submit your Redemption
Request and the valuation point on which the redemption
price is finalized. If you redeem an interest on or
before the end of the first and second successive six-
month periods after the effective dates of your
purchase, you will be subject to a redemption fee of 4%
and 3%, respectively, of the net asset value at which
the interest is redeemed unless the redemption is (i)
part of an exchange for interests in another series
offered in the trust or (ii) invested concurrently in
another fund sponsored by the managing owner. If at
the time of redemption your aggregate interests in all
series, when added to your aggregate interests in the
various series of World Monitor Trust, another public
futures fund sponsored by the managing owner, total at
least $5 million, the redemption fee, if applicable,
may be waived. See the section in this prospectus
entitled "FEES AND EXPENSES -- Charges To Be Paid By
Limited Owners -- Redemption Fees" for a more complete
explanation of holding period requirements. All
redemption fees are paid to the managing owner.
If your redemption request is timely and in proper
form, it will be honored and the applicable series'
commodity positions will be liquidated to the extent
necessary to effect your redemption. The managing
owner may suspend temporarily redemptions if the effect
of any redemption request, either alone or in
conjunction with other redemption requests, would be to
impair any series' ability to operate in pursuit of its
objectives. Your right to obtain redemption also is
contingent upon the series' having property sufficient
to discharge its liabilities on the date of redemption.
Redemption requests may be mailed or otherwise
delivered by you to the managing owner.
In the event that the estimated net asset value per
interest of your series, after adjustment for
distributions, as of the close of business of any
business day is less than 50% of the net asset value
per interest of that series as of the last valuation
point (i.e., Friday of the immediately preceding week),
you will be given notice of such event within seven
business days of such occurrence, and the notice will
include instructions on the redemption of interests.
The net asset value per interest upon redemption of
your interest on any date also reflects all accrued
expenses for which the applicable series is
responsible, including incentive fees, if any
(including incentive fees which may be due and owing
other than at the end of a quarter), and is reduced by
your interest's pro rata portion of any expenses or
losses incurred by the series resulting from your
actions, if unrelated to the series' business, as well
as your liabilities for certain series taxes, if any,
or for liabilities resulting from your violations of
the transfer provisions in the trust agreement. You
will be notified in writing within ten business days
following the redemption
85
date whether or not your
interests will be redeemed, unless payment for the
redeemed interests is made within that ten-day period,
in which case notice is be required or provided.
Except as otherwise provided in the trust agreement, in
the case of extraordinary circumstances, payment
generally will be made within ten business days
following the redemption date. You may revoke your
intention to redeem before the redemption date by
written instruction to the managing owner.
The trust agreement provides that the managing
owner also has the right mandatorily to redeem, upon
ten days' prior notice, interests you hold if (i) the
managing owner determines that your continued
participation in the Trust might cause the Trust or you
to be deemed to be managing "Plan Assets" under ERISA,
(ii) there is an unauthorized assignment or transfer
pursuant to the trust agreement or (iii) in the event
that any transaction would or might violate any law or
constitute a prohibited transaction under ERISA or the
Internal Revenue Code and a statutory, class or
individual exemption from the prohibited transaction
provisions of ERISA for such transaction or
transactions does not apply or cannot be obtained from
the Department of Labor (or the managing owner
determines not to seek such an exemption).
Sale Of Interests
The Trust does not, directly or indirectly, pay or
award any finder's fees, commissions or other
compensation as an inducement to any investment adviser
to advise you to purchase interests in a series.
Prudential Securities receives no selling commissions
or concessions on the sale of interests. Prudential
Securities has no present intention, but does reserve
the right, to retain certain selected brokers or
dealers that are members of the National Association of
Securities Dealers, Inc. (sometimes referred to as
NASD) (these brokers or dealers are sometimes referred
to as additional sellers) and/or certain foreign
securities firms, (collectively the domestic additional
sellers and the foreign additional sellers are
sometimes referred to simply as additional sellers).
All sales by Prudential Securities and any additional
sellers are made in compliance with Rule 2810 of the
NASD Conduct Rules. No interests are sold to any
account over which Prudential Securities has
discretionary control without the prior written
approval of the owner of the account. Except with
respect to exchanging interests (as set out above),
Prudential Securities will not assist you in connection
with the transfer of your interests to any new
subscribers.
At no additional cost to the Trust, Prudential
Securities grants, at the time of a sale, a per-
interest sales credit to the Prudential Securities
branch office that sells an interest to you (unless you
are an employee of Prudential Securities purchasing
interests for your IRA). From this sales credit,
normally not more than 2% of the net asset value per
interest is paid to the employees of Prudential
Securities who have sold interests and who hold all the
appropriate federal and state securities registrations.
Any additional sellers retained by the Trust are paid
by Prudential Securities, at no cost to the Trust, at
rates that do not generally exceed 2% of the net asset
value per interest.
Beginning 12 months after the month in which the
sale of each interest is effective, Prudential
Securities, again at no additional cost to the Trust,
compensates its employees who render certain on-going,
additional services to limited owners (other than an
IRA of an employee of Prudential Securities).
Employees eligible for this compensation are those who
have sold interests and who are registered under the
Commodity Exchange Act and who satisfy all applicable
proficiency requirements (i.e., have passed the Series
3 or Series 31 examinations or are exempt therefrom) in
addition to having all applicable federal and state
securities registrations. This compensation is paid
periodically, on an interest-by-interest basis, and do
not generally exceed 2% of the net asset value of the
applicable series per annum.
Prudential Securities will not compensate any
individual with whom it no longer associates but may
compensate employees who, although not responsible for
the initial sale of an interest, continue to provide
on-going services in place of an individual who was
responsible for the initial sale. Any employee
compensated in this manner needs to have the
appropriate registrations and proficiency requirements.
Any additional sellers retained by the Trust also will
receive continuing compensation. Employees of
additional U.S. sellers receiving continuing
compensation will need to be registered and qualified
in the same manner as Prudential Securities employees.
Prudential Securities, as the selling agent for this
offering of interests, is an "underwriter" within the
meaning of the Securities Act of 1933. Trading advisors
are not underwriters, promoters or organizers of the
Trust.
As disclosed on the previous page under the heading
entitled "Redemption Of Interests," if you redeem an
interest on or before the end of the first and second
successive six-month periods after the effective dates of
your
86
purchase, you will be subject to a redemption fee of
4% and 3%, respectively, of the net asset value at which
the interest is redeemed, except in certain defined
circumstances. See the section in this prospectus
entitled "FEES AND EXPENSES -- Charges To Be Paid By
Limited Owners -- Redemption Fees" for a more complete
explanation of holding period requirements. All
redemption fees are paid to the managing owner. The
managing owner is not registered as a broker-dealer and
is not a member of the NASD.
Except as disclosed above, the Trust does not incur,
and neither Prudential Securities nor any related persons
receives, any compensation in connection with the sale of
interests, including, but not limited to, sales
commissions, retail salaries, expenses, reimbursements,
sales seminars, bonus and sales incentives and bona fide
due diligence. Expenses for sales seminars (estimated at
$25,000 per series) are incurred, but they are paid for
by Prudential Securities. Even if the compensation
arrangements were to change, at no time will the maximum
compensation paid to underwriters and related persons
exceed 10% of the proceeds of this offering, plus 0.5%
for bona fide due diligence. In addition, no bonus or
sales incentive program is in effect. In the event the
Trust or any underwriter determines in the future to
implement a bonus or sales incentive program, any such
program will be in compliance with Sections 5(E) and or
5(F) of Rules 2810(4)(E) and 4(F) of the NASD Conduct
Rules. Moreover, the Trust does not incur any
wholesaling fees or expenses in connection this offering.
Use of Proceeds
All of the proceeds of this offering are received
in the name of each series, and are deposited and
maintained in cash in separate trading accounts, called
segregated trading accounts, for each series at
Prudential Securities, unless they are used as margin
to maintain a series' forward currency contract
positions or a position on a non-U.S. exchange. Except
for that portion of any series' assets that is
deposited as margin to maintain forward currency
contract positions, each series' assets are maintained
as either segregated funds or secured accounts, as
applicable, in accordance with requirements of the
Commodity Exchange Act and the regulations thereunder,
which means that assets are maintained either on
deposit with Prudential Securities or, for margin
purposes, with the various exchanges on which the
series are permitted to trade. Assets also may be
maintained on deposit in U.S. banks, although there is
no present intention to do so. Assets are not
maintained in foreign banks.
Funds currently are maintained in cash, and that
cash is used as margin. On the last day of each month,
each series receives interest income on 100% of its
average daily equity maintained in cash in the series'
account with Prudential Securities during that month at
a 13-week (91-day) Treasury bill rate. This rate is
determined weekly by Prudential Securities and is the
rate awarded to all bidders during that week based on
the results of that week's auction of 13-week (91-day)
Treasury bills. The weekly interest rate may be found
on the Internet at www.publicdebt.treas.gov. While it
is anticipated that funds will continue to be
maintained in cash, in the event that funds are
maintained in Treasury bills instead of cash, the
series will receive the interest income paid on such
Treasury bills. If you redeem or purchase interests of
a series on a day other than the last day of a month,
the interest income will be pro rated through the date
of purchase or redemption for purposes of determining
net asset value.
The managing owner does not combine the property of
any series with the property of another person, nor
does the Trust combine the assets of one series with
the assets of any other series. The Trust does not
invest in or loan funds to any other person or entity,
nor are assets from one series loaned to or given to
another series.
87
WHO MAY SUBSCRIBE
Prudential Securities and each employee of
Prudential Securities selling interests in the Trust is
obligated to make every reasonable effort to determine
that the purchase of interests is a suitable and
appropriate investment for you based on information you
provide regarding your financial situation and
investment objective.
A purchase of the interests should be made only if
your financial condition permits you to bear the risk
of a total loss of your investment in the Trust. An
investment in the interests should be considered only
as a long-term investment.
You should not purchase interests with the
expectation of tax benefits in the form of losses or
deductions. If losses accrue to a series, your
distributive share of such losses will, in all
probability, be treated as a capital loss and generally
will be available only for offsetting capital gains
from other sources. To the extent that you have no
capital gains, capital losses can be used only to a
very limited extent as a deduction from ordinary
income.
If you are an IRA or other benefit plan investor,
no one associated with the Trust is representing to you
that this investment meets any or all of the relevant
legal requirements for investments by you or that this
investment is appropriate for you. You should consult
with your attorney and financial advisors as to the
propriety of this investment in light of your
circumstances and in light of current tax law.
Subscriptions for the purchase of the interests by
you are subject to the following conditions:
Fundamental Knowledge
You should make sure that you understand, among
other things, (i) the fundamental risks and possible
financial hazards of the investment, (ii) the trading
strategies to be followed in the series in which you
will invest, (iii) that transferability of the
interests is restricted, (iv) that the managing owner
manages and controls each series' and the Trust's
business operations, (v) the tax consequences of the
investment, (vi) the liabilities you will assume, (vii)
the redemption and exchange rights that apply to your
purchase and (viii) the Trust's structure, including
each series' fees. In addition, the managing owner
must consent to your subscription, and the managing
owner's consent may be withheld in whole or in part for
any reason.
Ineligible Investors
If you are a benefit plan investor, you may not
purchase interests in any series if the trustee, the
managing owner, Prudential Securities, the trading
advisors or any of their respective affiliates (i) is
an employer maintaining or contributing to your plan or
(ii) has investment discretion over the investment of
the assets of your plan. An investment in any series
of the Trust is not suitable for charitable remainder
annuity trusts or charitable remainder unit trusts.
88
Net Worth, Income And Liquidity Requirements
The following requirements may be higher under the
securities laws of the state of your residency. The
requirements of each state are set forth in the
subscription agreement (Exhibit D) under the caption
"State Suitability Requirements." The managing owner
also may impose greater requirements on you if you
propose to purchase more than the minimum number of
interests in a series.
Subscriber Category Requirements
Individual, joint tenant Have a net worth (exclusive of home,
or entities (such as home furnishings and automobiles) of at
corporations or trusts) least $150,000
must:
OR
Have a net worth (similarly
calculated) of $45,000 and an annual
gross income of $45,000
AND
Invest no more than 10% of Subscriber's
liquid net worth in all series
combined
Beneficiaries of IRAs or Have a net worth (exclusive of home,
Keogh plans covering no home furnishings and automobiles) of at
common law employees least $150,000
must:
OR
Have a net worth (similarly
calculated) of at least $45,000 and an
annual gross income of at least $45,000
AND
Have an aggregate investment in any
series or in all series combined that
does not exceed 10% of its assets
Group retirement plans Have net assets of at least $150,000
(for example, qualified
pension, profit sharing AND
plans, stock bonus plans,
welfare benefit plans, Have an aggregate investment in any
such as group insurance series or in all series combined that
plans, or other fringe does not exceed 10% of its assets
benefit plans and
government plans) must:
The fiduciary of a retirement plan should consider,
among other things, whether the investment is prudent,
considering the nature of the Trust and the Trust's
series.
Employee Benefit Plan Considerations
If you are a fiduciary of an "employee benefit
plan" as defined in and subject to ERISA or of a "plan"
as defined in of the Internal Revenue Code and you have
investment discretion, you should consider the
following consequences under ERISA and the Internal
Revenue Code before deciding to invest the plan's
assets in any series of the Trust.
You must give appropriate consideration to the
facts and circumstances that are relevant to an
investment in a series of the Trust, including the role
that an investment in a series of the Trust plays or
would play in the plan's overall investment portfolio.
You must also give appropriate consideration to the
potential return on the proposed investment and the
effect on that return if any portion of a series'
income constitutes "unrelated business taxable income."
In addition, before deciding to invest in the Trust,
you must be satisfied that such investment is prudent
for the plan, that the investments of the plan,
including in a series of the Trust, are diversified so
as to minimize the risk of large losses and that an
investment in a series of the Trust complies with the
terms of the plan and related trust.
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You should understand that the acceptance of a
subscription by the managing owner from your plan does
not constitute a representation or judgment by the
managing owner that an investment in any series of the
Trust is an appropriate investment for that entity or
that such an investment meets the legal requirements
applicable to that entity.
The Trust Should Not Be Deemed To Hold "Plan Assets"
A regulation issued under ERISA (referred to as the
ERISA regulation) contains rules for determining when
an investment by a plan in a series of the Trust will
result in the underlying assets of such series being
assets of the plan for purposes of ERISA and the
Internal Revenue Code (i.e., "plan assets"). Those
rules provide in pertinent part that underlying assets
of the series will not be plan assets of a plan which
purchases an interest in the series if the interest
purchased is a "publicly-offered security" (this is
referred to as the publicly-offered security
exception). If the underlying assets of a series of
the Trust are considered to be assets of any plan for
purposes of ERISA or the Internal Revenue Code, the
operations of such series would be subject to and, in
some cases, limited by, the provisions of ERISA and the
Internal Revenue Code.
The publicly-offered security exception applies if
the interest to be purchased by a plan is an equity
security that is:
- -"Freely transferable" (determined based on
the applicable facts and circumstances).
- -Part of a class of securities that is owned
by 100 or more investors independent of the
issuer and of each other.
- -Either (i) part of a class of securities
registered under the Securities Exchange Act
of 1934 or (ii) sold to the plan as part of
a public offering pursuant to an effective
registration statement under the Securities
Act of 1933 and the class of which such
security is a part is registered under the
Securities Exchange Act of 1934.
It appears that all of the conditions described
above are satisfied with respect to the interests and,
therefore, the interests should constitute publicly-
offered securities and the underlying assets of the
series in the Trusts should not be considered to
constitute assets of any plan which purchases interests
in the series.
In general, interests may not be purchased with the
assets of your plan if Prudential Securities, any of
its respective affiliates or any of their respective
employees either:
- -Has investment discretion with respect to
the investment of your plan's assets.
- -Has authority or responsibility to give or
regularly gives investment advice with
respect to your plan's assets, for a fee,
and pursuant to an agreement or
understanding that such advice will serve as
a primary basis for investment decisions
with respect to your plan's assets and that
such advice will be based on the particular
investment needs of your plan.
- -Is an employer maintaining or contributing
to your plan.
Neither Prudential Securities nor the trading
advisor makes any representation that this investment
meets the relevant legal requirements with respect to
investments by your plan or that this investment is
appropriate for your plan. The person with investment
discretion for your plan should obtain appropriate
legal and financial advice as to the propriety of an
investment in the Trust in light of the circumstances
of your plan.
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HOW TO SUBSCRIBE FOR, EXCHANGE AND REDEEM INTERESTS
To Subscribe For Interests, You Must:
- -Have an account at Prudential Securities (or an
additional selling agent).
- -Complete a subscription agreement (Exhibit D) if
you are a new or existing subscriber to the
series being purchased.
- -Have cash in your Prudential Securities account
(or account with an additional selling agent) to
cover the entire subscription amount.
- -Send the subscription agreement to a Prudential
Securities financial advisor (or an additional
selling agent) in a timely manner.
- -Meet established suitability standards.
- -Subscribe for at least the subscription minimums.
Minimum Purchases
Minimum Initial
Purchase $5,000 or $2,000 (for IRA accounts only)
in one or more series
Minimum Per Series $1,000 for any series
Minimum Additional
Purchase for
existing limited owners $100 per series
Special Purchases
If you purchase an aggregate of at least $5 million
of interests in one or more series, you may receive a
discount on the purchase price. If you receive a
discount on the purchase price of your interests, a
dollar amount equal to the discount you receive will be
paid to the Trust at the time of the sale by Prudential
Securities and deducted from the compensation payable
to the Prudential Securities employee responsible for
the sale. You should consult with your tax advisors
concerning the tax consequences to you of receiving a
discount.
In addition to, or instead of, the discount, if you
redeem during the first twelve months following the
effective date of your purchase, all or a portion of
the redemption fees may be waived if, at the time of a
redemption, your aggregate interests in all series,
when added to your aggregate interests in the various
series of World Monitor Trust, another public futures
fund sponsored by the managing owner, total at least $5
million. For this purpose, the effective date of your
purchase will be the applicable dealing day for the
interests being redeemed.
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Subscription Categories
- - Individual or joint tenant
Individual accounts are
owned by one person.
Joint accounts can have
two or more owners.
- -Gifts or transfers to a minor
An individual can gift
up to $10,000 per year
per person without
paying federal gift tax.
Depending on state law,
you can establish a
custodial account under
the Uniform Gift to
Minors Act or the
Uniform Transfers to
Minors Act.
- -Trust
The subscribing trust must be established
before an account can be opened.
- -Business or other organization
Corporations, partnerships, limited liability companies or
partnerships, associations or other groups.
- -Benefit Plans
Individual Retirement
Funds, Non-ERISA Plans
or ERISA Plans.
When A Subscription Becomes Final
- -New subscribersto a series
Your subscription is not final or binding
until at least five business days after the
date you submit your subscription agreement.
You may revoke a subscription only
within five business days after you submit a
subscription agreement. Thereafter, all
subscriptions are irrevocable.
- -Existing limited owners in a series purchasing
additional interests in that same series
Your subscription is
not final or binding
until at least two
business days after the
date you submit your
subscription agreement
(Exhibit D). You may
revoke a subscription
only within two
business days after you
submit a subscription
agreement. Thereafter,
all subscriptions are
irrevocable.
The managing owner may, at its discretion, reject
any subscription in whole or in part. If your
subscription is rejected by the managing owner, in
whole or in part, for any reason, or if you determine
to revoke your subscription within five business days,
the subscription funds, or the applicable portion
thereof, will be promptly returned to you, along with
any interest earned thereon. If your subscription is
accepted, you will receive written confirmation of
acceptance into the applicable series of the Trust.
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To Exchange Interests You Must:
- - Complete an exchange request (Exhibit C) if
you are exchanging interests in one series
for interests of one or more other series.
- - Send the exchange request to a Prudential
Securities financial advisor (or an
additional seller).
When An Exchange Becomes Final
- -Existing limited owners exchanging interests in one
series for interests in another series currently owned
Your exchange is effective on the
dealing date that occurs at least two
business days after the date you submit
your exchange request.
- -Existing limited owners exchanging interests
in one series for interests in another series not
currently owned.
Your exchange is effective on the dealing date that
occurs at least five days after the date
you submit your exchange request.
To Redeem Interests You Must:
- -Complete a redemption request (Exhibit B).
- -Submit the redemption request to a
Prudential Securities financial advisor in a
timely manner.
When An Redemption Becomes Final
- -Existing limited owners redeeming their currently owned interests
Your redemption is effective on the
dealing date that occurs at least two
business days after the date you submit your
redemption request.
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FEES AND EXPENSES
Charges To Be Paid By The Trust
Brokerage Fee To Prudential Securities
For commodity brokerage and other administrative
services, each series pays Prudential Securities a
fixed brokerage fee and actual transaction costs, such
as execution charges, exchange fees, National Futures
Association fees, and other pit brokerage charges
("transaction costs"). The brokerage fee is determined
at the close of business each Friday, and the sum of
the amounts determined weekly are paid monthly. The
brokerage fee equals, on an annual basis, 6% of each
series' net asset value.
Each series pays all transaction costs and give-up
charges, as well as the National Futures Association
fees, the exchange fees and the clearing fees incurred
in connection with each series' futures trading
activities. These costs equal the following
percentages of each series' net asset value:
- -Series D: 1.13% per annum
- -Series E: 0.81% per annum
- -Series F: 0.50% per annum
No material change related to the brokerage fee
will be made except upon 20 business days' prior notice
to limited owners, and no increase in the brokerage
fees will take effect except at the beginning of a
month. In no event will the brokerage fee paid by a
series exceed any limitations imposed by the NASAA
guidelines or be increased without the approval of at
least a majority in interest (over 50%) of the limited
owners of the affected series. The brokerage fee per
round turn transaction varies with the volume and
frequency of trading for a series. The fixed brokerage
fee paid to Prudential Securities plus trading
transaction costs discussed above is equates to the
following historical and projected round-turn amounts:
Actual for 2000 Expected average going forward
Series D: $66 $28
Series E: $56 $38
Series F: $87 $72
From its fixed brokerage fee, Prudential Securities
is responsible for the payment of the following:
Trailing Compensation To Prudential Securities Employees
Out of the 6% brokerage fee paid to
Prudential Securities, Prudential Securities employees
who hold all appropriate federal and state securities
registrations are eligible for compensation of up to 2%
of the net asset value per interest upon the sale of an
interest. Beginning 12 months after the month in which
the sale of an interest is effective, Prudential
Securities employees who hold appropriate federal and
state registrations and who provide on-going services
to limited owners are eligible for compensation of up
to 2% of the net asset value of an interest. This
compensation is paid by Prudential Securities and is at
no additional cost to the Trust.
Forward Transactions Through Prudential-Bache Global
Markets Inc.
Any series, acting through its trading advisor, may
execute over-the-counter, spot, forward and option
foreign exchange transactions with Prudential
Securities. Prudential Securities engages in back-to-
back trading with an affiliate, Prudential Bache Global
Markets, which attempts to earn a profit on such
transactions. Prudential Bache Global Markets keeps
its prices on foreign currency competitive with other
interbank currency trading desks. All over-the-counter
currency transactions are conducted between Prudential
Securities and each series pursuant to a line of
credit. Prudential Securities may require that
collateral be posted against the current market value
of any position of any series.
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Management And Incentive Fees To The Trading Advisors
Under the terms of the advisory agreements among
the Trust, the managing owner and each trading advisor,
each trading advisor receives an incentive fee (if it
achieves new high net trading profits) and a management
fee, in each instance based on the applicable series'
net asset value. In no event do the management and
incentive fees paid to the trading advisors exceed any
limitations imposed by the NASAA guidelines.
Management Fee
The series pay their trading advisors a
management fee at the annual rate of the series'
net asset value as follows:
- - Series D -- 1.25%
- - Series E -- 2%
- - Series F -- 2%
For each series, the management fees are
determined at the close of business each Friday,
and the sum of the amounts determined weekly is
paid monthly. The amounts determined weekly
reflect profits and losses from trading activities.
The management fees are not reduced on account of
any (i) distributions, redemptions or reallocations
made as of the last Friday of a week, (ii) accrued
management fees being calculated, (iii) accrued but
unpaid incentive fees for the current quarter or
(iv) accrued but unpaid extraordinary expenses made
as of the end of any week for which the calculation
is being made.
Incentive Fee
Each series pays its trading advisor an
incentive fee equal to 22% on any new high net
trading profits generated by it on that series' net
asset value, including realized and unrealized
gains and losses thereon as of the last Friday of
each calendar quarter (these Fridays are referred
to as the incentive measurement dates). The
incentive fee is accrued weekly but paid quarterly.
Basic Computation. New high net trading
profits (for purposes of calculating the advisor's
incentive fee only) are computed as of the
incentive measurement date and include such profits
(as outlined below) since the incentive measurement
date of the most recent preceding quarter for which
an incentive fee was earned (or, with respect to
the first incentive fee, as of the commencement of
operations) (this period is referred to as the
incentive measurement period). New high net
trading profits for any incentive measurement
period are the net profits, if any, from a series'
trading during such period (including (i) realized
trading profit (loss) plus or minus (ii) the change
in unrealized trading profit (loss) on open
positions) and are calculated after the
determination of a series' fixed brokerage fee,
transaction charges, operating expenses for which
the series is responsible and the advisor's
management fee, but before deduction of any
incentive fees payable during the incentive
measurement period. New high net trading profits
do not include interest earned or credited on a
series assets and are reduced to reflect
extraordinary expenses (e.g., litigation, costs or
damages) paid during an incentive measurement
period.
Losses Must be Recouped. New high net trading
profits are generated only to the extent that a
trading advisor's cumulative new high net trading
profits exceed the highest level of cumulative new
high net trading profits achieved by the advisor as
of a previous incentive measurement date. Except
as set forth in the next sentence, any net losses
from prior quarters must be recouped before new
high net trading profits can again be generated.
Losses, if any, associated with assets allocated
away from an advisor through redemptions,
reallocation or deleveraging, if applicable, by the
Trust or the managing owner during the incentive
measurement period and prior to the incentive
measurement date do not have to be recouped.
Effect Of Redemptions, Distributions and
Capital Contributions. If a redemption occurs at
any date that is not an incentive measurement date,
the date of the redemption is treated as if it were
an incentive measurement date, and any incentive
fee accrued in respect of the withdrawn assets on
such date is paid to the advisor at the next
scheduled incentive measurement date. New high net
trading profits for an
95
incentive measurement period
is adjusted to exclude capital contributions to a
series in an incentive measurement period, as well
as distributions or redemptions payable by a series
during an incentive measurement period.
Prior Incentive Fees Paid. In calculating new
high net trading profits, incentive fees paid for a
previous incentive measurement period do not reduce
cumulative new high net trading profits in
subsequent periods. A trading advisor does not
have to earn back any incentive fees previously
paid to it before it can generate additional new
high net trading profits. Once paid, all incentive
fees paid to a trading advisor are retained by it
despite any subsequent losses which are incurred.
Timing of Payment
Management and incentive fees are paid within
15 business days following the end of the period
for which they are payable.
96
Example Of Incentive Fee
Following is a simple numerical example with
respect to the net asset value of the interests. This
example illustrates how the quarterly incentive fee is
calculated.
A. Assumptions
(1) A series commences trading activities at the
beginning of a quarter with $10 million in
interests and the trading advisor is allocated
100% of that amount.
(2) No redemptions are made during the quarter.
B. Quarterly Data
(1) Beginning NAV $10,000,000
(2) Gross Realized & Unrealized
Trading Profit (Loss) 1,200,000
($600,000 realized and
$600,000 unrealized)
(3) Interest Income 125,000
(Assumes Annual Interest
of 5.00%)
(4) NAV Subtotal 11,325,000
(5) Fees for Brokerage
Services, Transaction Fees and
Routine Operating Expenses (235,277)
(Brokerage Fee of 6% annually,
Transaction Fees of 0.81% annually
(e.g., for Series E) and
Routine Operating Costs
of 1.50% annually)
(6) Advisory Management
Fee (56,625)
(Less the Management
Fee: 2% Annually = 0.5%
quarterly (e.g., for Series E))
(7) Ending NAV $11,033,098
(Item (4) less Items (5)
and (6), before
computation of advisory
incentive fee)
(8) Interest Income Adjustment (125,000)
(9) NAV on which Incentive Fee
is computed $10,908,098
(10) Net Trading Profit (Loss) $908,098
(Item (9) minus Item (1))
C. Incentive Fee Calculation
$908,098 [Item (10)] X 22% = $199,782
If in the next quarter, the trading advisor were to
experience net trading losses computed on both a
realized and unrealized basis, it would not receive
another incentive fee until it recouped its losses
and achieved new high net trading profits (both
realized and unrealized). For example, if the net
trading losses equal $500,000 (and assuming no
subsequent redemptions), the trading advisor must
achieve net trading profits in excess of $500,000
and then would be paid an incentive fee only on the
excess -- that is, only on the new high net trading
profits over $500,000.
97
Routine Operating Expenses.
All of the Trust's routine operating expenses
including, without limitation, legal, auditing,
accounting, cash management, computer services,
printing, mailing and duplication costs for each
series, are paid by each series and may include
payments to affiliated service providers at competitive
(or below market) rates. These operating expenses are
expected to be approximately $125,000 to $150,000 per
series per year, but in no event is series be
responsible to pay more than 1.50% of that series' net
asset value each year. As the number of investors in a
series increases, expenses of that series increase as
well; however, as asset levels increase, costs as a
percentage of the series assets are expected to
decrease.
Extraordinary Expenses
To the extent that any extraordinary expenses are
incurred, including, without limitation, legal claims
and liabilities and litigation costs and any
indemnification related thereto, the Trust is
responsible for such expenses.
Charges To Be Paid By Prudential Securities Or Its
Affiliates
Prudential Securities or an affiliate is
responsible for the payment of the following charges
and is not reimbursed by the Trust therefor:
Organization And Offering Expenses
Expenses incurred in connection with the
organization of the Trust and the initial offering of
interests in each series were approximately $250,000
per series. Ongoing offering expenses are estimated to
be approximately $75,000 per series each year.
Routine Operating Expenses
If at any time the actual routine operating
expenses exceed 1.50% of a series' net asset value (or
if such expenses, excluding legal and audit charges,
exceed 0.5% of Series E's or Series F's, and 1.25% of
Series D's, net asset value), Prudential Securities or
its affiliates pays such excess. For example if a
series' net asset value is $8.5 million, then the
maximum amount which that series will pay is $127,500
for that year. Prudential Securities or its affiliates
will pay the difference between the $127,500 and actual
expenses incurred. Based on the estimated expenses,
Prudential Securities or its affiliates would pay
between $0 and $22,500 for that series.
Charges To Be Paid By Limited Owners
Redemption Fees
If you redeem an interest during the first 12
months following the effective date of its purchase you
will be subject to the following redemption fees: (i)
interests redeemed on or before the end of the first
six months after their effective date are charged a
redemption fee of 4% of the net asset value at which
they are redeemed and (ii) interests redeemed after six
months, but on or before the end of 12 months after
their effective date are charged a redemption fee of 3%
of the net asset value at which they are redeemed.
These redemption fees are paid to the managing owner.
Redemption fees will be waived if you exchange your
interests for interests in another series or if your
redemption proceeds are used to purchase interests in
another fund sponsored by the managing owner.
Redemption fees may be waived if your aggregate
interests in all series, when added to your aggregate
interests in the various series of World Monitor Trust,
another futures fund sponsored by the managing owner,
total at least $5 million. If you acquire your
interests at more than one closing date and continue to
hold them or an equivalent number of interests in other
funds sponsored by the managing owner, each interest
will be treated on a "first-in, first-out" basis for
redemption purposes (i.e., determining the amount of
any applicable redemption charge). In addition, if you
redeem interests on or before the end of the 12th month
from the effective date of purchase and you
simultaneously purchase interests in the various series
of World Monitor Trust, then, solely for the purpose of
assessing any applicable redemption fees, the effective
date of your initial purchase will carry over to your
subsequent purchase. For example, assume you purchase
an interest on January 1, 2001 and on June 30, 2001 you
redeem that interest and simultaneously purchase
interests in one or more of the various series of World
Monitor Trust; assume further that you redeem those
interests on February 1, 2002; since the effective date
of your initial purchase carries forward for purposes
of assessing any redemption fees, you will be deemed to
have held the World
98
Monitor Trust interests for a
period of 13 months, and you will not be charged any
redemption fees. Redemption fees do not reduce net
asset value or new high net trading profit for any
purpose and only affect the amount you will receive
upon your redemption of an interest.
Projected Twelve-Month Break-Even Analysis
Projected twelve-month break-even analyses for each
series, taking into account all fees and expenses
enumerated above (other than incentive fees and
extraordinary expenses, which are impossible to
predict), plus interest income, are set forth at page
15 and are expressed as a dollar amount and as a
percentage of a minimum $5,000 initial subscription.
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SUMMARY OF AGREEMENTS
Advisory Agreements
There is an advisory agreement among the Trust, the
managing owner and each series' trading advisor by
which the managing owner delegated to each trading
advisor sole trading responsibility for a series. All
trading is subject to the Trust's trading limitations
and policies. Each trading advisor has been allocated
100% of the proceeds from the offering of interests for
the series for which it has trading responsibility.
The advisory agreements are not exclusive and,
except for the initial term, are effective for one year
terms, with the first term ending 15 months after
trading commenced. They are renewable thereafter
automatically for additional one-year terms unless
terminated. After the end of the first term, each
trading advisor has the right to terminate its
respective advisory agreement upon 90 days' prior
written notice. During subsequent terms, each trading
advisor has the right, upon prior written notice, to
terminate its respective advisory agreement as of the
end of the then-current term. Each advisory agreement
will terminate automatically (i) in the event that the
series it manages is terminated or (ii) if, as of the
end of any business day, the series' net asset value
declines by 40% from the series' net asset value as of
beginning of the first day of that calendar year, after
appropriate adjustment for distributions, redemptions,
reallocations and additional allocations.
Each advisory agreement also may be terminated at
the discretion of the managing owner at any time upon
30 days' prior written notice to a trading advisor, or
for cause on less than 30 days' prior written notice,
in the event that: (i) the managing owner determines
in good faith that the trading advisor is unable to use
its agreed upon trading approach to any material
extent; (ii) the trading advisor's registration as a
commodity trading advisor under the Commodity Exchange
Act or membership as a commodity trading advisor with
the National Futures Association is revoked, suspended,
terminated or not renewed; (iii) the managing owner
determines in good faith that the trading advisor has
failed to conform and, after receipt of written notice,
continues to fail to conform in any material respect,
to (a) the trading limitations and policies or (b) the
trading advisor's trading approach; (iv) there is an
unauthorized assignment of the advisory agreement by
the trading advisor; (v) the trading advisor dissolves,
merges or consolidates with another entity or sells a
substantial portion of its assets, any portion of its
trading approach utilized by a series or its business
goodwill, in each instance without the consent of the
managing owner; (vi) the trading advisor becomes
bankrupt or insolvent; or (vii) for any other reason if
the managing owner determines in good faith that the
termination is essential for the protection of the
assets of a series, including, without limitation, a
good faith determination by the managing owner that
such trading advisor has breached a material obligation
to the Trust under the advisory agreement.
Each trading advisor also has the right to
terminate its advisory agreement in its discretion at
any time for cause on appropriate notice in the event:
(i) of the receipt by the trading advisor of an opinion
of counsel satisfactory to the trading advisor and the
Trust that by reason of the trading advisor's
activities with respect to the Trust, the trading
advisor is required to register as an investment
adviser under the Investment Advisers Act of 1940 and
it is not so registered; (ii) that the registration of
the managing owner as a commodity pool operator under
the Commodity Exchange Act or membership as a commodity
pool operator with the National Futures Association is
revoked, suspended, terminated or not renewed;
(iii) that the managing owner imposes additional
trading limitation(s) which the trading advisor does
not agree to follow in its trading of a series' assets
or the managing owner overrides trading instructions;
(iv) that the assets allocated to the trading advisor
decrease, for any reason, to less than $4 million for
each of Series D, Series E and Series F; (v) the
managing owner elects to have the trading advisor use a
different trading approach and the trading advisor
objects; (vi) there is an unauthorized assignment of
the advisory agreement by the Trust or the managing
owner; or (vii) other good cause is shown and the
written consent of the managing owner is obtained
(which consent shall not unreasonably be withheld).
It is anticipated that all three of the trading
advisors will accept additional capital to trade for
other clients. The managing owner does not anticipate
that this will have a negative effect on any trading
advisor's ability to implement its strategy. In the
event that the acceptance of additional capital is
anticipated to have or does have such negative affect,
the managing owner has authority to replace the
advisor.
Each trading advisor will, upon reasonable request,
permit the managing owner to review its personal
trading records for the purpose of confirming that the
Trust has been treated equitably with respect to advice
rendered by the trading advisor to other accounts
managed by the trading advisor.
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None of the trading advisors nor their employees or
affiliates will be liable to the managing owner, its
employees or its affiliates, except by reason of acts
or omissions in material breach of the advisory
agreement or due to their misconduct or negligence or
by reason of not having acted in good faith in the
reasonable belief that such actions or omissions were
in, or not opposed to, the best interests of the Trust.
Each of the trading advisors and their employees
and affiliates will be indemnified by the managing
owner against any losses, judgments, liabilities,
expenses (including, without limitation, reasonable
attorneys' fees) and amounts paid in settlement of any
claims (collectively referred to as losses) sustained
by any one of the trading advisors in connection with
any acts or omissions of the trading advisors relating
to their management of a series or as a result of any
material breach of the advisory agreement by the Trust
or the managing owner, provided, that (i) such losses
were not the result of negligence, misconduct or a
material breach of the advisory agreement on the part
of the trading advisor; (ii) the trading advisor and
its officers, directors, shareholders and employees and
each person controlling the trading advisor acted or
omitted to act in good faith and in a manner reasonably
believed by it and them to be in, or not opposed to,
the best interests of the series; and (iii) any such
indemnification will only be recoverable from the
assets of the series and the managing owner and not
from the assets of any other series.
Each trading advisor also represented to the
managing owner that there would be no material
interruption in their provision of advisory services
due to the advent of the Year 2000 Problem. The
managing owner has similarly represented to each
trading advisor that there would be no material
interruption in carrying out its obligations under the
advisory agreements due to the advent of the Year 2000
Problem. The Year 2000 Problem was a potential
computer calculation problem caused by software that
processes years as only two digits, rather than four.
A computer program that has time-sensitive software may
recognize a date ending in "00" as the year 1900 rather
than 2000, resulting in miscalculations and
interruptions of service.
Brokerage Agreement
Prudential Securities and the Trust have entered
into a brokerage agreement. As a result, Prudential
Securities (i) acts as the Trust's executing and
clearing broker, (ii) acts as custodian of the Trust's
assets, (iii) assists with foreign currency,
(iv) assists the managing owner in the performance of
its administrative functions for the Trust and
(v) performs such other services for the Trust as the
managing owner may from time to time request.
As executing and clearing broker for each of the
Trust's series, Prudential Securities receives each
trading advisor's orders for trades. Prudential-Bache
Global Markets Inc., an affiliate of Prudential
Securities, assists with each series' foreign currency
forward transactions. Generally, when the trading
advisor gives an instruction either to sell or buy a
particular foreign currency forward contract, the Trust
engages in back-to-back principal trades with
Prudential Securities and its affiliate, Prudential-
Bache Global Markets Inc., in order to carry out the
trading advisor's instructions. In back-to-back
currency transactions, Prudential Securities, as
principal, arranges bank lines of credit and contracts
with Prudential-Bache Global Markets Inc. to make or to
take future delivery of specified amounts of the
currency at the negotiated price. Prudential
Securities, again as principal, in turn contracts with
the Trust to make or take future delivery of the same
specified amounts of currencies at the same price. In
these transactions, Prudential Securities acts in the
best interests of the Trust.
Confirmations of all executed trades for each
series are given to the Trust by Prudential Securities.
The brokerage agreement incorporates Prudential
Securities' standard customer agreement and related
documents, which include provisions that: (i) all
funds, commodities and open or cash positions carried
for each series are held as security for that series'
obligations to Prudential Securities; (ii) the margins
required to initiate or maintain open positions will be
as from time to time established by Prudential
Securities and may exceed exchange minimum levels; and
(iii) Prudential Securities may close out positions,
purchase commodities or cancel orders at any time it
deems necessary for its protection, without the consent
of the Trust.
As custodian of the Trust's assets, Prudential
Securities is responsible, among other things, for
providing periodic accountings of all dealings and
actions taken by each series during the reporting
period, together with an accounting of all securities,
cash or other indebtedness or obligations held by it or
its nominees for or on behalf of each series of the
Trust.
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Administrative functions provided by Prudential
Securities for each series include, but are limited to:
- -Preparing and transmitting daily
confirmations of transactions and monthly
statements of account.
- -Calculating equity balances and margin
requirements.
- -Assisting the managing owner in providing
continuing information services to the
limited owners holding interests in a
series.
- -Keeping limited owners apprised of
developments affecting the series in which
they are invested.
- -Communicating valuations of interests.
- -Providing information with respect to
procedures for redemptions, transfers and
distributions, if any.
- -Interpreting monthly and annual reports.
- -Providing tax information to limited owners.
- -Explaining developments in the commodity
markets in the U.S. and abroad.
- -Furnishing all of the information from time
to time in its possession which the managing
owner is required to furnish to limited
owners.
Many of these services are performed on behalf of
Prudential Securities by financial advisors who are
registered under the Commodity Exchange Act and who
satisfy all applicable proficiency requirements (i.e.,
have passed the Series 3 or Series 31 examinations or
are exempt therefrom) and who have all of the
appropriate federal and state securities registrations.
The brokerage agreement is exclusive and runs for
successive one-year terms renewed automatically each
year unless terminated. The brokerage agreement is
terminable by a series (including by a vote of a
majority-in-interest of the interest-holders of that
series) or by Prudential Securities without penalty
upon 60 days' prior written notice.
Prudential Securities and its stockholder,
directors, officers and employees will not be liable to
the Trust or to you for errors in judgment or other
acts or omissions except by reason of acts of or
omissions due to misconduct or negligence or for not
having acted in good faith in the reasonable belief
that its actions were in the best interests of the
Trust, or by reason of any material breach of the
brokerage agreement.
Prudential Securities represented to the Trust that
there would be no material interruption in their
provision of brokerage services due to the advent of
the Year 2000 Problem.
Trust Agreement
The rights and duties of the trustee, the managing
owner, and the limited owners are governed by
provisions of the Delaware Business Trust Act and by
the trust agreement. The key features of the trust
agreement which are not discussed elsewhere in the
prospectus are outlined below, but you should refer to
the complete trust agreement for details of all of its
terms and conditions.
Trustee
Wilmington Trust Company is the trustee of
the Trust and serves as the Trust's sole trustee in the
State of Delaware. The trustee is permitted to resign
upon 60 days' notice to the Trust; provided, that any
such resignation will not be effective until a
successor trustee is appointed by the managing owner.
The trust agreement provides that the trustee is
compensated by the managing owner or its affiliates,
and the trustee will be indemnified by the managing
owner against any expenses (as defined in the trust
agreement) it incurs relating to or arising out of
102
the formation, operation or termination of the Trust or the
performance of its duties pursuant to the trust
agreement, except to the extent that such expenses
result from the gross negligence or willful misconduct
of the trustee. The managing owner has the discretion
to retain the trustee or replace the trustee with a new
trustee.
Only the managing owner has signed the registration
statement of which this prospectus is a part, and the
assets of the trustee are not subject to issuer
liability under the federal securities laws for the
information contained in this prospectus and under
federal and state law with respect to the issuance and
sale of the interests. Under such laws, neither the
trustee, either in its capacity as trustee or in its
individual capacity, nor any director, officer or
controlling person of the trustee is, or has any
liability as, the issuer or a director, officer or
controlling person of the issuer of the interests. The
trustee's liability in connection with the issuance and
sale of the interests and with respect to the Trust's
obligations under the interests is limited solely to
the express obligations of the trustee set forth in the
trust agreement.
Management Responsibilities Of The Managing Owner
Under the trust agreement, the trustee has delegated to
the managing owner the exclusive management and control
of all aspects of the business of the Trust. The
trustee has no duty or liability to supervise or
monitor the performance of the managing owner, and the
trustee has no liability for the acts or omissions of
the managing owner. In addition, the managing owner
has been designated as the "tax matters partner" for
purposes of the Internal Revenue Code. The limited
owners have no voice in the operations of the Trust,
other than certain limited voting rights which are set
forth in the trust agreement. In the course of its
management, the managing owner may, in its sole and
absolute discretion, appoint an affiliate or affiliates
of the managing owner as additional managing owners
(except where limited owners having interests
representing at least a majority of the net asset value
of each series have notified the managing owner that
the managing owner is to be replaced as the managing
owner) and retain such persons, including affiliates of
the managing owner, as it deems necessary for the
efficient operation of the Trust.
Notice Of Material Changes
The managing owner is obligated to
notify you within seven days from the date
of any material change (i) in the series' advisory
agreement, (ii) in the calculation of the incentive fee
paid to the series' trading advisor and (iii) which
affects the compensation of any party compensated by
the series.
Transfer Of Interests
Your assignee may become a
substituted limited owner only upon consent of the
managing owner, which consent may be withheld by the
managing owner only (i) if the proposed assignee does
not meet the established suitability requirements, or
(ii) to avoid adverse legal consequences to any series
in the Trust. A permitted assignee who does not become
a substituted limited owner will be entitled to receive
your share of the profits or the return of capital to
which you would otherwise be entitled, but will not be
entitled to vote, to receive any information, on or an
account of, the series' transactions or to inspect the
books of the series. Under the agreement, as an
assigning limited owner you will not be released from
any liability you may have to the Trust for any amounts
for which you may be liable under the trust agreement
whether or not the assignee to whom you have assigned
interests becomes a substituted limited owner. You also
will be responsible for all costs relating to the
assignment or transfer of your interests.
Subject to compliance with suitability standards
imposed by the Trust, applicable federal securities
laws, state "blue sky" laws and the rules of other
governmental authorities, your interests may be
assigned by you upon notice to the managing owner on a
form acceptable to the managing owner. The managing
owner shall refuse to recognize an assignment if
necessary, in its judgment, to maintain the treatment
of any series as a partnership for U.S. federal income
tax purposes or to preserve the characterization or
treatment of series income or loss and upon receipt of
an opinion of counsel supporting its conclusion.
Notwithstanding the foregoing, and except for certain
situations set forth in the trust agreement, no
assignment may be made by you if such assignment would
result in:
- -A contravention of the NASAA guidelines, as
adopted in any state where the proposed
assignor and assignee reside.
- -The aggregate total of interests transferred
in a twelve-month period equaling 49% or
more of the outstanding interests (taking
into account applicable attribution rules
and excluding transfers by gift, bequest, or
inheritance); the trust agreement provides
that the managing owner will incur no
liability to any investor or prospective
investor for any action or inaction by it in
connection with the foregoing, provided it
acted in good faith.
103
Assignments by you to (i) your ancestors or
descendants, (ii) your personal representative or heir,
if you are deceased, (iii) the trustee of a trust for
which you are a beneficiary or another person to whom a
transfer could otherwise be made or (iv) the
shareholders, partners or beneficiaries of a
corporation, partnership, limited liability company or
trust upon its termination or liquidation will be
effective as of the dealing day immediately following
the week in which the managing owner receives your
written instrument of assignment. Assignments or
transfers of interests by you to any other person will
be effective on the dealing day of the next succeeding
week, provided the managing owner shall have been in
receipt of your written instrument of assignment for at
least five business days.
Termination
The Trust or, as the case may be, any
series, will dissolve upon the occurrence of any of the
following events:
- -The filing of a certificate of dissolution
or the revocation of the managing owner's
charter (and the expiration of 90 days after
the date of notice to the managing owner of
revocation without a reinstatement of its
charter) or the withdrawal, removal,
adjudication of bankruptcy or insolvency of
the managing owner (each of the foregoing is
referred to as an event of withdrawal),
unless (i) at the time there is at least one
remaining managing owner and that remaining
managing owner carries on the business of
the series or (ii) within 90 days of an
event of withdrawal, all the remaining
interest-holders in each series agree in
writing to continue the business of the
Trust and to select, as of the date of such
event of withdrawal, one or more successor
managing owners; within 120 days of any
event of withdrawal, if action is not taken
pursuant to (i) or (ii) and the series are
dissolved, limited owners of each series
holding interests representing at least a
majority (over 50%) of the net asset value
of the series (without regard for interests
held by the managing owner or its
affiliates) may elect to continue the
business of the Trust and each series by
forming a new business trust (referred to as
the reconstituted trust) on the same terms
and provisions set forth in the trust
agreement ; any such election must also
provide for the election of a managing owner
to the reconstituted trust; if such election
is made, all limited owners will be bound
thereby and continue as limited owners of
the reconstituted trust.
- -The occurrence of any event that makes the
continued existence of the Trust or any
series in the Trust unlawful.
- -The suspension, revocation or termination of
the managing owner's registration as a
commodity pool operator under the Commodity
Exchange Act or membership as a commodity
pool operator with the National Futures
Association, unless at the time there is at
least one remaining managing owner whose
registration or membership has not been
suspended, revoked or terminated.
- -The Trust or any series becomes insolvent or
bankrupt.
- -The limited owners of each series holding
interests representing at least a majority
(over 50%) of the net asset value of the
series (excluding interests held by the
managing owner or an affiliate) vote to
dissolve the Trust with 90 days' prior
written notice to the managing owner.
- -The limited owners of a series holding
interests representing at least a majority
(over 50%) of the net asset value of that
series (excluding interests held by the
managing owner or an affiliate) vote to
dissolve that series with 90 days' prior
written notice to the managing owner.
- -The decline of the net asset value of a
series by 50% from the net asset value of
the series (i) as of the commencement of the
series' trading activities or (ii) on the
first day of a fiscal year, in each case
after appropriate adjustment for
distributions, redemptions, reallocations,
and additional contributions to capital.
104
A series may also be dissolved, in the discretion
of the managing owner, upon the determination of the
managing owner that the series' aggregate net asset
value in relation to the operating expenses of the
series makes it unreasonable or imprudent to continue
the business of the series. The managing owner is not
required to, and should not be expected to, obtain an
opinion of legal counsel or of any other third party
prior to determining to dissolve any series in the
Trust.
Upon dissolution of a series, its affairs shall be
wound up, its liabilities discharged, and its remaining
assets distributed pro rata to the interest-holders.
To the extent the series has open positions at such
time, it will use its best efforts to close such
positions, although no assurance can be given that
market conditions might not delay such liquidation and
that amounts received thereon will not be less than if
market conditions permitted an immediate liquidation.
If all series are terminated, the Trust will terminate.
The trust agreement provides that your death,
legal disability, bankruptcy or withdrawal will not
terminate or dissolve the series (unless you happen to
be the sole limited owner of the series) and that your
legal representative will have no right to withdraw or
value your interest except by redemption of interests
pursuant to the trust agreement.
Reports And Accounting
The Trust maintains its books on
the accrual basis in accordance with generally
accepted accounting principles. The financial
statements of each series in the Trust are audited at
least annually in accordance with generally accepted
auditing standards by independent accountants
designated by the managing owner in its sole
discretion. As a limited owner, you will be furnished
with unaudited monthly and audited annual reports
containing such information as the CFTC and National
Futures Association requires. The CFTC requires that
an annual report be provided to you not later than 90
days after the end of each fiscal year or the permanent
cessation of the Trust's trading as defined in the
Commodity Exchange Act, whichever is earlier, and the
annual report must set forth, among other matters:
- -The net asset value of the series and the
net asset value per interest per series or
the total value of your interest in the
Trust, in either case, as of the end of the
year in question and the preceding year.
- -A statement of financial condition as of the
close of the fiscal year and, if applicable,
the preceding fiscal year.
- -Statements of income (loss) and changes in
limited owners' capital during the fiscal
year and, to the extent applicable, the
previous fiscal year.
- -Appropriate footnote disclosure and such
further material information as may be
necessary to make the required statements
not misleading.
The CFTC also requires that an unaudited monthly
report be distributed to you within 30 days of the end
of each month containing information presented in the
form of a statement of income (loss) and a statement of
changes in net asset value. Because the valuation
point for the purposes of calculating net asset value,
fees, subscriptions, redemptions and exchanges is the
Friday of each week, each series makes its unaudited
monthly report for a four- or five-week period ending
on the last Friday of each calendar month.
The statement of income (loss) must set forth,
among other matters:
- -The total amount of realized net gain or
loss on commodity interest positions
liquidated during the month.
- -The change in unrealized net gain or loss on
commodity interest positions during the
month.
- -The total amount of net gain or loss from
all other transactions in which a series is
engaged.
- -The total amounts of management fees,
advisory fees, brokerage fees, and other
fees for commodity and other investment
transactions and all other expenses incurred
or accrued by the Trust during the month.
105
The statement of changes in net asset value must
itemize the following:
- -The net asset value of the series as of the
beginning and end of the month.
- -The total amount representing additions of
interests during the month.
- -The total amount representing redemptions of
interests during the month.
- -The total net income or loss of the series
during the month.
- -The net asset value per interest or the
total value of your interest in the Trust as
of the end of the month.
The monthly report also is required to describe any
other material business dealings between the Trust, the
managing owner, the trading advisors, Prudential
Securities or any affiliate of any of the foregoing.
You also will be furnished with such additional
information as the managing owner, in its sole
discretion, deems appropriate, as well as any other
information required to be provided by any governmental
authority having jurisdiction over the Trust.
Net asset value is calculated on each business day
as required. Upon request, the managing owner will
make available to you the net asset value per interest
for a series. You will be notified of any decline in
the net asset value per interest of a series you own to
less than 50% of the net asset value per interest as of
the last valuation point. This notification will
contain a description of your voting and redemption
rights.
In addition, the managing owner will furnish you
with tax information in a form which may be utilized by
you in the preparation of your U.S. federal income tax
returns as soon as possible after the end of each year,
but generally no later than March 15.
The books and records maintained by the Trust will
be kept at its principal office for eight fiscal years.
Once you become a limited owner, you will have the
right to obtain information about all matters affecting
the Trust if it is for a purpose reasonably related to
your interest as a beneficial owner of the Trust. You
also will have access at all times during normal
business hours to the Trust's books and records in
person or by your authorized attorney or agent and to
examine such books and records in compliance with CFTC
rules and regulations. Information maintained will be
made available to you at reasonable times and during
ordinary business hours for inspection and copying by
you or your representative for any purpose reasonably
related to your interest as a beneficial owner of the
Trust. The managing owner will furnish you with a copy
of the list of limited owners within ten days of a
request by you for any purpose reasonably related to
your interest as a limited owner in the Trust and upon
payment by you of the reasonable cost of reproduction
and mailing. If you want such information, you must
give written assurances that it will not be used for
commercial purposes. Subject to applicable law, you
must give the managing owner at least ten business
days' prior written notice of an inspection or copying
request. You will be notified of any material change
in the advisory agreements or in the compensation of
any party within seven business days thereof, and you
will be provided with a description of any material
effect on the interests such changes may have.
Distributions
Other than as limited by the trust
agreement, the managing owner has sole discretion in
determining the amount and frequency of distributions
to you. In the event any type of distribution is
declared, you will receive a distribution in proportion
to your interest in the series held by you as of the
record date of distribution.
Sharing Of Profits And Losses
Each interest in a series has a tax
capital account and a book capital
account. The initial balance of each is the amount
paid for the interest in the series. At the end of
each week, the amount of any increase or decrease in
the net asset value per interest from the preceding
week is credited or charged against the book capital
account of each interest for that series.
106
At the end of each fiscal year of the Trust, all
items of ordinary income and deduction of each series
are allocated pro rata among the interests in such
series outstanding on the last day of each week. After
such allocation is made, each series' net capital gain,
if any (including capital gain required to be
recognized under certain mark-to-market rules provided
in the Internal Revenue Code) realized during each week
is allocated to each interest whose book capital
account balance exceeds its tax capital account, until
such excess is eliminated. Any remaining net capital
gain realized during a week is allocated among all
interest-holders that were interest-holders during such
week in proportion to their respective book capital
account balances for such week. Each series' net
capital loss, if any (including capital loss required
to be recognized under certain mark-to-market rules
provided in the Internal Revenue Code), realized during
each week is allocated to each interest whose tax
capital account balance exceeds the book capital
account balance of such interests until such excess has
been eliminated. Any remaining net capital loss
realized during a week is allocated among all interest-
holders that were interest-holders during such week in
proportion to their respective book capital account
balances for such week. Notwithstanding the foregoing,
loss is not allocated to an interest (and instead is
allocated to the managing owner) to the extent that
allocating such loss to such interest would cause the
book capital account balance of such interest to be
reduced below zero.
Liabilities
Liability Of Series
The Trust is formed in a
manner such that each series will be liable only for
obligations attributable to such series. You, as a
limited owner, will not be subject to the losses or
liabilities of any series in which you have not
invested. In the event that any creditor or you as a
limited owner of interests in any particular series
asserted against the Trust a valid claim with respect
to its indebtedness or interests, the creditor or you
would only be able to recover money from that
particular series and its assets and from the managing
owner and its assets. Accordingly, the debts,
liabilities, obligations, claims and expenses
(collectively referred to as claims) incurred,
contracted for or otherwise existing solely with
respect to a particular series are enforceable only
against that particular series and the assets of that
series and against the managing owner and its assets,
but not against any other series or the Trust generally
or any of their respective assets. The assets of any
particular series include only those funds and other
assets that are paid to, held by or distributed to the
Trust on account of and for the benefit of that series,
including, without limitation, funds delivered to the
Trust for the purchase of interests in a series. This
limitation on liability is referred to as the "inter-
series limitation on liability." The inter-series
limitation on liability is expressly provided for under
the Delaware Business Trust Act, which provides that if
a trust has one or more series, then the debts of any
particular series are enforceable only against the
assets of such series and not against the trust
generally, provided that the trust meets certain
requirements.
In furtherance of the inter-series limitation on
liability, every party, including you as a limited
owner, the trustee and all parties providing goods or
services to the Trust, any series or the managing owner
on behalf of the Trust or any series will consent in
writing to: (i) the inter-series limitation on
liability with respect to such party's claims or
interests, (ii) voluntarily reduce the priority of its
claims against and interests in the Trust or any series
or their respective assets, such that its claims and
interests are junior in right of repayment to all other
parties' claims against and interests in the Trust or
any series or their respective assets, except that
(a) interests in the particular series that such party
purchased pursuant to a subscription agreement (Exhibit
D) or similar agreement and (b) claims against the
Trust where recourse for the payment of such claims
was, by agreement, limited to the assets of a
particular series, will not be junior in right of
repayment, but will receive repayment from the assets
of such particular series (but not from the assets of
any other series or the Trust generally) equal to the
treatment received by all other creditors and limited
owners that dealt with such series and (iii) a waiver
of certain rights that such party may have under the
U.S. Bankruptcy Code, if such party held collateral for
its claims, in the event that the Trust is a debtor in
a chapter 11 case under the Bankruptcy Code, to have
any deficiency claim (i.e., the difference, if any,
between the amount of the claim and the value of the
collateral) will be treated as an unsecured claim
against the Trust generally or any other series.
The Trust has obtained separate opinions of counsel
regarding Delaware law and federal bankruptcy law
concerning the effectiveness of the inter-series
limitation on liability. Delaware state law counsel
has opined that if the Trust complies with Section
3804(a) of the Delaware Business Trust Act, then the
inter-series limitation on liability will be
enforceable. Delaware counsel's opinion does not
express any opinion concerning the enforceability of
the inter-series limitation on liability if the Trust
should become a debtor in a case under the Bankruptcy
Code. Relying on Delaware counsel's opinion concerning
the general enforceability under state law of the
inter-series limitation on liability, federal
bankruptcy law counsel has opined that, although the
matter is not free from doubt, in a case under the
Bankruptcy Code in which the Trust is a debtor, a
court, properly applying the law, would not disregard
the inter-series limitation on liability such that the
assets of the other series or the Trust generally would
107
become available to satisfy the claims or interests of
creditors or limited owners who agreed to look solely
to the assets of a particular series with respect to
those claims or interests. Both opinions are subject
to various limitations, assumptions and exceptions that
are frequently taken in opinions of this kind.
Limited Owner Liability
Your capital contribution is subject
to the risks of each series' trading and
business. The Delaware Business Trust Act provides
that, except to the extent otherwise provided in the
trust agreement, you will be entitled to the same
limitation of personal liability extended to
shareholders of private Delaware corporations for
profit. No similar statutory or other authority
limiting business trust beneficial owner liability
exists in many other states. As a result, to the
extent that the Trust or you as a limited owner are
subject to the jurisdiction of courts in those states,
the courts may not apply Delaware law and may thereby
subject you to liability.
To guard against this risk, the trust agreement
(i) provides for indemnification to the extent of the
Trust's assets of you as a limited owner against claims
of liability asserted against such limited owner solely
because he or it is a beneficial owner of the Trust and
(ii) requires that every written obligation of the
Trust contain a statement that such obligation may only
be enforced against the assets of the applicable series
provided that the omission of such disclaimer is not
intended to create personal liability for any interest-
holder. Thus, subject to the exceptions set forth in
the trust agreement and described below, the risk of
you incurring financial loss beyond your investment
because of liability as a beneficial owner is limited
to circumstances in which (i) a court refuses to apply
Delaware law, (ii) no contractual limitation on
liability was in effect and (iii) the Trust or the
applicable series itself would be unable to meet its
obligations. Moreover, and perhaps more importantly,
the managing owner is liable for all obligations of the
Trust in excess of the Trust's assets as if it were the
general partner of a limited partnership.
In addition, while you, as a limited owner in the
Trust, generally cannot lose more than your investment
in any series, the trust agreement provides that you
as a limited owner may incur liability (i) in the event
the Trust is required to make payments to any federal,
state, local or foreign taxing authority in respect of
your allocable share of Trust income, in which case you
would be liable for the repayment of such amounts,
(ii) to indemnify the Trust if the Trust incurs losses
(including expenses) as a result of any claim or legal
action to which the Trust is subject which arises out
of your obligations or liabilities unrelated to the
Trust's business, (iii) to indemnify the Trust against
any losses or damages (including tax liabilities or
loss of tax benefits) arising as a result of any
transfer or purported transfer of your interest in
violation of the trust agreement and (iv) if your
subscription agreement delivered in connection with
your purchase of interests contains misstatements.
Moreover, the trust agreement provides that,
subject to the exceptions referred to above, the Trust
will not make a claim against you as a limited owner
with respect to amounts distributed to you or amounts
received by you upon redemption of interests unless
under Delaware law you are liable to repay such
amounts. Except as set forth above, assessments of any
kind shall not be made against you as a limited owner.
Except as provided under Delaware law and by the trust
agreement, each interest, once issued, is fully paid
and non-assessable. Except as indicated above, losses
in excess of the Trust's assets are the obligation of
the managing owner.
Election Or Removal Of Managing Owner
The managing owner may be removed on reasonable prior written notice
by limited owners holding interests representing at
least a majority (over 50%) of the net asset value of
each series (not including interests held by the
managing owner). The trust agreement provides that
the managing owner may voluntarily withdraw as managing
owner of the Trust if it gives the limited owners 120
days' prior written notice and if its withdrawal as
managing owner is approved by limited owners holding
interests representing at least a majority (over 50%)
of the net asset value of each series (not including
interests held by the managing owner). The trust
agreement provides that if the managing owner elects to
withdraw as managing owner to the Trust while it is the
sole managing owner, limited owners holding interests
representing at least a majority (over 50%) of the net
asset value of each series (not including interests
held by the managing owner) may vote to elect, prior to
such withdrawal, a successor managing owner to carry on
the business of the Trust. If the managing owner
withdraws as managing owner and the limited owners or
remaining managing owners elect to continue the Trust,
the withdrawing managing owner will pay all expenses
incurred as a result of its withdrawal. The trust
agreement also provides that in the event of the
withdrawal of the managing owner, the managing owner is
entitled to redeem its general interests in each series
of the Trust at their net asset value as of the next
permissible redemption date.
Alternatively, the trust agreement provides that
if the Trust is dissolved as a result of an event of
withdrawal (as defined in Article XIII of the trust
agreement) of a managing owner, then within 120 days of such
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event of withdrawal, limited owners holding
interests representing a majority (over 50%) of the net
asset value of each series (not including interests
held by the managing owner) may elect to form a new
business trust on the same terms as set forth in the
trust agreement and continue the business of the Trust
and elect a new managing owner.
Exercise Of Rights By Limited Owners
Limited owners holding interests representing in excess of 50%
of the net asset value of each series (excluding
interests held by the managing owner and its
affiliates) must approve any material change in a
series' trading policies, and any such change will not
be effective without such approval. In addition,
limited owners holding interests representing in excess
of 50% of the net asset value of each series (excluding
interests held by the managing owner and its
affiliates) may vote to adopt amendments to the trust
agreement proposed by the managing owner or by limited
owners holding interests representing at least ten
percent of the net asset value of a series.
Additionally, limited owners holding interests
representing at least a majority (over 50%) of the net
asset value of a series (excluding interests held by
the managing owner and its affiliates) may vote to
(i) terminate and dissolve the series upon 90 days'
prior notice to the managing owner, (ii) remove the
managing owner on reasonable prior written notice to
the managing owner, (iii) elect one or more additional
managing owners (on 60 days' prior written notice),
(iv) approve the voluntary withdrawal of the managing
owner and elect a successor managing owner in the event
the managing owner is the sole managing owner of the
Trust, (v) approve the termination of any agreement
between the Trust and the managing owner or its
affiliates for any reason, without penalty (on 60 days'
prior written notice) and (vi) approve a material
change in the trading policies of the Trust or a
series.
Indemnification
The trust agreement provides that
with respect to any action in which the managing owner
or any of its affiliates (including Prudential
Securities only when it is performing services on
behalf of the managing owner and acting within the
scope of the managing owner's authority) is a party
because of its relationship to the Trust, the Trust
shall indemnify and hold harmless to the fullest extent
permitted by law such person against any losses,
judgments, liabilities, expenses and amounts paid in
settlement of any claims sustained by such person in
connection with each series of the Trust, provided that
(i) the managing owner was acting on behalf of or
performing services for the Trust and has determined,
in good faith, that such course of conduct was in the
best interests of the Trust and such liability or loss
was not the result of negligence, misconduct or a
breach of the trust agreement on the part of the
managing owner or its affiliates and (ii) any such
indemnification will only be recoverable from the
assets of each series of the Trust. All rights to
indemnification permitted by the trust agreement and
payment of associated expenses will not be affected by
the dissolution or other cessation to exist of the
managing owner or by the withdrawal, adjudication of
bankruptcy or insolvency of the managing owner. The
trust agreement also provides that any such
indemnification of the managing owner or any of its
affiliates, unless ordered by a court, shall be made by
the Trust only as authorized in the specific case and
only upon a determination by independent legal counsel
in a written opinion that indemnification of the
managing owner is proper in the circumstances because
it has met the applicable standard of conduct set forth
in the trust agreement. Expenses incurred in defending
a threatened or pending action or proceeding against
the managing owner may be paid by each series (on a pro
rata basis, as the case may be) in advance of the final
disposition of such action if (i) the legal action
relates to the performance of duties or services by the
managing owner or an affiliate on behalf of the Trust,
(ii) the legal action is initiated by a third party who
is not a limited owner or the legal action is initiated
by a limited owner and a court of competent
jurisdiction specifically approves such advancement and
(iii) the managing owner undertakes to repay the
advanced funds to each series (on a pro rata basis, as
the case may be) with interest, in the event
indemnification is subsequently held not to be
permitted. No indemnification of the managing owner or
its affiliates is permitted for liabilities or expenses
arising under federal or state securities laws unless
(i) there has been a successful adjudication on the
merits of each count involving alleged securities law
violations as to the particular indemnitee and the
court approves the indemnification of such expenses
(including, without limitation, litigation costs),
(ii) such claims have been dismissed with prejudice on
the merits by a court of competent jurisdiction as to
the particular indemnitee and the court approves the
indemnification of such expenses (including, without
limitation, litigation costs) or (iii) a court of
competent jurisdiction approves a settlement of claims
against a particular indemnitee and finds that
indemnification of the settlement and related costs
should be made. Insofar as indemnification for
liabilities arising under the Securities Act of 1933
may be permitted to the managing owner or its
affiliates, the managing owner has been advised that in
the opinion of the SEC such indemnification is against
public policy as expressed in such Act, and is,
therefore, unenforceable.
In any claim for indemnification in actions
involving alleged federal or state securities laws
violations, the party seeking indemnification must
place before the court the position of the SEC, the
position of the Pennsylvania Securities Commission, the
Massachusetts Securities Division and the Tennessee
Securities Division and any other applicable state
securities division which requires disclosure with
respect to the issue of indemnification for
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securities law violations. The trust agreement also provides
that with respect to any action taken by the managing
owner as "tax matters partner," including consenting to
an audit, the Trust will indemnify and hold harmless
the managing owner.
Amendments And Meetings
The trust agreement may
be amended in certain respects by a vote of the limited
owners holding interests representing at least a
majority (over 50%) of the net asset value of each
series (which excludes the interests of the managing
owner), either pursuant to a written vote or at a duly
called meeting of the limited owners. An amendment may
be proposed by the managing owner or by limited owners
holding interests equal to at least 10% of the net
asset value of each series, unless the proposed
amendment affects only certain series, in which case
such amendment may be proposed by limited owners
holding interests equal to 10% of the net asset value
of each affected series. Limited owners will be
supplied with a verbatim copy of any proposed amendment
that potentially could affect them and statements
concerning the legality thereof. It is not anticipated
that the managing owner will call any annual meetings
of the limited owners.
The managing owner may, without your consent, make
amendments to the trust agreement which are necessary
to (i) add to the representations, duties or
obligations of the managing owner or to surrender any
right or power of the managing owner, for the benefit
of the limited owners, (ii) cure any ambiguity,
(iii) correct or supplement any provision of the trust
agreement which may be inconsistent with any other
provision of the trust agreement or this prospectus or
(iv) make any other provisions with respect to matters
or questions arising under the trust agreement that the
managing owner deems advisable; provided, however, that
no such amendment will be adopted unless the amendment
is not adverse to the interests of the limited owners,
is consistent with the managing owner's management of
the Trust pursuant to Section 3806 of the Delaware
Business Trust Act, does not affect the allocation of
profits and losses to them or among them and does not
adversely affect the limited liability status of the
limited owners or the status of each series as a
partnership for U.S. federal income tax purposes. The
managing owner further may, without the consent of the
limited owners, amend the provisions of the trust
agreement relating to the allocations among limited
owners of profits, losses and distributions if it is
advised by its accountants or counsel that any such
allocations are unlikely to be upheld for U.S. federal
income tax purposes.
Meetings of the Trust may be called by the managing
owner. In addition, meetings will be called upon
receipt by the managing owner of a written request
signed by limited owners holding interests equal to at
least 10% of the net asset value of a series.
Thereafter, the managing owner shall give written
notice to all limited owners, in person or by certified
mail within 15 days after such receipt, of such meeting
and its purpose. Such meeting must be held at least 30
but not more than 60 days after the receipt of such
notice. Any action permitted to be taken at a meeting
may be taken without a meeting on written approval of
the limited owners holding interests of the percentage
required to approve any such action if a meeting were
held.
Fiscal Year
The Trust's fiscal year begins on
January 1 on each year and ends on December 31 of each
year, except that (i) the first fiscal year of the
Trust commenced on April 22, 1999, the date the
Certificate of Trust was filed and (ii) the fiscal year
in which the Trust terminates will end on the date of
termination of the Trust.
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U.S. FEDERAL INCOME TAX CONSEQUENCES
The following summarizes the material U.S. federal
income tax consequences to individual investors in the
Trust. We have obtained an opinion of Rosenman & Colin
LLP, tax counsel to the Trust, that the summary below
correctly describes the material U.S. federal income
tax consequences as of the date hereof to the Trust and
to a U.S. individual who invests in the Trust. The
summary is based on current U.S. federal income tax
law, which is subject to change. Rosenman & Colin
LLP's opinion is based on the facts described in this
prospectus and on the accuracy of factual
representations made by the managing owner. Rosenman &
Colin LLP's opinion represents only its legal judgment
and does not bind the Internal Revenue Service or the
courts.
The Partnership Tax Status Of A Series In The Trust
Because it is expected that each series in the
Trust will be classified as a partnership for U.S.
federal income tax purposes, it is not anticipated that
the Trust will pay any federal corporate income tax.
It may be that the various series in the Trust (or the
Trust itself) would constitute a so-called "publicly
traded partnership." In that event, such series (or
the Trust itself) generally would be subject to U.S.
federal income tax as a corporation, and distributions
to limited owners would be taxable as dividends, unless
at least 90% of such series' (or the Trust's) annual
gross income consists of "qualifying income" as defined
in the Internal Revenue Code. The managing owner
believes that each series currently satisfies the 90%
test and that it is likely, but not certain, that each
series will continue to do so.
Taxation Of Limited Owners On Profits And Losses Of A
Series Of The Trust
Assuming that each series is treated as a
partnership for U.S. federal income tax purposes, each
limited owner must pay tax on his share of the series'
annual income and gains as determined for income tax
purposes, if any, even though the series does not
intend to make current cash distributions. The income
tax effects of a series' transactions may differ from
the economic consequences of such transactions.
Losses Allocated To Limited Owners
A limited owner may deduct series' losses only to
the extent of his tax basis in his interest.
Generally, a limited owner's tax basis is the amount
paid for the interest reduced (but not below zero) by
his share of any series' distributions, losses and
expenses and increased by his share of the series'
income and gains. However, a limited owner who is
subject to "at-risk" limitations (generally, non-
corporate taxpayers and closely-held corporations) can
only deduct losses to the extent he is at-risk. The
at-risk amount is similar to tax basis, except that it
does not include any amount borrowed on a nonrecourse
basis by the series or from someone with an interest in
the series.
"Passive-Activity Loss Rules" And Its Effect On The
Treatment Of Income And Loss
The trading activities of each series are not
"passive activities," and therefore the passive
activity loss rules will not result in series' losses
being nondeductible (but such losses may of course be
subject to other deductibility limitations described in
this summary). Similarly, a series' income and gains
will not be treated as passive activity income and
cannot be offset by a limited owner's passive activity
losses from other investments.
Cash Distributions And Partial Redemptions
A limited owner who receives cash from the Trust,
either through a distribution or a partial redemption,
will not pay tax on that cash until distributions
exceed his tax basis in his interest. A limited owner
cannot recognize a loss with respect to a partial
redemption until his entire interest is fully redeemed.
An exchange of interests in one series for interests in
another series will be treated as a redemption of the
interests being exchanged.
Gain Or Loss On Section 1256 Contracts And Non-Section
1256 Contracts
"Section 1256 Contracts" include futures contracts,
most options traded on U.S. commodity exchanges and
certain foreign currency contracts. For tax purposes,
Section 1256 Contracts that remain open at year-end are
treated as if they were sold at year-end. The gain or
loss on Section 1256 Contracts is characterized as 60%
long-term capital gain or loss and 40% short-term
capital gain or loss, regardless of how long the
contracts are held.
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"Non-Section 1256 Contracts" include, among other
things, certain foreign currency transactions. A
series' gain and loss from Non-Section 1256 Contracts
generally would be short-term capital gain or loss, but
certain of these transactions may generate ordinary
income.
Capital Gains And Losses
For individuals, long-term capital gains (i.e., net
gain on capital assets held more than one year and 60%
of the gain on Section 1256 Contracts) are taxed at a
maximum U.S. federal income tax rate of 20%, and short-
term capital gains (i.e., net gain on capital assets
held one year or less and 40% of the gain on Section
1256 Contracts) are subject to tax at the same rates as
ordinary income, with a maximum U.S. federal income tax
rate of 39.6%. Individual taxpayers can deduct capital
losses only to the extent of their capital gains plus
$3,000. Accordingly, a series could suffer significant
capital losses, and a limited owner could still be
required to pay taxes on, for example, his share of the
series' interest income.
An individual taxpayer can carry back net capital
losses on Section 1256 Contracts three years to offset
earlier gains on Section 1256 Contracts. To the extent
the taxpayer cannot offset past Section 1256 Contract
gains, he can carry forward such losses indefinitely.
Limited Deduction For Certain Expenses
The managing owner intends to cause each series to
report management and trading advisory fees as trade or
business expenses that are not subject to deductibility
limitations applicable to investment advisory expenses.
The Internal Revenue Service could contend otherwise.
If expenses of a series are recharacterized as
investment expenses, the deductible amount of these
expenses would be reduced (and would not be deductible
at all for alternative minimum tax purposes) to the
extent allocable to limited owners who are individuals.
The Internal Revenue Service could also take the
position that a portion of the brokerage fees paid by a
series is a non-deductible syndication expense.
Interest Income
Interest received by a series will be taxed as
ordinary income and generally cannot be offset by
capital losses. See the section above entitled
"Capital Gains And Losses."
Investment Interest Deductibility Limitations
Individual taxpayers can deduct investment interest
(i.e., interest on indebtedness allocable to property
held for investment) only to the extent that it does
not exceed their net investment income. Net investment
income does not include net long-term capital gain
absent an election by an individual taxpayer to pay tax
on such gain at regular income tax rates but not at the
lower 20% rate.
Unrelated Business Taxable Income
The managing owner anticipates that tax-exempt
limited owners should not be required to pay tax on
their share of income or gains of the Trust, provided
that such limited owners do not purchase interests with
borrowed funds.
Foreign Individual Limited Owners
The managing owner anticipates that a foreign
individual limited owner who files with the Trust all
requested certifications and documentation should not
be required to pay or be subject to U.S. federal income
or withholding tax with respect to his ownership of an
interest. However, if such limited owner holds the
interest at the time of his death, his estate may be
subject to U.S. federal estate taxation with respect to
such interest.
112
Internal Revenue Service Audits Of The Trust And Its
Limited Owners
Audits of series-related items are conducted at the
Trust level rather than at the limited owner level.
The managing owner 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
limited owners of one or more given series may be
required to pay additional taxes, interest and
penalties. Interest on tax deficiencies generally is
not deductible by non-corporate limited owners.
Foreign, State And Local And Other Taxes
In addition to the U.S. federal income tax
consequences described above, a series and the limited
owners may be subject to various foreign, states, local
and other taxes. Prospective investors should consult
their tax advisors as to the state and local tax
consequences of investing in the Trust.
Importance Of Obtaining Professional Advice
The foregoing analysis is not intended as a
substitute for careful tax planning, particularly
because the income tax consequences of an investment in
the Trust and of a series' transactions are complex,
and certain of these consequences would vary
significantly with the particular situation of a
limited owner. Accordingly, prospective investors are
strongly urged to consult their own tax advisors
regarding the possible federal, state and local tax
consequences of an investment in the Trust, including,
for example, the potential impact on an investor's
liability for alternative minimum tax of deriving long-
term capital gain from this investment.
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LEGAL MATTERS
Legal matters in connection with this offering have
been passed upon for the Trust, the managing owner and
Prudential Securities by Rosenman & Colin LLP, 575
Madison Avenue, New York, New York 10022. Certain
legal matters relating to Delaware law have been passed
upon for the Trust and the managing owner by Richards,
Layton & Finger, P.A., Wilmington, Delaware. Rosenman
& Colin LLP acts as counsel generally for the managing
owner and advises the managing owner with respect to
its responsibilities as managing owner of, and with
respect to matters relating to, the Trust. Rosenman &
Colin LLP also represents Prudential Securities and
certain of its affiliates from time to time in various
matters, and it is expected it will continue to do so
in the future.
ADDITIONAL INFORMATION
The Trust has filed with the SEC a registration
statement for each series of interests on Form S-1 (the
three registration statements are referred to
collectively as the registration statements) with
respect to the securities offered hereby. This
prospectus does not contain all of the information set
forth in the registration statements, certain portions
of which have been omitted pursuant to the rules and
regulations of the SEC, including, without limitation,
certain exhibits thereto (e.g., the selling agreement,
the escrow agreement and the brokerage agreement). A
copy of each registration statement has also been
provided to the CFTC. The descriptions contained
herein of agreements included as exhibits in the
registration statement are necessarily summaries.
Reference is made to the registration statements,
including the exhibits thereto, for further information
with respect to the Trust and each series' securities.
Such information may be examined without charge at the
public reference facilities of the SEC, Judiciary
Plaza, 450 Fifth Street, N.W., Washington, D.C. 20549,
and copies may be obtained therefrom upon payment of
the fees prescribed by the SEC. In addition, all of
the SEC's public filings, including the public filings
of each series, are available at the SEC's Web Site at
www.sec.gov.
EXPERTS
The financial statements of Series D, Series E and
Series F of World Monitor Trust II as of December 31,
2000 and for the period from the respective commencement
of operations of each series to December 31, 2000 and
the statement of financial condition of each of the managing
owner and Diversified Futures Trust I
as of December 31, 2000 included in this
prospectus have been so included in reliance on the
reports of PricewaterhouseCoopers LLP, independent
accountants, given on the authority of said firm as
experts in accounting and auditing.
The statements referred to under "U.S. FEDERAL
INCOME TAX CONSEQUENCES" have been reviewed by Rosenman
& Colin LLP and are included in reliance upon its
authority as experts in U.S. tax law.
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PART TWO
CFTC STATEMENT OF ADDITIONAL INFORMATION
This is Part Two of a two-part CFTC disclosure document.
This Statement of Additional Information should be read
together with Part One. These two parts are bound
together, and may not be distributed separately.
THE FUTURES MARKETS
To understand the nature of the investments each
series makes, subscribers should familiarize themselves
with the following information.
Futures And Forward Contracts
Futures contracts call for the future delivery of
various commodities. These contractual obligations may
be satisfied either by taking or making physical
delivery or by making an offsetting sale or purchase of
a futures contract on the same exchange. In certain
instances, the S&P 500 contract for example, delivery
is made through a cash settlement. Futures contracts
in the U.S. can be traded on exchanges subject to
varying levels of regulatory oversight (depending on
the contracts traded and the market participants).
Certain types of futures (primarily for non-
agricultural commodities) may be traded directly
between certain sophisticated investors, such as the
series.
Forward currency contracts are traded off-exchange
through banks or dealers. In such instances, the bank
or dealer generally acts as principal in the
transaction and charges "bid-ask" spreads.
Futures and forward trading is a "zero-sum" risk
transfer economic activity. For every gain, there is
an equal and offsetting loss.
Options On Futures Contracts
An option on a futures contract gives the purchaser
of the option the right but not the obligation to take
a position at a specified price (the "striking,"
"strike" or "exercise" price) in a futures contract. A
"call" option gives the purchaser the right to buy the
underlying futures contract, and the purchaser of a
"put" option acquires the right to take a sell position
in the underlying contract. The purchase price of an
option is referred to as its "premium." The seller (or
"writer") of an option is obligated to take a position
at a specified price opposite to the option buyer if
the option is exercised. Thus, in the case of a call
option, the seller must be prepared to sell the
underlying futures contract at the strike price if the
buyer should exercise the option. A seller of a put
option, on the other hand, stands ready to buy the
underlying futures contract at the strike price.
A call option on a futures contract is said to be
"in-the-money" if the strike price is below current
market levels and "out-of-the-money" if that price is
above market. Similarly, a put option on a futures
contract is said to be "in-the-money" if the strike
price is above current market levels and
"out-of-the-money" if the strike price is below current
market levels.
Hedgers And Speculators
The two broad classifications of persons who trade
futures are "hedgers" and "speculators." Hedging is
designed to minimize the losses that may occur because
of price changes, for example, between the time a
producer contracts to sell a commodity and the time of
delivery. The futures and forward markets enable the
hedger to shift the risk of price changes to the
speculator. The speculator risks capital with the hope
of making profits from such changes. Speculators, such
as the Trust, rarely take delivery of the physical
commodity but rather close out their futures positions
through offsetting futures contracts.
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Exchanges; Position And Daily Limits; Margins
Each of the commodity exchanges in the U.S. has an
associated "clearinghouse." Once trades made between
members of an exchange have been cleared, each clearing
broker looks only to the clearinghouse for all payments
in respect of such broker's open positions. The
clearinghouse "guarantee" of performance on open
positions does not run to customers. If a member firm
goes bankrupt, customers could lose money.
The CFTC and the U.S. exchanges have established
"speculative position limits" on the maximum positions
that each trading advisor may hold or control in
futures contracts on certain commodities.
Most U.S. exchanges limit the maximum change in
futures prices during any single trading day. Once the
"daily limit" has been reached, it becomes very
difficult to execute trades. Because these limits
apply on a day-to-day basis, they do not limit ultimate
losses, but may reduce or eliminate liquidity.
When a position is established, "initial margin" is
deposited. On most exchanges, at the close of each
trading day, "variation margin," representing the
unrealized gain or loss on the open positions, is
either credited to or debited from a trader's account.
If variation margin payments cause a trader's initial
margin to fall below "maintenance margin" levels, a
"margin call" is made, requiring the trader to deposit
additional margin or have his position closed out.
Each series trades on a number of foreign commodity
exchanges. Foreign commodity exchanges differ in
certain respects from their U.S. counterparts.
Some foreign exchanges also have no position
limits, with each dealer establishing the size of the
positions it will permit traders to hold. To the
extent that any series engages in transactions on
foreign exchanges, it is subject to the risk of
fluctuations in the exchange rate between the native
currencies of any foreign exchange on which it trades
and the U.S. dollar (which risks may be hedged) and the
possibility that exchange controls could be imposed in
the future.
No U.S. agency regulates trading outside of the
U.S., which generally involves forward contracts with
banks or transactions in physical commodities
generally. No regulatory scheme currently exists in
relation to the foreign currency forward market, except
for regulation of general banking activities and
exchange controls in the various jurisdictions where
trading occurs or in which the currency originates.
There is no limitation on daily price moves on
forward contracts in foreign currencies traded through
banks, brokers or dealers. While margin calls are not
required by foreign exchanges, Prudential Securities
may be subject to daily margin calls in foreign
markets.
Trading Methods
Managed futures strategies are generally classified
as either (i) technical or fundamental and (ii)
systematic or discretionary.
Technical And Fundamental Analysis
Technical analysis operates on the theory that
market prices, momentum and patterns at any given point
in time reflect all known factors affecting the supply
and demand for a particular commodity. Consequently,
technical analysis focuses on market data as the most
effective means of attempting to predict future prices.
Fundamental analysis, in contrast, focuses on the
study of factors external to the markets, for example:
weather, the economy of a particular country,
government policies, domestic and foreign political and
economic events and changing trade prospects.
Fundamental analysis assumes that markets are imperfect
and that market mispricings can be identified.
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Systematic And Discretionary Trading Approaches
A systematic trader relies on trading programs or
models to generate trading signals. Discretionary
traders make trading decisions on the basis of their
own judgment.
Each approach involves inherent risks. For
example, systematic traders may incur substantial
losses when fundamental or unexpected forces dominate
the markets, while discretionary traders may overlook
price trends that would have been signaled by a system.
Trend Following
Trend-following advisors try to take advantage of
major price movements, while traders focus on making
many small profits on short-term trades or through
relative value positions. Trend-following traders
assume that most of their trades will be unprofitable.
They look for a few large profits from big trends.
During periods with no major price movements, a trend-
following trading manager is likely to have large
losses.
Risk Control Techniques
Trading managers often adopt risk management
principles. Such principles typically restrict the
size or positions taken as well as establish stop-loss
points at which losing positions must be liquidated.
No risk control technique can assure that large losses
will be avoided.
The programs used by each series' trading advisors
are technical, systematic and trend following.
Regulation Of Markets
Commodity Exchange Act
The U.S. Congress enacted the Commodity Exchange
Act to regulate trading in commodities, the exchanges
on which they are traded, the individual brokers who
are members of such exchanges and commodity
professionals and commodity brokerage houses that trade
in these commodities in the U.S. The Commodity
Exchange Act was recently revised by the Commodity
Futures Modernization Act of 2000.
Commodity Futures Trading Commission
The CFTC is an independent governmental agency that
administers the Commodity Exchange Act and that is
authorized to promulgate rules thereunder. Functions
of the CFTC include the implementation of the
objectives of the Commodity Exchange Act in preventing
price manipulation and excessive speculation and the
promotion of orderly and efficient commodity futures
markets. The CFTC has adopted regulations covering,
among other things, (i) the designation of contract
markets; (ii) the monitoring of U.S. commodity exchange
rules; (iii) the establishment of speculative position
limits; (iv) the registration of commodity brokers and
brokerage houses, floor brokers, introducing brokers,
leverage transaction merchants, commodity trading
advisors, commodity pool operators and their principal
employees engaged in non-clerical commodities
activities referred to as associated persons and (v)
the segregation of customers' funds and recordkeeping
by, and minimum financial requirements and periodic
audits of, such registered commodity brokerage houses
and professionals. Under the Commodity Exchange Act,
the CFTC is empowered, among other things, to (i) hear
and adjudicate complaints of any person (e.g., a
limited owner) against all individuals and firms
registered or subject to registration under the
Commodity Exchange Act (reparations), (ii) seek
injunctions and restraining orders, (iii) issue cease
and desist orders, (iv) initiate disciplinary
proceedings, (v) revoke, suspend or not renew
registrations and (vi) levy substantial fines. The
Commodity Exchange Act also provides for certain other
private rights of action and the possibility of
imprisonment for violations.
117
The recently enacted Commodity Futures
Modernization Act of 2000, among other things, excludes
from CFTC jurisdiction transactions in many commodities
between "eligible contract participants," and provides
for new types of exchanges with varying levels of
regulatory oversight, depending on the products traded
and the market participants. Designated contract
markets are subject to the highest level of regulation.
Each series qualifies as an "eligible contract
participant" under the new legislation, and will
therefore be eligible to engage in unregulated
transactions directly with counterparties, and to
effect transactions on exchanges which are subject to
very little oversight by the CFTC. The new legislation
also allows two significant changes in futures
commission merchants' dealings with eligible contract
participants, such as the series. Futures commission
merchants may require such customers to waive their
right to apply to the CFTC for reparations for
violations of the Commodity Exchange Act. Prudential
Securities has not required the series to do so. In
addition, the CFTC has been instructed to adopt
regulations which would allow futures commission
merchants to offer their eligible contract participant
customers the right not to have segregated their funds
on deposit with the futures commission merchant for
trading on certain types of exchanges. This would
allow the funds to be held in a broader, and riskier,
range of investments.
The Commodity Futures Modernization Act of 2000
also authorizes trading of "security futures," which
are defined as futures, and options on futures, on a
single security or a narrow-based index of securities.
Such trading was not permitted under prior legislation.
Trading in these new products will be jointly regulated
by the CFTC and the SEC, and futures commission
merchants who offer them will have to register with the
SEC. In order to provide sufficient time for the
regulatory authorities to adopt rules governing such
trading and other changes to current industry
practices, trading in security futures cannot be
conducted on U.S. trading facilities until the later of
(i) one year after the effective date of the
legislation or (ii) the date on which National Futures
Association is registered as a limited purpose national
securities association. Principal-to-principal
transactions between eligible contract participants
(such as the series) will be permitted eight months
after the later of such events. The National Futures
Association is currently taking steps to register as a
limited purpose national securities association, but it
is not clear exactly when this will occur, and
consequently, exactly when trading in such products
will begin. Options on security futures cannot be
offered until December 2003. Under the terms of the
advisory agreements with each advisor, new products
such as security futures may be added to the trading
program the advisor uses for a series without the
managing owner's permission only if it is offered on a
domestic exchange or a foreign exchange which the CFTC
recognizes as having similar protections a domestic
exchange.
The CFTC has in place extensive regulations
affecting commodity pool operators (such as the
managing owner) and commodity trading advisors (such as
the trading advisors) and their associated persons
which, among other things, (i) require the giving of
disclosure documents to new customers and the retention
of current trading and other records, (ii) prohibit
pool operators from commingling pool assets with those
of the operators or their other customers and (iii)
require pool operators to provide their customers with
periodic account statements and an annual report. Upon
the CFTC's request, the managing owner also will
furnish the CFTC with the names and addresses of the
limited owners, along with copies of all transactions
with, and reports and other communications to, the
limited owners. The CFTC regulations currently in
place provide for streamlined disclosure documents
(such as this prospectus) that must be updated every
nine months.
U.S. Commodity Exchanges
U.S. commodity exchanges (designated contract
markets) are given certain latitude in promulgating
rules and regulations to control and regulate their
members and clearing houses, as well as the trading
conducted on their floors. Examples of current
regulations by an exchange include establishment of
initial and maintenance margin levels, size of trading
units, daily price fluctuation limits, and other
contract specifications. Rules and regulations
relating to terms and conditions of contracts of sale
or to other trading requirements, other than those of
an exempt board of trade, currently must be reviewed
and approved by the CFTC, although they may be put into
practice before approval is granted. Only the terms of
contracts traded on designated contract markets need
prior CFTC approval.
National Futures Association
Substantially all commodity pool operators,
commodity trading advisors, futures commission
merchants, introducing brokers and their associated
persons are members or associated members of the
National Futures Association. The National Futures
Association's principal regulatory operations include
(i) auditing the financial condition of futures
commission merchants, introducing brokers, commodity
pool operators and commodity trading advisors, (ii)
arbitrating commodity futures disputes between
customers and National Futures Association members,
118
(iii) conducting disciplinary proceedings and (iv)
registering futures commission merchants, commodity
pool operators, commodity trading advisors, introducing
brokers and their respective associated persons, and
floor brokers. As a result of the Commodity Futures
Modernization Act of 2000, the National Futures
Association is attempting to register as a limited
purpose national securities association, and assume
responsibility for the oversight of futures commission
merchants that register with the SEC for the purpose of
effecting transactions in single and narrow-based index
security futures. The National Futures Association
currently is in the process of adopting appropriate
suitability rules prior to registering as a national
securities association.
The regulation of commodities transactions in the
U.S. is a rapidly changing area of law and the various
regulatory procedures described herein are subject to
modification by U.S. Congressional action, changes in
CFTC rules and amendments to exchange regulations and
National Futures Association regulations. The
Commodity Futures Modernization Act of 2000 made
significant changes in the way trading facilities are
regulated. Because the legislation was only recently
passed (December 2000) many of the changes have not yet
been put into practice. It is therefore impossible to
predict what, if any, impact these changes will have on
the series trading and performance.
119
HOW MANAGED FUTURES FIT INTO A PORTFOLIO
Systematic risk, also known as market risk, is the
risk common to all securities in a particular asset
class. Systematic risk cannot be eliminated through
diversification among securities within the same class.
However, an investor can diversify a portfolio's
exposure to systematic risk by adding asset classes
which have little or no correlation to each other. As
an alternative asset class, managed futures exhibits
low or non-correlation to traditional asset classes
such as stocks and bonds, and as such make an excellent
tool to help diversify a portfolio's exposure to
systematic risk.
Managed futures is a sector of the futures industry
made up of professionals, known as commodity trading
advisors who, on behalf of their clients, manage
portfolios of futures and forward contracts traded on
exchanges around the world. Utilizing extensive
resources, markets can be monitored around the world 24
hours a day. For over 20 years, institutions and
individuals have made managed futures part of their
well diversified portfolios. In that time period, the
industry has grown to nearly $44 billion in assets
under management as of December 31, 1999. As the
industry has grown, so has the number, liquidity and
efficiency of the futures markets globally.
Managed futures encompasses over 50 markets
worldwide and, as a result, investors can gain global
market exposure in their portfolios as well as add non-
financial investments. Thus, investing in a managed
futures fund can be an effective way to globally
diversify a portfolio.
A managed futures fund provides four benefits to an
investor's overall portfolio:
- -Diversification.
- -Potential for both reduced portfolio
volatility and enhanced returns.
- -Ability to profit in many economic
environments.
- -Access to global markets.
Diversification
A managed futures fund may invest in more than 50
markets worldwide in both financial and non-financial
futures contracts, thereby broadening a portfolio's
scope of opportunity and lessening the impact of any
single market.
Potential For Both Reduced Portfolio Volatility And
Enhanced Returns
Modern Portfolio Theory asserts that a portfolio of
investments which have positive returns and low to non-
correlation with each other can improve the risk/reward
characteristics of the combined holdings. Managed
futures investments exhibit low to non-correlation to
traditional asset classes such as stocks and bonds, and
thus, managed futures investments can improve a
portfolio's return-to-risk profile.
Ability To Profit In Many Economic Environments
With stocks and bonds, investors typically buy
securities which they believe will increase in value,
but may have no strategy when markets fall. Futures
contracts, on the other hand, can be easily sold short
on the prospect that the market will go down. As a
result, both rising and declining markets represent
opportunities for managed futures.
Access To Global Markets
As the futures markets matured, they have expanded
to include global opportunities in stock and bond
indices, currencies, precious and base metals,
agricultural products and so forth. Investors can
easily and inexpensively gain access to a variety of
markets around the globe through an investment in
managed futures.
120
Performance Comparisons
The tables below compare actual returns and
statistics for Series D, Series E and Series F with
three asset classes, U.S. Stocks, U.S. Bonds and
International Stocks, in order to highlight the
particular performance characteristics of each series
versus traditional asset classes. Of course, past
performance is not necessarily indicative of future
results.
Series D -- Bridgewater Associates
Aggressive Pure Alpha, Futures Only
March 2000 through February 2001
Summary Performance Statistics
U.S. U.S. Int'l.
Stocks1 Bonds2 Stocks3 WMTD
Value of $1000 $918 $1,135 $828 $820
Holding Period Return (8.20)% 13.52% (17.16)% (17.95)%
Monthly Standard
Deviation 5.55% 0.81% 3.89% 5.19%
Maximum Draw-down (17.83)% (0.58)% (20.27)% (23.66)%
Months to Recovery 6+ 3 11+ 9+
Correlation to
U.S. Stocks 1.00 0.34 0.83 (0.20)
Series E -- Graham Capital
Global Diversified Program
April 2000 through February 2001
Summary Performance Statistics
U.S. U.S. Int'l.
Stocks1 Bonds2 Stocks3 WMTE
Value of $1000 $836 $1,119 $797 $1,208
Holding Period Return (16.38%) (11.90)% (20.27%) 20.77%
Monthly Standard
Deviation 4.71% 0.84% 3.68% 6.15%
Maximum Draw-down (17.83%) (0.58%) (20.27%) (11.15%)
Months to Recovery 6+ 3 11+ 8
Correlation to
U.S. Stocks 1.00 0.38 0.78 (0.20)
Series F -- Campbell & Company
FME Small Portfolio
March 2000 through February 2001
Summary Performance Statistics
U.S. U.S. Int'l.
Stocks1 Bonds2 Stocks3 WMTF
Value of $1000 $918 $1,135 $828 $1,059
Holding Period Return (8.20)% 13.52% (17.16%) 5.88%
Monthly Standard
Deviation 5.55% 0.81% 3.89% 2.97%
Maximum Draw-down (17.83%) (0.58%) (20.27%) (3.86%)
Months to Recovery 6+ 3 12+ 9
Correlation to
U.S. Stocks 1.00 0.34 0.83 (0.17)
1. U.S. Stocks -- Standard & Poor's 500 Stock Index
(dividends reinvested) an unmanaged weighted index of
500 stocks.
2. International Stocks -- Morgan Stanley's EAFE Index
(dividends reinvested).
3. U.S. Bonds -- Lehman Brothers' Government/Corporate
Bond Index (coupons reinvested).
(Sources: Standard & Poor's, Lehman Brothers and
Lipper Analytical Associates.)
THESE INDICES ARE REPRESENTATIVE OF EQUITY AND DEBT SECURITIES
AND ARE NOT TO BE CONSTRUED AS AN ACTIVELY MANAGED PORTFOLIO.
121
GLOSSARY OF TERMS
The following glossary may assist prospective
investors in understanding certain terms used in this
prospectus:
Additional seller. Means certain selected
additional U.S. sellers and/or certain foreign
securities firms retained by the managing owner.
Additional U.S. seller. Means certain selected
brokers or dealers retained by the managing owner that
are members of the NASD.
Affiliate of the managing owner. Means: (i) any
person directly or indirectly owning, controlling or
holding with power to vote 10% or more of the
outstanding voting securities of the managing owner;
(ii) any person 10% or more of whose outstanding voting
securities are directly or indirectly owned, controlled
or held with power to vote, by the managing owner;
(iii) any person, directly or indirectly, controlling,
controlled by or under common control of the managing
owner; (iv) any officer, director or partner of the
managing owner; or (v) if such person is an officer,
director or partner of the managing owner, any person
for which such person acts in any such capacity.
Aggregate $$: (All programs excluding notional).
Means the aggregate amount of actual assets under the
management of the trading advisor in all programs as of
the end of the period covered by the capsule. This
number excludes notional funds.
Aggregate $$: (All programs including notional).
Means the aggregate amount of total assets under the
management of the trading advisor in all programs as of
the end of the period covered by the capsule. This
number includes notional funds.
Aggregate $$ in this program (excluding notional).
Means the aggregate amount of actual assets under the
management of the trading advisor in the program shown
as of the end of the period covered by the capsule.
This number excludes notional funds.
Aggregate $$ in this program (including notional).
Means the aggregate amount of total assets under the
management of the trading advisor in the program shown
as of the end of the period covered by the capsule.
This number includes notional funds.
Clearing broker. Any person who engages in the
business of effecting transactions in commodities
contracts for the account of the Trust. Prudential
Securities acts in this capacity for the Trust.
Commodity. Goods, wares, merchandise, produce and
in general everything that is bought and sold in
commerce. Out of this large class, certain
commodities, because of their wide distribution,
universal acceptance, and marketability in commercial
channels, have become the subject of trading on various
national and international exchanges located in
principal marketing and commercial areas. Traded
commodities are sold in predetermined lots and
quantities.
Commodity broker. Means, under the NASAA
guidelines, any person who engages in the business of
effecting transactions in commodity contracts for the
account of others or for his own account.
Commodity contract. Means a contract or option
thereon providing for the delivery or receipt at a
future date of a specified amount and grade of a traded
commodity at a specified price and delivery point.
Commodity Futures Trading Commission ("CFTC"). An
independent regulatory commission of the U.S.
government empowered to regulate commodity futures
transactions and other commodity transactions under the
Commodity Exchange Act.
Daily price fluctuation limit. The maximum
permitted fluctuation imposed by commodity exchanges in
the price of a commodity futures contract for a given
commodity that can occur on a commodity exchange on a
given day in relation to the previous day's settlement
price, which maximum permitted fluctuation is subject
to change
122
from time to time by the exchange. In the
U.S., these limits, including changes thereto, are
subject to CFTC approval. These limits generally are
not imposed on option contracts or outside the U.S.
Dealing day. Means the first business day after a
valuation point occurs.
Delivery. Means the process of satisfying a
commodity futures contract, an option on a physical
commodity or a forward contract by transferring
ownership of a specified quantity and grade of a cash
commodity to the purchaser thereof.
Draw-down. Means losses experienced by the
composite record over a specified period. Individual
accounts may experience larger draw-downs than are
reflected in the composite record of a particular
trading portfolio. Where an individual account has
experienced a draw-down that is greater than has been
experienced on a composite basis, the largest draw-down
experienced by such individual account is presented.
Draw-downs are measured on the basis of month-end net
asset values only.
Eligible contract participant. A class of investor
under the Commodity Futures Modernization Act of 2000
that is permitted to engage in certain unregulated
principal-to-principal transactions in commodities and
to trade on less regulated trading facilities. The
class includes commodity pools that have assets of more
than $5 million and are operated by an entity regulated
under the Commodity Exchange Act. Each series
qualifies as an eligible contract participant.
Extraordinary expenses. Pursuant to Section 4.7(a)
of the trust agreement, extraordinary expenses of the
Trust and each series include, but are not limited to,
legal claims and liabilities and litigation costs and
any permitted indemnification associated therewith.
ERISA. Means Employee Retirement Income Security
Act of 1974, as amended.
ERISA Plans. Means employee benefit plans governed
by the Employee Retirement Income Security Act of 1974,
as amended, usually referred to as ERISA.
Forward contract. Means a cash market transaction
in which the buyer and seller agree to the purchase and
sale of a specific quantity of a commodity for delivery
at some future time under such terms and conditions as
the two may agree upon.
Futures contract. Means a contract providing for
the delivery or receipt at a future date of a specified
amount and grade of a traded commodity at a specified
price and delivery point or for cash settlement. Such
contracts are uniform for each commodity on each
exchange and vary only with respect to price and
delivery time. A commodity futures contract should be
distinguished from the actual physical commodity, which
is termed a "cash commodity." It is important to note
that trading in commodity futures contracts involves
trading in contracts for future delivery of commodities
and not the buying and selling of particular lots of
commodities. A contract to buy or sell may be
satisfied either by making or taking delivery of the
commodity and payment or acceptance of the entire
purchase price therefor, or by offsetting the
contractual obligation with a countervailing contract
on the same or a linked exchange prior to delivery.
Individual Retirement Fund. Means an Individual
Retirement Account (referred to as an IRA) or a Keogh
Plan, both of which are vehicles to save money for use
during retirement.
IRA. Means Individual Retirement Account.
Interests. Means the beneficial interest of each
interest-holder in the profits, losses, distributions,
capital and assets of the Trust. The managing owner's
capital contributions shall be represented by "general"
interests and a limited owner's capital contributions
shall be represented by "limited" interests. Interests
are not represented by certificates.
Internal Revenue Code. Means the Internal Revenue
Code of 1986, as amended.
Largest monthly draw-down. Means the greatest
decline in month-end net asset value due to losses
sustained by a trading portfolio on a composite basis
or an individual account for any particular month.
123
Largest peak-to-valley draw-down. Means the
greatest cumulative percentage decline in month-end net
asset value due to losses sustained by a trading
portfolio on a composite basis or an individual account
during any period in which the initial month-end net
asset value is not equaled or exceeded by a subsequent
month-end asset value.
Limited owner. Means any person or entity acting
in his, her or its capacity as an interest-holder in
one or more series of the trust and may include the
managing owner with respect to interests purchased by
it.
Limit order. Means a trading order which sets a
limit on either price or time of execution or both.
Limit orders (as contrasted with stop orders) do not
become market orders.
Long contract. A contract to accept delivery of
(i.e., to buy) a specified amount of a commodity at a
future date at a specified price.
Market order. A trading order to execute a trade
at the most favorable price as soon as possible.
Margin. Means a good faith deposit with a broker
to assure fulfillment of a purchase or sale of a
commodity futures, or, in certain cases, forward or
option contract. Commodity margins do not usually
involve the payment of interest.
Managing owner. Means Prudential Securities
Futures Management Inc. or any substitute therefor as
provided in the trust agreement .
Margin call. Means a demand for additional funds
after the initial good faith deposit required to
maintain a customer's account in compliance with the
requirements of a particular commodity exchange or of a
commodity broker.
NASAA. Means the North American Securities
Administrators Association, Inc.
NASAA Guidelines. Means the guidelines for the
Registration of Commodity Pool Programs imposed by the
NASAA.
NASD. Means the National Association of Securities
Dealers, Inc.
NAV. Means net asset value.
Net asset value. (sometimes referred to as NAV)
See Section 1.1 of the trust agreement .
New high net trading profits. See "FEE AND
EXPENSES - Charges To Be Paid By The Trust - Management
And Incentive Fees To The Trading Advisors."
Net worth. See Section 4.3(i) of the trust
agreement. Insofar as net worth relates to investor
suitability, see the heading entitled "State
Suitability Requirements" in the subscription agreement
(Exhibit D).
NFA. Means the National Futures Association.
Notional funds. Means the amount by which the
nominal account size exceeds the amount of actual
funds.
Open position. Means a contractual commitment
arising under a long contract or a short contract that
has not been extinguished by an offsetting trade or by
delivery.
124
Organization and offering expenses. Means those
expenses incurred in connection with the formation,
qualification, and initial registration of the Trust
and the interests and in initially offering,
distributing and processing the interests under
applicable federal and state law, and any other
expenses actually incurred and directly or indirectly
related to the organization of the Trust or the initial
offering of the interests. See Section 4.7(a) of the
trust agreement for a more particular enumeration of
such expenses, all of which are paid by Prudential
Securities or an affiliate.
Parent. Means a company that owns all or the
majority of the outstanding equity of a trust,
corporation, partnership, or a limited liability
company.
Parameters. Means a value that can be freely
assigned in a trading system in order to vary the
timing of signals.
Pattern recognition. Means the ability to identify
patterns that appeared to act as precursors of price
advances or declines in the past.
Promoter. Means any person who directly or
indirectly organizes an investment opportunity in a
trust, corporation, partnership, or limited liability
company.
Pyramiding. Means a method of using all or part of
an unrealized profit in a commodity contract position
to provide margin for any additional commodity
contracts of the same or related commodities.
Redemption date. Means the first dealing day to
occur at least two business days after the date the
managing owner has received a Redemption Request
(Exhibit B) in proper order.
Redemption price. Means the net asset value per
interest on the valuation point immediately preceding
the dealing day on which a redemption will become
effective.
Round-turn. The initial purchase of a long or
short contract and the subsequent purchase of an
offsetting contract.
Series. Means a separate series of the Trust as
provided in Sections 3806(b)(2) and 3804 of the
Delaware Business Trust Act, the interests of which
shall be beneficial interests in the Trust estate
separately identified with and belonging to such
series.
Short contract. Means a contract to make delivery
of (sell) a specified amount of a commodity at a future
date at a specified price.
Speculative position limit. Means the maximum
number of speculative futures or option contracts in
any one commodity (on one contract market), imposed by
the CFTC or a U.S. commodity exchange, that can be held
or controlled at one time by one person or a group of
persons acting together. These limits generally are
not imposed for trading on markets or exchanges outside
the U.S.
Spot contract. Means a cash market transaction in
which buyer and seller agree to the purchase and sale
of a specific commodity for immediate delivery.
Spreads or straddles. Means a transaction
involving the simultaneous holding of futures and/or
option contracts dealing with the same commodity but
involving different delivery dates or different markets
and in which the trader expects to earn profits from a
widening or narrowing movement of the prices of the
different contracts.
Standard deviation. Means a measure of volatility
of returns or a statistical measure of risk that
represents the variability of returns around the mean
(average) return. The lower the standard deviation,
the closer the returns are to the mean (average) value.
Conversely, the higher the standard deviation, the more
widely dispersed the returns are around the mean
(average).
Stop-loss order. Means an order to buy or sell at
the market when a definite price is reached, either
above or below the price of the instrument that
prevailed when the order was given.
125
Stop order. Means an order given to a broker to
execute a trade when the market price for the contract
reaches the specified stop order price. Stop orders
are utilized to protect gains or limit losses on open
positions. Stop orders become market orders when the
stop order price is reached.
Support. Means a previous low. A price level
under the market where buying interest is sufficiently
strong to overcome selling pressure.
Systematic technical charting systems. Means a
system that is technical in nature and based on chart
patterns as opposed to pure mathematical calculations.
Trading advisor. Means any entity or entities
acting in its capacity as a commodity trading advisor
to the Trust and any substitute(s) therefor as provided
herein.
Trustee. Means Wilmington Trust Company or any
substitute therefor as provided in the trust agreement.
Underwriter. Means a broker-dealer that attempts
to sell interests issued directly by a trust, a
corporation, a partnership, or a limited liability
company in a public or private offering.
Unrealized profit or loss. Means the profit or
loss that would be realized on an open position in a
futures, forward or option contract if it were closed
at the current market value price for such contract.
Valuation point. Means the close of business on
Friday of each week or such other day as may be
determined by the managing owner.
126
INDEX TO
CERTAIN FINANCIAL INFORMATION
Page
WORLD MONITOR TRUST II-- Series D
Report of Independent Accountants 128
Audited Financial Statements as of December 31, 2000 129
Notes to Financial Statements 131
WORLD MONITOR TRUST II--Series E
Report of Independent Accountants 136
Audited Financial Statements as of December 31, 2000 137
Notes to Financial Statements 139
WORLD MONITOR TRUST II--Series F
Report of Independent Accountants 144
Audited Financial Statements as of December 31, 2000 145
Notes to Financial Statements 147
PRUDENTIAL SECURITIES FUTURES MANAGEMENT INC.
Report of Independent Accountants 152
Audited Statement of Financial Condition
as of December 31, 2000 153
Notes to Statement of Financial Condition 154
DIVERSIFIED FUTURES TRUST I
Report of Independent Accountants 157
Audited Statement of Financial Condition
as of December 31, 2000 158
Notes to Statement of Financial Condition 159
127
PricewaterhouseCoopers (LOGO)
PricewaterhouseCoopers LLP
1177 Avenue of the Americas
New York, NY 10036
Telephone (212) 596 8000
Facsimile (212) 596 8910
Report of Independent Accountants
To the Managing Owner and Limited Owners
of World Monitor Trust II--Series D
In our opinion, the accompanying statements of financial condition and the
related statements of operations, and changes in trust capital present fairly,
in all material respects, the financial position of World Monitor Trust
II--Series D at December 31, 2000 and 1999 and the results of its operations for
the period from March 13, 2000 (commencement of operations) to December 31, 2000
in conformity with accounting principles generally accepted in the United States
of America. These financial statements are the responsibility of the Managing
Owner; our responsibility is to express an opinion on these financial statements
based on our audits. We conducted our audits of these statements in accordance
with auditing standards generally accepted in the United States of America 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 the Managing Owner, and evaluating the
overall financial statement presentation. We believe that our audits provide a
reasonable basis for our opinion.
/s/ PricewaterhouseCoopers LLP
January 26, 2001
128
WORLD MONITOR TRUST II--SERIES D
(a Delaware Business Trust)
STATEMENTS OF FINANCIAL CONDITION
December 31,
------------------------
2000 1999
- ----------------------------------------------------------------------------------------------------
ASSETS
Cash $ 6,114,108 $ 1,000
Net unrealized gain on open futures contracts 61,961 --
------------ --------
Total assets 6,176,069 $ 1,000
------------ --------
------------ --------
LIABILITIES AND TRUST CAPITAL
Liabilities
Accrued expenses $ 57,594 $ --
Commissions and other transaction fees payable 37,521 --
Redemptions payable 10,586 --
Unrealized loss on open forwards contracts 10,235 --
Management fees payable 7,506 --
------------ --------
Total liabilities 123,442 --
------------ --------
Commitments
Trust capital
Limited interests (68,491.311 and -0- interests outstanding) 5,992,086 --
General interests (692 and 10 interests outstanding) 60,541 1,000
------------ --------
Total trust capital 6,052,627 1,000
------------ --------
Total liabilities and trust capital 6,176,069 $ 1,000
------------ --------
------------ --------
Net asset value per limited and general interests ('Interests') $ 87.49 $ 100.00
------------ --------
------------ --------
- --------------------------------------------------------------------------------
The accompanying notes are an integral part of these statements.
129
WORLD MONITOR TRUST II--SERIES D
(a Delaware Business Trust)
STATEMENT OF OPERATIONS
For the period
from
March 13, 2000
(commencement of
operations) to
December 31,
2000
- -------------------------------------------------------------------------------------------------
REVENUES
Net realized loss on commodity transactions $ (708,702)
Net unrealized gain on open commodity positions 51,726
Interest income 281,858
----------------
(375,118)
----------------
EXPENSES
Commissions and other transaction fees 303,680
General and administrative 70,214
Management fees 58,273
Incentive fees 27,238
----------------
459,405
----------------
Net loss $ (834,523)
----------------
----------------
ALLOCATION OF NET LOSS
Limited interests $ (824,648)
----------------
----------------
General interests $ (9,875)
----------------
----------------
NET LOSS PER WEIGHTED AVERAGE LIMITED AND GENERAL INTEREST
Net loss per weighted average limited and general interest $ (13.32)
----------------
----------------
Weighted average number of limited and general interests outstanding 62,661
----------------
----------------
- -------------------------------------------------------------------------------------------------
STATEMENT OF CHANGES IN TRUST CAPITAL
LIMITED GENERAL
INTERESTS INTERESTS INTERESTS TOTAL
- -------------------------------------------------------------------------------------------------------
Trust capital--December 31, 1999 10.000 $ -- $ 1,000 $ 1,000
Contributions 82,667.756 8,123,644 105,008 8,228,652
Net loss (824,648) (9,875 ) (834,523)
Redemptions (13,494.445) (1,306,910) (35,592 ) (1,342,502)
----------- ----------- --------- -----------
Trust capital--December 31, 2000 69,183.311 $ 5,992,086 $ 60,541 $ 6,052,627
----------- ----------- --------- -----------
----------- ----------- --------- -----------
- -------------------------------------------------------------------------------------------------------
The accompanying notes are an integral part of these statements.
130
WORLD MONITOR TRUST II--SERIES D
(a Delaware Business Trust)
NOTES TO FINANCIAL STATEMENTS
A. General
The Trust, Trustee, Managing Owner and Affiliates
World Monitor Trust II (the 'Trust') is a business trust organized under the
laws of Delaware on April 22, 1999. The Trust consists of three separate and
distinct series ('Series'): Series D, E and F. Series D, E and F commenced
trading operations on March 13, 2000, April 6, 2000 and March 1, 2000,
respectively, and each Series will continue to exist until terminated pursuant
to the provisions of Article XIII of the First Amended and Restated Declaration
of Trust and Trust Agreement (the 'Trust Agreement'). The assets of each Series
are segregated from those of the other Series, separately valued and
independently managed. Each Series was formed to engage in the speculative
trading of a diversified portfolio of futures, forward and options contracts,
and may, from time to time, engage in cash and spot transactions. The trustee of
the Trust is Wilmington Trust Company. The managing owner is Prudential
Securities Futures Management Inc. (the 'Managing Owner'), a wholly owned
subsidiary of Prudential Securities Incorporated ('PSI') which, in turn, is a
wholly owned subsidiary of Prudential Securities Group Inc. PSI is the selling
agent for the Trust as well as its commodity broker ('Commodity Broker').
The Offering
Up to $50,000,000 of limited interests in each Series ('Limited Interests')
are being offered (totalling $150,000,000) ('Subscription Maximum'). Limited
Interests are being offered to investors who meet certain established
suitability standards, with a minimum initial subscription of $5,000 ($2,000 for
an individual retirement account), although the minimum purchase for any single
Series is $1,000. General interests are also being sold exclusively to the
Managing Owner. Limited Interests and general interests are sometimes
collectively referred to as 'Interests'.
Initially, the Limited Interests for each Series were offered for a period of
up to 180 days after the date of the Prospectus ('Initial Offering Period'). The
price per Interest during the Initial Offering Period was $100. Each Series
could commence operations at any time if the minimum amount of Limited Interests
was sold before the Initial Offering Period expired ('Subscription Minimum').
The Subscription Minimum of $5,000,000 for each Series was reached and, as a
result, Series D, E and F commenced trading operations. Series D completed its
initial offering on March 13, 2000 with gross proceeds of $5,279,158, which was
fully allocated to commodities trading. Until the Subscription Maximum for each
Series is reached, each Series' Limited Interests will continue to be offered on
a weekly basis at the then current net asset value per Interest ('Continuous
Offering Period').
The Managing Owner is required to maintain at least a 1% interest in the
capital, profits and losses of each Series so long as it is acting as the
Managing Owner, and it will make such contributions (and in return will receive
general interests) as are necessary to meet this requirement.
The Trading Advisor
Each Series has its own independent commodity trading advisor that makes that
Series' trading decisions. The Managing Owner, on behalf of Series D, entered
into an advisory agreement with Bridgewater Associates, Inc. (the 'Trading
Advisor') to make the trading decisions for Series D. The advisory agreement may
be terminated for various reasons, including at the discretion of the Managing
Owner. The Managing Owner has allocated 100% of the proceeds from the initial
and continuous offering of Series D to the Trading Advisor and it is currently
contemplated that the Trading Advisor will continue to be allocated 100% of
additional capital raised for Series D during the Continuous Offering Period.
Exchanges, Redemptions and Termination
Interests owned in one Series may be exchanged, without any charge, for
Interests of one or more other Series on a weekly basis for as long as Limited
Interests in those Series are being offered to the public. Exchanges are made at
the applicable Series' then current net asset value per Interest as of the close
of business on the Friday immediately preceding the week in which the exchange
request is effected. The
131
exchange of Interests is treated as a redemption of Interests in one Series
(with the related tax consequences) and the simultaneous purchase of Interests
in the Series exchanged into.
Redemptions are permitted on a weekly basis. Limited Interests redeemed on or
before the end of the first and second successive six-month periods after their
effective dates of purchase are subject to a redemption fee of 4% and 3%,
respectively, of the net asset value at which they are redeemed. Redemption fees
are paid to the Managing Owner.
In the event that the estimated net asset value per Interest of a Series at
the end of any business day, after adjustments for distributions, declines by
50% or more since the commencement of trading activities or the first day of a
fiscal year, the Series will automatically terminate.
B. Summary of Significant Accounting Policies
Basis of accounting
The financial statements of Series D are prepared in accordance with
accounting principles generally accepted in the United States of America. Such
principles require the Managing Owner to make estimates and assumptions that
affect the reported amounts of liabilities at the date of the financial
statements and the reported amounts of expenses during the reporting period.
Actual results could differ from these estimates.
Commodity futures and forward transactions are reflected in the accompanying
statements of financial condition on trade date. The difference between the
original contract amount and market value is reflected as net unrealized gain or
loss. The market value of each contract is based upon the closing quotation on
the exchange, clearing firm or bank on, or through, which the contract is
traded.
The weighted average number of Limited Interests and general interests
outstanding was computed for purposes of disclosing net loss per weighted
average Limited Interest and general interest. The weighted average Limited
Interests and general interests are equal to the number of Interests outstanding
at period end, adjusted proportionately for Interests subscribed and redeemed
based on their respective time outstanding during such period.
Series D has elected not to provide a Statement of Cash Flows as permitted by
Statement of Financial Accounting Standards No. 102, 'Statement of Cash
Flows--Exemption of Certain Enterprises and Classification of Cash Flows from
Certain Securities Acquired for Resale.'
Income taxes
Series D is treated as a partnership for Federal income tax purposes. As
such, Series D is not required to provide for, or pay, any Federal or state
income taxes. Income tax attributes that arise from its operations are passed
directly to the individual Interest holders including the Managing Owner. Series
D may be subject to other state and local taxes in jurisdictions in which it
operates.
Profit and loss allocations and distributions
Series D allocates profits and losses for both financial and tax reporting
purposes to its Interest holders weekly on a pro rata basis based on each
owner's Interests outstanding during the week. Distributions (other than
redemptions of Interests) may be made at the sole discretion of the Managing
Owner on a pro rata basis in accordance with the respective capital balances of
the Interest holders; however, the Managing Owner does not presently intend to
make any distributions.
New Accounting Guidance
In June 2000, the Financial Accounting Standards Board ('FASB') issued
Statement No. 138, Accounting for Certain Derivative Instruments and Certain
Hedging Activities--an amendment of FASB Statement No. 133 ('SFAS 138'), which
became effective for Series D on July 1, 2000. SFAS 138 amends the accounting
and reporting standards of FASB Statement No. 133 for certain derivative
instruments and certain hedging activities. SFAS 138 has not had a material
effect on the carrying value of assets and liabilities within the financial
statements.
132
C. Fees
Organizational and offering costs
PSI or its affiliates paid the costs of organizing Series D-> and continue to
pay the costs of offering its Limited Interests.
General and administrative costs
Routine legal, audit, postage, and other routine third party administrative
costs are paid by Series D. Additionally, Series D pays the administrative costs
incurred by the Managing Owner or its affiliates for services they perform for
Series D which include, but are not limited to, those costs discussed in Note D
below. However, all of these general and administrative costs incurred by Series
D are limited to 1.5% annually of Series D's net asset value.
Management and incentive fees
Series D pays its Trading Advisor a management fee at an annual rate of 1.25%
of the net asset value allocated to its management. The management fee is
determined weekly and the sum of such weekly amounts is paid monthly. Series D
also pays its Trading Advisor a quarterly incentive fee equal to 22% of such
Trading Advisor's 'New High Net Trading Profits' (as defined in the advisory
agreement). The incentive fee also accrues weekly.
Commissions
The Managing Owner and the Trust entered into a brokerage agreement with PSI
to act as Commodity Broker for each Series whereby Series D pays a fixed fee for
brokerage services rendered at an annual rate of 6% of Series D's net asset
value. The fee is determined weekly and the sum of such weekly amounts is paid
monthly. Series D is also obligated to pay all floor brokerage expenses, give-up
charges and NFA, clearing and exchange fees incurred in connection with Series
D's commodity trading activities.
D. Related Parties
Series D reimburses the Managing Owner or its affiliates for services they
perform for Series D, which include but are not limited to: brokerage services;
accounting and financial management; registrar, transfer and assignment
functions; investor communications; printing and other administrative services.
However, the amount of general and administrative expenses incurred by Series D
is limited to 1.5% of its net asset value during the year. Because general and
administrative expenses exceeded this limit, a portion of the expenses related
to services the Managing Owner performed for Series D for the period from March
13, 2000 (commencement of operations) to December 31, 2000 have been borne by
the Managing Owner and its affiliates. Additionally, PSI or its affiliates
paid the costs of organizing Series D and continue to pay the costs
of offering its Limited Interests.
The costs incurred by Series D for the period from March 13, 2000
(commencement of operations) to December 31, 2000 for services performed by the
Managing Owner and its affiliates for Series D were:
Commissions $ 279,774
General and
administrative 27,237
-------------------
$ 307,011
-------------------
-------------------
Expenses payable to the Managing Owner and its affiliates (which are included
in accrued expenses) as of December 31, 2000 were $13,916.
All of the proceeds of the offering of Series D are received in the name of
Series D and are deposited in trading or cash accounts at PSI. Series D's assets
are maintained with PSI or, for margin purposes, with the various exchanges on
which Series D is permitted to trade. Series D receives interest income on 100%
of its average daily equity maintained in cash in its accounts with PSI during
each month at the 13-week Treasury bill discount rate. This rate is determined
weekly by PSI and represents the rate awarded to all bidders during each week's
auction of 13-week Treasury bills.
Series D, acting through its Trading Advisor, may execute over-the-counter,
spot, forward and/or option foreign exchange transactions with PSI. PSI then
engages in back-to-back trading with an affiliate, Prudential-Bache Global
Markets Inc. ('PBGM'). PBGM attempts to earn a profit on such transactions. PBGM
133
keeps its prices on foreign currency competitive with other interbank currency
trading desks. All over-the-counter currency transactions are conducted between
PSI and Series D pursuant to a line of credit. PSI may require that collateral
be posted against the marked-to-market positions of Series D.
As of December 31, 2000, a non-U.S. affiliate of the Managing Owner owns
54.067 Limited Interests of Series D.
E. Income Taxes
There have been no differences between the tax basis and book basis of
Interest holders' capital since inception of the Trust.
F. Derivative Instruments and Associated Risks
Series D is exposed to various types of risks associated with the derivative
instruments and related markets in which it invests. These risks include, but
are not limited to, risk of loss from fluctuations in the value of derivative
instruments held (market risk) and the inability of counterparties to perform
under the terms of Series D's investment activities (credit risk).
Market risk
Trading in futures and forward (including foreign exchange) contracts
involves entering into contractual commitments to purchase or sell a particular
commodity at a specified date and price. The gross or face amount of the
contracts, which is typically many times that of Series D's net assets being
traded, significantly exceeds Series D's future cash requirements since Series D
intends to close out its open positions prior to settlement. As a result, Series
D is generally subject only to the risk of loss arising from the change in the
value of the contracts. As such, Series D considers the 'fair value' of its
derivative instruments to be the net unrealized gain or loss on the contracts.
The market risk associated with Series D's commitments to purchase commodities
is limited to the gross or face amount of the contracts held. However, when
Series D enters into a contractual commitment to sell commodities, it must make
delivery of the underlying commodity at the contract price and then repurchase
the contract at prevailing market prices. Since the repurchase price to which a
commodity can rise is unlimited, entering into commitments to sell commodities
exposes Series D to unlimited risk.
Market risk is influenced by a wide variety of factors including government
programs and policies, political and economic events, the level and volatility
of interest rates, foreign currency exchange rates, the diversification effects
among the derivative instruments Series D holds and the liquidity and inherent
volatility of the markets in which Series D trades.
Credit risk
When entering into futures or forward contracts, Series D is exposed to
credit risk that the counterparty to the contract will not meet its obligations.
The counterparty for futures contracts traded in the United States and on most
foreign futures exchanges is the clearinghouse associated with such exchanges.
In general, clearinghouses are backed by their corporate members who are
required to share any financial burden resulting from the non-performance by one
of their members and, as such, should significantly reduce this credit risk. In
cases where the clearinghouse is not backed by the clearing members (i.e., some
foreign exchanges), it is normally backed by a consortium of banks or other
financial institutions. On the other hand, the sole counterparty to Series D's
forward transactions is PSI, Series D's commodity broker. Series D has entered
into a master netting agreement with PSI and, as a result, presents unrealized
gains and losses on open forward positions as a net amount in the statements of
financial condition. The amount at risk associated with counterparty
non-performance of all of Series D's contracts is the net unrealized gain
included in the statements of financial condition. There can be no assurance
that any counterparty, clearing member or clearinghouse will meet its
obligations to Series D.
The Managing Owner attempts to minimize both credit and market risks by
requiring Series D and its Trading Advisor to abide by various trading
limitations and policies. The Managing Owner monitors compliance with these
trading limitations and policies which include, but are not limited to,
executing and clearing all trades with creditworthy counterparties; limiting the
amount of margin or premium required for any one commodity or all commodities
combined; and generally limiting transactions to contracts which are traded in
sufficient volume to permit the taking and liquidating of positions.
Additionally, pursuant to the advisory agreement among Series D, the Managing
Owner and the Trading Advisor, Series D shall automatically
134
terminate the Trading Advisor if the net asset value allocated to the trading
advisor declines by 40% from the value at the beginning of any year or since the
commencement of trading activities. Furthermore, the Trust Agreement provides
that Series D will liquidate its positions, and eventually dissolve, if Series D
experiences a decline in the net asset value of 50% from the value at the
beginning of any year or since the commencement of trading activities. In each
case, the decline in net asset value is after giving effect for distributions,
contributions and redemptions. The Managing Owner may impose additional
restrictions (through modifications of trading limitations and policies)
upon the trading activities of the Trading Advisor as it, in good faith, deems
to be in the best interests of Series D.
PSI, when acting as Series D's futures commission merchant in accepting
orders for the purchase or sale of domestic futures contracts, is required by
Commodity Futures Trading Commission ('CFTC') regulations to separately account
for and segregate as belonging to Series D all assets of Series D relating to
domestic futures trading and is not to commingle such assets with other assets
of PSI. At December 31, 2000, such segregated assets totalled $5,000,399. Part
30.7 of the CFTC regulations also requires PSI to secure assets of Series D
related to foreign futures trading which totalled $1,175,670 at December 31,
2000. There are no segregation requirements for assets related to forward
trading.
As of December 31, 2000, Series D's open futures and forward contracts mature
within one year.
The following table presents the fair value of futures and forward contracts
at December 31, 2000:
Assets Liabilities
-------- -----------
Futures Contracts:
Domestic exchanges
Interest rates $ 36,273 $ 151,533
Stock indices 17,350 --
Currencies 215,083 10,850
Commodities -- 2,813
Foreign exchanges
Interest rates 4,281 42,656
Stock indices 16,034 15,045
Commodities -- 4,163
Forward Contracts:
Currencies -- 10,235
-------- -----------
$289,021 $ 237,295
-------- -----------
-------- -----------
135
PricewaterhouseCoopers (LOGO)
PricewaterhouseCoopers LLP
1177 Avenue of the Americas
New York, NY 10036
Telephone (212) 596 8000
Facsimile (212) 596 8910
Report of Independent Accountants
To the Managing Owner and Limited Owners
of World Monitor Trust II--Series E
In our opinion, the accompanying statements of financial condition and the
related statements of operations and changes in trust capital present fairly, in
all material respects, the financial position of World Monitor Trust II--Series
E at December 31, 2000 and 1999, and the results of its operations for the
period from April 6, 2000 (commencement of operations) to December 31, 2000 in
conformity with accounting principles generally accepted in the United States of
America. These financial statements are the responsibility of the Managing
Owner; our responsibility is to express an opinion on these financial statements
based on our audits. We conducted our audits of these statements in accordance
with auditing standards generally accepted in the United States of America,
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 the Managing Owner, and evaluating the
overall financial statement presentation. We believe that our audits provide a
reasonable basis for our opinion.
/s/ PricewaterhouseCoopers LLP
January 26, 2001
136
WORLD MONITOR TRUST II--SERIES E
(a Delaware Business Trust)
STATEMENTS OF FINANCIAL CONDITION
December 31,
------------------------
2000 1999
- ----------------------------------------------------------------------------------------------------
ASSETS
Cash $ 5,485,764 $ 1,000
Net unrealized gain on open futures contracts 958,857 --
------------ --------
Total assets $ 6,444,621 $ 1,000
------------ --------
------------ --------
LIABILITIES AND TRUST CAPITAL
Liabilities
Incentive fees payable $ 238,625 $ --
Accrued expenses payable 47,623 --
Commissions and other transaction fees payable 36,522 --
Management fees payable 11,953 --
Net unrealized loss on open forward contracts 3,584 --
------------ --------
Total liabilities 338,307 --
------------ --------
Commitments
Trust capital
Limited interests (49,983.432 and -0- interests outstanding) 6,016,047 --
General interests (750 and 10 interests outstanding) 90,267 1,000
------------ --------
Total trust capital 6,106,314 1,000
------------ --------
Total liabilities and trust capital $ 6,444,621 $ 1,000
------------ --------
------------ --------
Net asset value per limited and general interest ('Interests') $ 120.36 $ 100.00
------------ --------
------------ --------
- --------------------------------------------------------------------------------
The accompanying notes are an integral part of these statements.
137
WORLD MONITOR TRUST II--SERIES E
(a Delaware Business Trust)
STATEMENT OF OPERATIONS
For the period
from
April 6, 2000
(commencement of
operations) to
December 31,
2000
- -------------------------------------------------------------------------------------------------
REVENUES
Net realized gain on commodity transactions $ 474,366
Net unrealized gain/loss on open commodity positions 955,273
Interest income 230,425
----------------
1,660,064
----------------
EXPENSES
Commissions and other transaction fees 250,449
Management fees 76,878
Incentive fees 238,625
General and administrative 58,344
----------------
624,296
----------------
Net income $ 1,035,768
----------------
----------------
ALLOCATION OF NET INCOME
Limited interests $ 1,020,501
----------------
----------------
General interests $ 15,267
----------------
----------------
NET INCOME PER WEIGHTED AVERAGE LIMITED AND GENERAL INTEREST
Net income per weighted average limited and general interest $ 19.41
----------------
----------------
Weighted average number of limited and general interests outstanding 53,350
----------------
----------------
- -------------------------------------------------------------------------------------------------
STATEMENT OF CHANGES IN TRUST CAPITAL
LIMITED GENERAL
INTERESTS INTERESTS INTERESTS TOTAL
- -----------------------------------------------------------------------------------------------------
Trust capital--December 31, 1999 10.000 $ -- $ 1,000 $ 1,000
Contributions 59,172.609 5,797,957 74,000 5,871,957
Net income 1,020,501 15,267 1,035,768
Redemptions (8,449.177) (802,411) -- (802,411)
---------- ---------- --------- ----------
Trust capital--December 31, 2000 50,733.432 $6,016,047 $90,267 $6,106,314
---------- ---------- --------- ----------
---------- ---------- --------- ----------
- -----------------------------------------------------------------------------------------------------
The accompanying notes are an integral part of these statements.
138
WORLD MONITOR TRUST II--SERIES E
(a Delaware Business Trust)
NOTES TO FINANCIAL STATEMENTS
A. General
The Trust, Trustee, Managing Owner and Affiliates
World Monitor Trust II (the 'Trust') is a business trust organized under the
laws of Delaware on April 22, 1999. The Trust consists of three separate and
distinct series ('Series'): Series D, E and F. Series D, E and F commenced
trading operations on March 13, 2000, April 6, 2000 and March 1, 2000,
respectively, and each Series will continue to exist until terminated pursuant
to the provisions of Article XIII of the First Amended and Restated Declaration
of Trust and Trust Agreement (the 'Trust Agreement'). The assets of each Series
are segregated from those of the other Series, separately valued and
independently managed. Each Series was formed to engage in the speculative
trading of a diversified portfolio of futures, forward and options contracts,
and may, from time to time, engage in cash and spot transactions. The trustee of
the Trust is Wilmington Trust Company. The managing owner is Prudential
Securities Futures Management Inc. (the 'Managing Owner'), a wholly owned
subsidiary of Prudential Securities Incorporated ('PSI') which, in turn, is a
wholly owned subsidiary of Prudential Securities Group Inc. PSI is the selling
agent for the Trust as well as its commodity broker ('Commodity Broker').
The Offering
Up to $50,000,000 of limited interests in each Series ('Limited Interests')
are being offered (totalling $150,000,000) ('Subscription Maximum'). Interests
are being offered to investors who meet certain established suitability
standards, with a minimum initial subscription of $5,000 ($2,000 for an
individual retirement account), although the minimum purchase for any single
Series is $1,000. General interests are also being sold exclusively to the
Managing Owner. Limited Interests and general interests are sometimes
collectively referred to as 'Interests.'
Initially, the Limited Interests for each Series were offered for a period of
up to 180 days after the date of the Prospectus ('Initial Offering Period'). The
price per Interest during the Initial Offering Period was $100. Each Series
could commence operations at any time if the minimum amount of Limited Interests
was sold before the Initial Offering Period expired ('Subscription Minimum').
The Subscription Minimum of $5,000,000 for each Series was reached and, as a
result, Series D, E and F commenced trading operations. Series E completed its
initial offering April 6, 2000 with gross proceeds of $5,157,459, which was
fully allocated to commodities trading. Until the Subscription Maximum for each
Series is reached, each Series' Limited Interests will continue to be offered on
a weekly basis at the then current net asset value per Interest ('Continuous
Offering Period').
The Managing Owner is required to maintain at least a 1% interest in the
capital, profits and losses of each Series so long as it is acting as the
Managing Owner, and it will make such contributions (and in return will receive
general interests) as are necessary to meet this requirement.
The Trading Advisor
Each Series has its own independent commodity trading advisor that makes that
Series' trading decisions. The Managing Owner, on behalf of Series E, entered
into an advisory agreement with Graham Capital Management, L.P. (the 'Trading
Advisor') to make the trading decisions for Series E. The advisory agreement may
be terminated for various reasons, including at the discretion of the Managing
Owner. The Managing Owner has allocated 100% of the proceeds from the initial
and continuous offering of Series E to the Trading Advisor and it is currently
contemplated that the Trading Advisor will continue to be allocated 100% of
additional capital raised for Series E during the Continuous Offering Period.
Exchanges, Redemptions and Termination
Interests owned in one Series may be exchanged, without any charge, for
Interests of one or more other Series on a weekly basis for as long as Limited
Interests in those Series are being offered to the public. Exchanges are made at
the applicable Series' then current net asset value per Interest as of the close
of business on the Friday immediately preceding the week in which the exchange
request is effected. The
139
exchange of Interests is treated as a redemption of Interests in one Series
(with the related tax consequences) and the simultaneous purchase of Interests
in the Series exchanged into.
Redemptions are permitted on a weekly basis. Limited Interests redeemed on or
before the end of the first and second successive six-month periods after their
effective dates of purchase are subject to a redemption fee of 4% and 3%,
respectively, of the net asset value at which they are redeemed. Redemption fees
are paid to the Managing Owner.
In the event that the estimated net asset value per Interest of a Series at
the end of any business day, after adjustments for distributions, declines by
50% or more since the commencement of trading activities or the first day of a
fiscal year, the Series will automatically terminate.
B. Summary of Significant Accounting Policies
Basis of accounting
The financial statements of Series E are prepared in accordance with
accounting principles generally accepted in the United States of America. Such
principles require the Managing Owner to make estimates and assumptions that
affect the reported amounts of liabilities at the date of the financial
statements and the reported amounts of expenses during the reporting period.
Actual results could differ from those estimates.
Commodity futures and forward transactions are reflected in the accompanying
statements of financial condition on trade date. The difference between the
original contract amount and market value is reflected as net unrealized gain or
loss. The market value of each contract is based upon the closing quotation on
the exchange, clearing firm or bank on, or through, which the contract is
traded.
The weighted average number of Limited Interests and general interests
outstanding was computed for purposes of disclosing net income per weighted
average Limited Interest and general interest. The weighted average Limited
Interests and general interests are equal to the number of Interests outstanding
at period end, adjusted proportionately for Interests subscribed and redeemed
based on their respective time outstanding during such period.
Series E has elected not to provide a Statement of Cash Flows as permitted by
Statement of Financial Accounting Standards No. 102, 'Statement of Cash
Flows--Exemption of Certain Enterprises and Classification of Cash Flows from
Certain Securities Acquired for Resale.'
Income taxes
Series E is treated as a partnership for Federal income tax purposes. As
such, Series E is not required to provide for, or pay, any Federal or state
income taxes. Income tax attributes that arise from its operations are passed
directly to the individual Interest holders including the Managing Owner. Series
E may be subject to other state and local taxes in jurisdictions in which it
operates.
Profit and loss allocations and distributions
Series E allocates profits and losses for both financial and tax reporting
purposes to its Interest holders weekly on a pro rata basis based on each
owner's Interests outstanding during the week. Distributions (other than
redemptions of Interests) may be made at the sole discretion of the Managing
Owner on a pro rata basis in accordance with the respective capital balances of
the Interest holders; however, the Managing Owner does not presently intend to
make any distributions.
New Accounting Guidance
In June 2000, the Financial Accounting Standards Board ('FASB') issued
Statement No. 138, Accounting for Certain Derivative Instruments and Certain
Hedging Activities--an amendment of FASB Statement No. 133 ('SFAS 138'), which
became effective for Series E on July 1, 2000. SFAS 138 amends the accounting
and reporting standards of FASB Statement No. 133 for certain derivative
instruments and certain hedging activities. SFAS 138 has not had a material
effect on the carrying value of assets and liabilities within the financial
statements.
140
C. Fees
Organizational and offering costs
PSI or its affiliates paid the costs of organizing Series E, and continue to
pay the costs of offering its Limited Interests.
General and administrative costs
Routine legal, audit, postage, and other routine third party administrative
costs are paid by Series E. Additionally, Series E pays the administrative costs
incurred by the Managing Owner or its affiliates for services they perform for
Series E which include, but are not limited to, those costs discussed in Note D
below. However, all of these general and administrative costs incurred by Series
E are limited to 1.5% annually of Series E's net asset value.
Management and incentive fees
Series E pays its Trading Advisor a management fee at an annual rate of 2% of
its net asset value allocated to its management. The management fee is
determined weekly and the sum of such weekly amounts is paid monthly. Series E
also pays its Trading Advisor a quarterly incentive fee equal to 22% of such
Trading Advisor's 'New High Net Trading Profits' (as defined in the advisory
agreement). The incentive fee also accrues weekly.
Commissions
The Managing Owner and the Trust entered into a brokerage agreement with PSI
to act as Commodity Broker for each Series whereby Series E pays a fixed fee for
brokerage services rendered at an annual rate of 6% of Series E's net asset
value. The fee is determined weekly and the sum of such weekly amounts is paid
monthly. Series E is also obligated to pay all floor brokerage expenses, give-up
charges and NFA, clearing and exchange fees incurred in connection with Series
E's commodity trading activities.
D. Related Parties
Series E reimburses the Managing Owner or its affiliates for services they
perform for Series E which include but are not limited to: brokerage services;
accounting and financial management; registrar, transfer and assignment
functions; investor communications; printing and other administrative services.
However, the amount of general and administrative expenses incurred by Series E
is limited to 1.5% of its net asset value during the year. Because general and
administrative expenses exceeded this limit, Series E did not incur any costs
for services provided by the Managing Owner and its affiliates, other than
brokerage services, during the period from April 6, 2000 (commencement of
operations) to December 31, 2000 as these costs have been borne by the Managing
Owner and its affiliates. Additionally, PSI or its affiliates paid the costs
of organizing Series E and continue to pay the cost of offering its
Limited Interests.
The cost incurred by Series E for brokerage services performed by the
Managing Owner and its affiliates for the period from April 6, 2000
(commencement of operations) to December 31, 2000 was $229,887.
All of the proceeds of the offering of Series E are received in the name of
Series E and are deposited in trading or cash accounts at PSI. Series E's assets
are maintained with PSI or, for margin purposes, with the various exchanges on
which Series E is permitted to trade. Series E receives interest income on 100%
of its average daily equity maintained in cash in its accounts with PSI during
each month at the 13-week Treasury bill discount rate. This rate is determined
weekly by PSI, and represents the rate awarded to all bidders during each week's
auction of 13-week Treasury bills.
Series E, acting through its trading advisor, may execute over-the-counter,
spot, forward and/or option foreign exchange transactions with PSI. PSI then
engages in back-to-back trading with an affiliate, Prudential-Bache Global
Markets Inc. ('PBGM'). PBGM attempts to earn a profit on such transactions. PBGM
keeps its prices on foreign currency competitive with other interbank currency
trading desks. All over-the-counter currency transactions are conducted between
PSI and Series E pursuant to a line of credit. PSI may require that collateral
be posted against the marked-to-market positions of Series E.
As of December 31, 2000, a non-U.S. affiliate of the Managing Owner owns
54.284 Limited Interests of Series E.
141
E. Income Taxes
There have been no differences between the tax basis and book basis of
Interest holders' capital since inception of the Trust.
F. Derivative Instruments and Associated Risks
Series E is exposed to various types of risks associated with the derivative
instruments and related markets in which it invests. These risks include, but
are not limited to, risk of loss from fluctuations in the value of derivative
instruments held (market risk) and the inability of counterparties to perform
under the terms of Series E's investment activities (credit risk).
Market risk
Trading in futures and forward (including foreign exchange transactions)
contracts involves entering into contractual commitments to purchase or sell a
particular commodity at a specified date and price. The gross or face amount of
the contracts, which is typically many times that of Series E's net assets being
traded, significantly exceeds Series E's future cash requirements since Series E
intends to close out its open positions prior to settlement. As a result, Series
E is generally subject only to the risk of loss arising from the change in the
value of the contracts. As such, Series E considers the 'fair value' of its
derivative instruments to be the net unrealized gain or loss on the contracts.
The market risk associated with Series E's commitments to purchase commodities
is limited to the gross or face amount of the contracts held. However, when
Series E enters into a contractual commitment to sell commodities, it must make
delivery of the underlying commodity at the contract price and then repurchase
the contract at prevailing market prices. Since the repurchase price to which a
commodity can rise is unlimited, entering into commitments to sell commodities
exposes Series E to unlimited risk.
Market risk is influenced by a wide variety of factors including government
programs and policies, political and economic events, the level and volatility
of interest rates, foreign currency exchange rates, the diversification effects
among the derivative instruments Series E holds and the liquidity and inherent
volatility of the markets in which Series E trades.
Credit risk
When entering into futures or forward contracts, Series E is exposed to
credit risk that the counterparty to the contract will not meet its obligations.
The counterparty for futures contracts traded in the United States and on most
foreign futures exchanges is the clearinghouse associated with such exchanges.
In general, clearinghouses are backed by their corporate members who are
required to share any financial burden resulting from the non-performance by one
of their members and, as such, should significantly reduce this credit risk. In
cases where the clearinghouse is not backed by the clearing members (i.e., some
foreign exchanges), it is normally backed by a consortium of banks or other
financial institutions. On the other hand, the sole counterparty to Series E's
forward transactions is PSI, Series E's commodity broker. Series E has entered
into a master netting agreement with PSI and, as a result, presents unrealized
gains and losses on open forward positions as a net amount in the statements of
financial condition. The amount at risk associated with counterparty
nonperformance of all of Series E's contracts is the net unrealized gain
included in the statements of financial condition. There can be no assurance
that any counterparty, clearing member or clearinghouse will meet its
obligations to Series E.
The Managing Owner attempts to minimize both credit and market risks by
requiring Series E and its Trading Advisor to abide by various trading
limitations and policies. The Managing Owner monitors compliance with these
trading limitations and policies which include, but are not limited to,
executing and clearing all trades with creditworthy counterparties; limiting the
amount of margin or premium required for any one commodity or all commodities
combined; and generally limiting transactions to contracts which are traded in
sufficient volume to permit the taking and liquidating of positions.
Additionally, pursuant to the Advisory Agreement among Series E, the Managing
Owner and the Trading Advisor, Series E shall automatically terminate the
Trading Advisor if the net asset value allocated to the Trading Advisor declines
by 40% from the value at the beginning of any year or since the commencement of
trading activities. Furthermore, the Trust Agreement provides that Series E will
liquidate its positions, and eventually dissolve, if Series E experiences a
decline in the net asset value of 50% from the value at the beginning of any
year or since the commencement of trading activities. In each case, the decline
in net asset value is after giving effect for distributions, contributions and
redemptions. The Managing Owner may impose additional restrictions
142
(through modifications of trading limitations and policies) upon the
trading activities of the Trading Advisor as it, in good faith, deems to be in
the best interests of Series E.
PSI, when acting as Series E's futures commission merchant in accepting
orders for the purchase or sale of domestic futures contracts, is required by
Commodity Futures Trading Commission ('CFTC') regulations to separately account
for and segregate as belonging to Series E all assets of Series E relating to
domestic futures trading and is not to commingle such assets with other assets
of PSI. At December 31, 2000, such segregated assets totalled $5,089,390. Part
30.7 of the CFTC regulations also requires PSI to secure assets of Series E
related to foreign futures trading which totalled $1,355,231 at December 31,
2000. There are no segregation requirements for assets related to forward
trading.
As of December 31, 2000, Series E's open futures and forward contracts
generally mature within one year, although certain interest rate futures
contracts have maturities as distant as June 2002.
The following table presents the fair value of futures and forward contracts
at December 31, 2000:
Assets Liabilities
---------- -----------
Futures Contracts:
Domestic exchanges
Interest rates $ 275,953 $ --
Currencies 260,258 28,675
Commodities 132,815 37,116
Foreign exchanges
Interest rates 309,325 --
Stock indices 68,667 5,300
Commodities 20,396 37,466
Forward Contracts:
Currencies 33,172 36,756
---------- -----------
$1,100,586 $ 145,313
---------- -----------
---------- -----------
143
PricewaterhouseCoopers (LOGO)
PricewaterhouseCoopers LLP
1177 Avenue of the Americas
New York, NY 10036
Telephone (212) 596 8000
Facsimile (212) 596 8910
Report of Independent Accountants
To the Managing Owner and Limited Owners
of World Monitor Trust II--Series F
In our opinion, the accompanying statements of financial condition and the
related statement of operations, and changes in trust capital present fairly, in
all material respects, the financial position of World Monitor Trust II--Series
F at December 31, 2000 and 1999 and the results of its operations for the period
from March 1, 2000 (commencement of operations) to December 31, 2000 in
conformity with accounting principles generally accepted in the United States of
America. These financial statements are the responsibility of the Managing
Owner; our responsibility is to express an opinion on these financial statements
based on our audits. We conducted our audits of these statements in accordance
with auditing standards generally accepted in the United States of America 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 the Managing Owner, and evaluating the
overall financial statement presentation. We believe that our audits provide a
reasonable basis for our opinion.
/s/ PricewaterhouseCoopers LLP
January 26, 2001
144
WORLD MONITOR TRUST II--SERIES F
(a Delaware Business Trust)
STATEMENTS OF FINANCIAL CONDITION
December 31,
------------------------
2000 1999
- ----------------------------------------------------------------------------------------------------
ASSETS
Cash $ 7,697,248 $ 1,000
Net unrealized gain on open futures contracts 434,309 --
------------ --------
Total assets $ 8,131,557 $ 1,000
------------ --------
------------ --------
LIABILITIES AND TRUST CAPITAL
Liabilities
Accrued expenses $ 71,749 $ --
Incentive fee payable 70,035
Commissions and other transaction fees payable 48,465 --
Management fee payable 15,976 --
------------ --------
Total liabilities 206,225 --
------------ --------
Commitments
Trust capital
Limited interests (73,387.895 and -0- interests outstanding) 7,845,159 --
General interests (750 and 10 interests outstanding) 80,173 1,000
------------ --------
Total trust capital 7,925,332 1,000
------------ --------
Total liabilities and trust capital 8,131,557 $ 1,000
------------ --------
------------ --------
Net asset value per limited and general interests ('Interests') $ 106.90 $ 100.00
------------ --------
------------ --------
- --------------------------------------------------------------------------------
The accompanying notes are an integral part of these statements.
145
WORLD MONITOR TRUST II--SERIES F
(a Delaware Business Trust)
STATEMENT OF OPERATIONS
For the period
from
March 1, 2000
(commencement of
operations) to
December 31,
2000
- -------------------------------------------------------------------------------------------------
REVENUES
Net realized gain on commodity transactions $ 404,222
Net unrealized gain/loss on open commodity positions 434,309
Interest income 333,749
----------------
1,172,280
----------------
EXPENSES
Commissions and other transaction fees 350,702
Management fees 111,401
Incentive fee 70,035
General and administrative 83,849
----------------
615,987
----------------
Net income $ 556,293
----------------
----------------
ALLOCATION OF NET INCOME
Limited interests $ 551,120
----------------
----------------
General interests $ 5,173
----------------
----------------
NET INCOME PER WEIGHTED AVERAGE LIMITED AND GENERAL INTEREST
Net income per weighted average limited and general interest $ 8.41
----------------
----------------
Weighted average number of limited and general interests outstanding 66,146
----------------
----------------
- -------------------------------------------------------------------------------------------------
STATEMENT OF CHANGES IN TRUST CAPITAL
LIMITED GENERAL
INTERESTS INTERESTS INTERESTS TOTAL
- -----------------------------------------------------------------------------------------------------
Trust capital--December 31, 1999 10.000 $ -- $ 1,000 $ 1,000
Contributions 82,371.909 8,112,830 74,000 8,186,830
Net income 551,120 5,173 556,293
Redemptions (8,244.014) (818,791) -- (818,791)
---------- ---------- --------- ----------
Trust capital--December 31, 2000 74,137.895 7,845,159 80,173 7,925,332
---------- ---------- --------- ----------
---------- ---------- --------- ----------
- -----------------------------------------------------------------------------------------------------
The accompanying notes are an integral part of these statements.
146
WORLD MONITOR TRUST II--SERIES F
(a Delaware Business Trust)
NOTES TO FINANCIAL STATEMENTS
A. General
The Trust, Trustee, Managing Owner and Affiliates
World Monitor Trust II (the 'Trust') is a business trust organized under the
laws of Delaware on April 22, 1999. The Trust consists of three separate and
distinct series ('Series'): Series D, E and F. Series D, E and F commenced
trading operations on March 13, 2000, April 6, 2000 and March 1, 2000,
respectively, and each Series will continue to exist until terminated pursuant
to the provisions of Article XIII of the First Amended and Restated Declaration
of Trust and Trust Agreement (the 'Trust Agreement'). The assets of each Series
are segregated from those of the other Series, separately valued and
independently managed. Each Series was formed to engage in the speculative
trading of a diversified portfolio of futures, forward and options contracts,
and may, from time to time, engage in cash and spot transactions. The trustee of
the Trust is Wilmington Trust Company. The managing owner is Prudential
Securities Futures Management Inc. (the 'Managing Owner'), a wholly owned
subsidiary of Prudential Securities Incorporated ('PSI') which, in turn, is a
wholly owned subsidiary of Prudential Securities Group Inc. PSI is the selling
agent for the Trust as well as its commodity broker ('Commodity Broker').
The Offering
Up to $50,000,000 of limited interests in each Series ('Limited Interests')
are being offered (totalling $150,000,000) ('Subscription Maximum'). Interests
are being offered to investors who meet certain established suitability
standards, with a minimum initial subscription of $5,000 ($2,000 for an
individual retirement account), although the minimum purchase for any single
Series is $1,000. General Interests are also being sold exclusively to the
Managing Owner. Limited Interests and general interests are sometimes referred
to as 'Interests'.
Initially, the Limited Interests for each Series were offered for a period of
up to 180 days after the date of the Prospectus ('Initial Offering Period'). The
price per Interest during the Initial Offering Period was $100. Each Series
could commence operations at any time if the minimum amount of Limited Interests
was sold before the Initial Offering Period expired ('Subscription Minimum').
The Subscription Minimum of $5,000,000 for each Series was reached and, as a
result, Series D, E and F commenced trading operations. Series F completed its
initial offering March 1, 2000 with gross proceeds of $5,185,012, which was
fully allocated to commodities trading. Until the Subscription Maximum for each
Series is reached, each Series' Limited Interests will continue to be offered on
a weekly basis at the then current net asset value per Interest ('Continuous
Offering Period').
The Managing Owner is required to maintain at least a 1% interest in the
capital, profits and losses of each Series so long as it is acting as the
Managing Owner, and it will make such contributions (and in return will receive
general interests) as are necessary to meet this requirement.
The Trading Advisor
Each Series has its own independent commodity trading advisor that makes that
Series' trading decisions. The Managing Owner, on behalf of Series F, entered
into an advisory agreement with Campbell & Company, Inc. (the 'Trading Advisor')
to make the trading decisions for Series F. The advisory agreement may be
terminated for various reasons, including at the discretion of the Managing
Owner. The Managing Owner has allocated 100% of the proceeds from the initial
and continuous offering of Series F to the Trading Advisor and it is currently
contemplated that the Trading Advisor will continue to be allocated 100% of
additional capital raised for Series F during the Continuous Offering Period.
Exchanges, Redemptions and Termination
Interests owned in one Series may be exchanged, without any charge, for
Interests of one or more other Series on a weekly basis for as long as Limited
Interests in those Series are being offered to the public. Exchanges are made at
the applicable Series' then current net asset value per Interest as of the close
of business on the Friday immediately preceding the week in which the exchange
request is effected. The
147
exchange of Interests is treated as a redemption of Interests in one Series
(with the related tax consequences) and the simultaneous purchase of Interests
in the Series exchanged into.
Redemptions are permitted on a weekly basis. Limited Interests redeemed on or
before the end of the first and second successive six-month periods after their
effective dates of purchase are subject to a redemption fee of 4% and 3%,
respectively, of the net asset value at which they are redeemed. Redemption fees
are paid to the Managing Owner.
In the event that the estimated net asset value per Interest of a Series at
the end of any business day, after adjustments for distributions, declines by
50% or more since the commencement of trading activities or the first day of a
fiscal year, the Series will automatically terminate.
B. Summary of Significant Accounting Policies
Basis of accounting
The financial statements of Series F are prepared in accordance with
accounting principles generally accepted in the United States of America. Such
principles require the Managing Owner to make estimates and assumptions that
affect the reported amounts of liabilities at the date of the financial
statements and the reported amounts of expenses during the reporting period.
Actual results could differ from those estimates.
Commodity futures and forward transactions are reflected in the accompanying
statements of financial condition on trade date. The difference between the
original contract amount and market value is reflected as net unrealized gain or
loss. The market value of each contract is based upon the closing quotation on
the exchange, clearing firm or bank on, or through, which the contract is
traded.
The weighted average number of Limited Interests and general interests
outstanding was computed for purposes of disclosing net income per weighted
average Limited Interests and general interest. The weighted average Limited
Interests and general interests are equal to the number of Interests outstanding
at period end, adjusted proportionately for Interests subscribed and redeemed
based on their respective time outstanding during such period.
Series F has elected not to provide a Statement of Cash Flows as permitted by
Statement of Financial Accounting Standards No. 102, 'Statement of Cash
Flows--Exemption of Certain Enterprises and Classification of Cash Flows from
Certain Securities Acquired for Resale.'
Income taxes
Series F is treated as a partnership for Federal income tax purposes. As
such, Series F is not required to provide for, or pay, any Federal or state
income taxes. Income tax attributes that arise from its operations are passed
directly to the individual Interest holders including the Managing Owner. Series
F may be subject to other state and local taxes in jurisdictions in which it
operates.
Profit and loss allocations and distributions
Series F allocates profits and losses for both financial and tax reporting
purposes to its Interest holders weekly on a pro rata basis based on each
owner's Interests outstanding during the week. Distributions (other than
redemptions of Interests) may be made at the sole discretion of the Managing
Owner on a pro rata basis in accordance with the respective capital balances of
the Interest holders; however, the Managing Owner does not presently intend to
make any distributions.
New Accounting Guidance
In June 2000, the Financial Accounting Standards Board ('FASB') issued
Statement No. 138, Accounting for Certain Derivative Instruments and Certain
Hedging Activities--an amendment of FASB Statement No. 133 ('SFAS 138'), which
became effective for Series F on July 1, 2000. SFAS 138 amends the accounting
and reporting standards of FASB Statement No. 133 for certain derivative
instruments and certain hedging activities. SFAS 138 has not had a material
effect on the carrying value of assets and liabilities within the financial
statements.
148
C. Fees
Organizational and offering costs
PSI or its affiliates paid the costs of organizing Series F and continue to
pay the costs of offering its Limited Interests.
General and administrative costs
Routine legal, audit, postage, and other routine third party administrative
costs are paid by Series F. Additionally, Series F pays the administrative costs
incurred by the Managing Owner or its affiliates for services they perform for
Series F which include, but are not limited to, those costs discussed in Note D
below. However, all of these general and administrative costs incurred by Series
F are limited to 1.5% annually of Series F's net asset value.
Management and incentive fees
Series F pays its Trading Advisor a management fee at an annual rate of 2% of
the net asset value allocated to its management. The management fee is
determined weekly and the sum of such weekly amounts is paid monthly. Series F
also pays its Trading Advisor a quarterly incentive fee equal to 22% of such
Trading Advisor's 'New High Net Trading Profits' (as defined in the Advisory
Agreement). The incentive fee also accrues weekly.
Commissions
The Managing Owner and the Trust entered into a Brokerage Agreement with PSI
to act as Commodity Broker for each Series whereby Series F pays a fixed fee for
brokerage services rendered at an annual rate of 6% of Series F's net asset
value. The fee is determined weekly and the sum of such weekly amounts is paid
monthly. Series F is also obligated to pay all floor brokerage expenses, give-up
charges and NFA, clearing and exchange fees incurred in connection with Series
F's commodity trading activities.
D. Related Parties
Series F reimburses the Managing Owner or its affiliates for services they
perform for Series F which include but are not limited to: brokerage services;
accounting and financial management; registrar, transfer and assignment
functions; investor communications; printing and other administrative services.
However, the amount of general and administrative expenses incurred by Series F
is limited to 1.5% of its net asset value during the year. Because general and
administrative expenses exceeded this limit, a portion of the expenses related
to services the Managing Owner performs for Series F for the period from March
1, 2000 (commencement of operations) to December 31, 2000 have been borne by the
Managing Owner and its affiliates. Additionally, PSI or its affiliates paid the
costs of organizing Series F and continue to pay the cost of offering its
Limited Interests.
The costs incurred by Series F for the period from March 1, 2000
(commencement of operations) to December 31, 2000 for services performed by the
Managing Owner and its affiliates for Series F were:
Commissions $ 332,814
General and
administrative 33,749
-------------------
$ 366,563
-------------------
-------------------
Expenses payable to the Managing Owner and its affiliates (which are included
in accrued expenses) as of December 31, 2000 were $25,109.
All of the proceeds of the offering of Series F are received in the name of
Series F and are deposited in trading or cash accounts at PSI. Series F's assets
are maintained with PSI or, for margin purposes, with the various exchanges on
which Series F is permitted to trade. Series F receives interest income on 100%
of its average daily equity maintained in cash in its accounts with PSI during
each month at the 13-week Treasury bill discount rate. This rate is determined
weekly by PSI and represents the rate awarded to all bidders during each week's
auction of 13-week Treasury bills.
Series F, acting through its trading advisor, may execute over-the-counter,
spot, forward and/or option foreign exchange transactions with PSI. PSI then
engages in back-to-back trading with an affiliate, Prudential-Bache Global
Markets Inc. ('PBGM'). PBGM attempts to earn a profit on such transactions. PBGM
149
keeps its prices on foreign currency competitive with other interbank currency
trading desks. All over-the-counter currency transactions are conducted between
PSI and Series F pursuant to a line of credit. PSI may require that collateral
be posted against the marked-to-market positions of Series F.
As of December 31, 2000, a non-U.S. affiliate of the Managing Owner owns
54.037 Limited Interests of Series F.
E. Income Taxes
There have been no differences between the tax basis and book basis of
Interest holders' capital since inception of the Trust.
F. Derivative Instruments and Associated Risks
Series F is exposed to various types of risks associated with the derivative
instruments and related markets in which it invests. These risks include, but
are not limited to, risk of loss from fluctuations in the value of derivative
instruments held (market risk) and the inability of counterparties to perform
under the terms of Series F's investment activities (credit risk).
Market risk
Trading in futures contracts involves entering into contractual commitments
to purchase or sell a particular commodity at a specified date and price. The
gross or face amount of the contracts, which is typically many times that of
Series F's net assets being traded, significantly exceeds Series F's future cash
requirements since Series F intends to close out its open positions prior to
settlement. As a result, Series F is generally subject only to the risk of loss
arising from the change in the value of the contracts. As such, Series F
considers the 'fair value' of its derivative instruments to be the net
unrealized gain or loss on the contracts. The market risk associated with Series
F's commitments to purchase commodities is limited to the gross or face amount
of the contracts held. However, when Series F enters into a contractual
commitment to sell commodities, it must make delivery of the underlying
commodity at the contract price and then repurchase the contract at prevailing
market prices. Since the repurchase price to which a commodity can rise is
unlimited, entering into commitments to sell commodities exposes Series F to
unlimited risk.
Market risk is influenced by a wide variety of factors including government
programs and policies, political and economic events, the level and volatility
of interest rates, foreign currency exchange rates, the diversification effects
among the derivative instruments Series F holds and the liquidity and inherent
volatility of the markets in which Series F trades.
Credit risk
When entering into futures contracts, Series F is exposed to credit risk that
the counterparty to the contract will not meet its obligations. The counterparty
for futures contracts traded in the United States and on most foreign futures
exchanges is the clearinghouse associated with such exchanges. In general,
clearinghouses are backed by their corporate members who are required to share
any financial burden resulting from the non-performance by one of their members
and, as such, should significantly reduce this credit risk. In cases where the
clearinghouse is not backed by the clearing members (i.e., some foreign
exchanges), it is normally backed by a consortium of banks or other financial
institutions. The amount at risk associated with counterparty non-performance of
all of Series F's contracts is the net unrealized gain included in the
statements of financial condition. There can be no assurance that any
counterparty, clearing member or clearinghouse will meet its obligations to
Series F.
The Managing Owner attempts to minimize both credit and market risks by
requiring Series F and its Trading Advisor to abide by various trading
limitations and policies. The Managing Owner monitors compliance with these
trading limitations and policies which include, but are not limited to,
executing and clearing all trades with creditworthy counterparties; limiting the
amount of margin or premium required for any one commodity or all commodities
combined; and generally limiting transactions to contracts which are traded in
sufficient volume to permit the taking and liquidating of positions.
Additionally, pursuant to the Advisory Agreement among Series F, the Managing
Owner and the Trading Advisor, Series F shall automatically terminate the
Trading Advisor if the net asset value allocated to the trading advisor declines
by 40% from the value at the beginning of any year or since the commencement of
trading activities. Furthermore, the Trust Agreement provides that Series F will
liquidate its positions, and eventually dissolve, if Series F experiences
150
a decline in the net asset value of 50% from the value at the beginning of any
year or since the commencement of trading activities. In each case, the decline
in net asset value is after giving effect for distributions, contributions and
redemptions. The Managing Owner may impose additional restrictions (through
modifications of trading limitations and policies) upon the trading
activities of the Trading Advisor as it, in good faith, deems to be in the best
interests of Series F.
PSI, when acting as Series F's futures commission merchant in accepting
orders for the purchase or sale of domestic futures contracts, is required by
Commodity Futures Trading Commission ('CFTC') regulations to separately account
for and segregate as belonging to Series F all assets of Series F relating to
domestic futures trading and is not to commingle such assets with other assets
of PSI. At December 31, 2000, such segregated assets totalled $6,104,355. Part
30.7 of the CFTC regulations also requires PSI to secure assets of Series F
related to foreign futures trading which totalled $2,027,202 at December 31,
2000.
As of December 31, 2000, Series F's open futures contracts mature within one
year.
The following table presents the fair value of futures contracts at December
31, 2000:
Assets Liabilities
-------- -----------
Domestic exchanges
Interest rates $203,341 $ --
Stock indices -- 84,350
Currencies 218,267 146,627
Commodities 34,780 26,412
Foreign exchanges
Interest rates 148,143 1,654
Stock indices 45,570 7,278
Commodities 57,623 7,094
-------- -----------
$707,724 $ 273,415
-------- -----------
-------- -----------
151
PricewaterhouseCoopers (LOGO)
PricewaterhouseCoopers LLP
1177 Avenue of the Americas
New York, NY 10036
Telephone 212 596 8000
Facsimile 212 596 8910
Report of Independent Accountants
February 16, 2001
To the Board of Directors of
Prudential Securities Futures Management Inc.
In our opinion, the accompanying statement of financial
condition presents fairly, in all material respects, the
financial position of Prudential Securities Futures
Management Inc. (the "Company") at December 31, 2000 in
conformity with accounting principles generally accepted
in the United States of America. This financial statement is the
responsibility of the Company's management; our
responsibility is to express an opinion on this
financial statement based on our audit. We conducted
our audit of this statement in accordance with auditing
standards generally accepted in the United States
of America, which require that we plan and
perform the audit to obtain reasonable assurance
about whether the statement of financial
condition is free of material misstatement.
An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the statement
of financial condition, assessing the accounting
principles used and significant estimates made by
management, and evaluating the overall statement of
financial condition presentation. We believe that our
audit provides a reasonable basis for our opinion.
/s/ PricewaterhouseCoopers LLP
152
Prudential Securities Futures Management Inc.
(A wholly-owned subsidiary of Prudential Securities Incorporated)
Statement of Financial Condition
December 31, 2000
Assets
Cash $ 1,036
Investments in partnerships 1,484,632
Receivables from partnerships 61,843
Other receivables 100
Total assets $1,547,611
Liabilities and Stockholder's Equity
Liabilities
Due to Parent and affiliates $1,943,348
Accrued expenses and other liabilities 13,500
Total liabilities 1,956,848
Commitments and contingencies
Stockholder's equity
Common stock (no par value, 2,000
shares authorized, 100 shares
issued and outstanding) 100
Additional paid-in capital 3,540,000
Accumulated deficit (409,337)
3,130,763
Less: Noninterest-bearing demand
notes due from
Prudential Securities Group Inc (3,540,000)
Total stockholder's equity (409,237)
Total liabilities and stockholder's
equity $1,547,611
The accompanying notes are an integral part of this financial statement.
153
Prudential Securities Futures Management Inc.
(A wholly-owned subsidiary of Prudential Securities Incorporated)
Notes to Statement of Financial Condition
1. General
Prudential Securities Futures Management Inc. (the
"Company") is a wholly-owned subsidiary of
Prudential Securities Incorporated ("PSI" or the
"Parent") and an indirect subsidiary of the
Prudential Insurance Company of America. The
Company is a general partner or managing owner of
commodity limited partnerships and Delaware business
trusts (collectively, "the Partnerships"), as well
as an investment manager of open-ended investment
companies, all of which were formed to engage in the
speculative trading of commodity futures, forward
and options contracts pursuant to trading systems
developed by independent commodity trading advisors.
The Company is registered with the Commodity
Futures Trading Commission ("CFTC") as a commodity
pool operator. The Company is also registered with
the CFTC as a Commodity Trading Advisor and provides
commodity trading management services to clients of
PSI.
2. Summary of Significant Accounting Policies
Basis of accounting
The books and records of the Company are maintained
on the accrual basis of accounting in accordance
with accounting principles generally accepted in the
United States of America which require management to
make estimates and assumptions that affect the
reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at
the date of the financial statement. Actual results
could differ from those estimates.
Income taxes
The Company is a member of a group of affiliated
companies which join in filing a consolidated
federal income tax return and certain combined and
unitary state and local returns. Pursuant to the
tax allocation arrangements, total federal and state
and local tax expense is determined on a separate
company basis. Members with losses record tax
benefits to the extent such losses are recognized in
the consolidated federal and state and local tax
provisions.
At December 31, 2000, the Company's federal and
state income tax payables are $18,201 and $5,522,
respectively, and are included in Due to Parent and
affiliates.
154
Prudential Securities Futures Management Inc.
(A wholly-owned subsidiary of Prudential Securities Incorporated)
Notes to Statement of Financial Condition
3. Investments in Partnerships
The Company's investments in partnerships are
carried at its share of the underlying equity in the
Partnerships' net assets. The Company is required
to keep its investment in each partnership at an
amount that gives the Company at least a 1% interest
in the capital, profits, and losses of each
partnership so long as it is acting as the managing
owner of the partnership. The Company's investments
in partnerships and its percentage ownership in
those partnerships at December 31, 2000 are as
follows:
Diversified Futures Trust I $ 322,357 1.1%
Diversified Futures Trust II 259,052 1.9%
Prudential-Bache Capital Return
Futures Fund 2, L.P. 141,828 1.0%
Prudential Securities Strategic Trust 141,264 1.1%
World Monitor Trust - Series A 93,676 1.0%
World Monitor Trust - Series B 181,965 1.0%
World Monitor Trust - Series C 102,663 1.1%
World Monitor Trust II - Series D 71,284 1.2%
World Monitor Trust II - Series E 90,330 1.5%
World Monitor Trust II - Series F 80,213 1.0%
$1,484,632
The following represents combined condensed
financial information for the Partnerships in which
the Company has an investment as of December 31,
2000:
Assets $131,271,531
Liabilities $ 5,048,476
Partners' Capital 126,223,055
Liabilities and Partners' Capital $131,271,531
4. Related Parties
The Company has an interest-bearing loan payable to
PSGI in the amount of $1,759,836 at December 31,
2000 which bears interest at PSGI's effective
borrowing rate (7.0% at December 31, 2000) and is
payable on demand. The loan is used to fund the
purchase of investments in the Partnerships.
The Company occupies space provided by PSI and is
charged for this space. PSI also provides all
administrative, legal, financial and other services
to the Company and the Partnerships. The Company is
billed for such services performed for both itself
and the Partnerships (the balance of which is
$189,242 and is included in Due to Parent and
affiliates). The amount due from the Partnerships
related to these services ($61,843) is included in
Receivable from partnerships.
The Company's officers and directors are also
officers of PSI.
155
Prudential Securities Futures Management Inc.
(A wholly-owned subsidiary of Prudential Securities Incorporated)
Notes to Statement of Financial Condition
5. Stockholder's Equity
The Company maintains a net worth in accordance with
the limited partnership and trust agreements of the
Partnerships.
The Company has noninterest-bearing demand notes
receivable from PSGI in the amount of $3,540,000 at
December 31, 2000. These notes receivable are
classified as a reduction of Stockholder's Equity as
they represent capital subscribed but not funded.
The demand notes are partially collateralized by
U.S. Government security reverse repurchase
agreements for which contract amounts plus accrued
interest approximate $2,900,000 at December 31,
2000.
6. Commitments and Contingencies
As a general partner or managing owner, the Company
may be contingently liable for costs and liabilities
incurred by the Partnerships.
156
DIVERSIFIED FUTURES TRUST I
PricewaterhouseCoopers (LOGO)
PricewaterhouseCoopers LLP
1177 Avenue of the Americas
New York, NY 10036
Telephone (212) 596 8000
Facsimile (212) 596 8910
Report of Independent Accountants
To the Interest Holders of
Diversified Futures Trust I
In our opinion, the accompanying statement of financial condition presents
fairly, in all material respects, the financial position of Diversified Futures
Trust I at December 31, 2000 in conformity with accounting principles generally
accepted in the United States of America. This financial statement is the
responsibility of the Managing Owner; our responsibility is to express an
opinion on this financial statement based on our audit. We conducted our audit
of this statement in accordance with auditing standards generally accepted in
the United States of America which require that we plan and perform the audit to
obtain reasonable assurance about whether the financial statement of financial
condition is free of material misstatement. An audit includes examining, on a
test basis, evidence supporting the amounts and disclosures in the statement of
financial condition, assessing the accounting principles used and significant
estimates made by the Managing Owner, and evaluating the overall statement of
financial condition presentation. We believe that our audit provides a
reasonable basis for our opinion.
/s/ PricewaterhouseCoopers LLP
January 26, 2001
157
DIVERSIFIED FUTURES TRUST I
(a Delaware Business Trust)
STATEMENT OF FINANCIAL CONDITION
December 31, 2000
- --------------------------------------------------------------------------------------------------
ASSETS
Cash $26,730,111
Net unrealized gain on open futures contracts 4,674,695
Net unrealized gain on open forward contracts 870,491
-------------
Net equity 32,275,297
Other receivable 7,523
-------------
Total assets $32,282,820
-------------
-------------
LIABILITIES AND TRUST CAPITAL
Liabilities
Redemptions payable $ 2,980,451
Management fees payable 53,805
-------------
Total liabilities 3,034,256
-------------
Commitments
Trust capital
Limited interests (151,627.034 interests outstanding) 28,956,000
General interests (1,532 interests outstanding) 292,564
-------------
Total trust capital 29,248,564
-------------
Total liabilities and trust capital $32,282,820
-------------
-------------
Net asset value per limited and general interests ('Interests') $ 190.97
-------------
-------------
- --------------------------------------------------------------------------------------------------
The accompanying notes are an integral part of this statement.
158
DIVERSIFIED FUTURES TRUST I
(a Delaware Business Trust)
NOTES TO STATEMENT OF FINANCIAL CONDITION
A. General
Diversified Futures Trust I (the 'Trust') was organized under the Delaware
Business Trust Act on May 18, 1994 and will continue until December 31, 2014
unless terminated sooner under the provisions of the Amended and Restated
Declaration of Trust and Trust Agreement (the 'Trust Agreement'). The Trust was
formed to engage in the speculative trading of commodity futures and forward
contracts. The Trust's trustee is Wilmington Trust Company. The managing owner
of the Trust is Prudential Securities Futures Management Inc. (the 'Managing
Owner'), a wholly owned subsidiary of Prudential Securities Incorporated
('PSI'), which, in turn, is a wholly owned subsidiary of Prudential Securities
Group Inc. ('PSGI'). PSI was the principal underwriter of the limited interests
and is the commodity broker of the Trust. The Managing Owner is required to
maintain at least a 1% interest in the Trust so long as it is acting as the
Managing Owner.
On January 5, 1995, the Trust completed its initial offering having raised
$25,262,800 from the sale of 249,628 limited interests ('Limited Interests') and
3,000 general interests ('General Interests') (collectively, the 'Interests').
Additional Interests were offered and sold monthly at the then current net asset
value ('NAV') per Interest until the continuous offering period expired on
August 31, 1996. Additional contributions raised during the continuous offering
period resulted in additional proceeds to the Trust of $41,129,100 from the sale
of 299,640 Limited Interests and 1,628 General Interests.
All trading decisions are made for the Trust by John W. Henry & Company, Inc.
(the 'Trading Manager'), an independent commodity trading manager. The Trading
Manager trades the Trust's assets pursuant to four of its trading programs: the
Financial and Metals Portfolio; the Global Financial Portfolio; the Original
Investment Program; and the G-7 Currency Portfolio. The Managing Owner retains
the authority to override trading instructions that violate the Trust's trading
policies.
B. Summary of Significant Accounting Policies
Basis of accounting
The statement of financial condition of the Trust is prepared in accordance
with accounting principles generally accepted in the United States of America.
Commodity futures and forward transactions are reflected in the accompanying
statement of financial condition on trade date. The difference between the
original contract amount and market value is reflected as net unrealized gain or
loss. The market value of each contract is based upon the closing quotation on
the exchange, clearing firm or bank on, or through, which the contract is
traded.
Income taxes
The Trust is treated as a partnership for Federal income tax purposes. As
such, the Trust is not required to provide for, or pay, any Federal or state
income taxes. Income tax attributes that arise from its operations are passed
directly to the individual Interest holders. The Trust may be subject to other
state and local taxes in jurisdictions in which it operates.
Profit and loss allocation, distributions and redemptions
Net income or loss for both financial and tax reporting purposes is allocated
monthly to all Interest holders on a pro rata basis based on each Interest
holder's number of Interests outstanding during the month.
Distributions (other than redemptions of Interests) are made at the sole
discretion of the Managing Owner on a pro rata basis in accordance with the
respective capital accounts of the Interest holders. No distributions have been
made since inception.
The Trust Agreement provides that an Interest holder may redeem its Interests
as of the last business day of any calendar quarter at the then current NAV per
Interest.
159
New Accounting Guidance
In June 2000, the Financial Accounting Standards Board ('FASB') issued
Statement No. 138, Accounting for Certain Derivative Instruments and Certain
Hedging Activities--an amendment of FASB Statement No. 133 ('SFAS 138'), which
became effective for the Trust on July 1, 2000. SFAS 138 amends the accounting
and reporting standards of FASB Statement No. 133 for certain derivative
instruments and certain hedging activities. SFAS 138 has not had a material
effect on the carrying value of assets and liabilities within the financial
statements.
C. Fees
Organizational and general and administrative costs
PSI or its affiliates paid the costs of organizing the Trust and offering its
Interests and pay the routine operational, administrative, legal and auditing
expenses of the Trust.
Management and incentive fees
The Trust pays the Trading Manager a monthly management fee and quarterly
incentive fee. Effective on October 1, 2000, the Advisory Agreement among the
Trust, the Managing Owner and the Trading Manager was amended (the 'Amended
Advisory Agreement'). The Amended Advisory Agreement reduced the monthly
management fee paid to the Trading Manager from 1/3 of 1% (a 4% annual rate) of
the Trust's NAV as of the end of each month to 1/6 of 1% (a 2% annual rate).
Additionally, if the Trading Manager achieves 'New High Net Trading Profits' (as
defined in the Amended Advisory Agreement), the Trading Manager will earn a 20%
incentive fee as compared to a 15% incentive fee previously paid.
Commissions
The Managing Owner, on behalf of the Trust, entered into an agreement with
PSI as commodity broker whereby the Trust pays a fixed monthly fee for brokerage
services rendered. The monthly fee equals .64583 of 1% (7.75% per annum) of the
Trust's NAV as of the first day of each month. From this fee, PSI pays all of
the Trust's execution (including floor brokerage expenses and NFA, clearing and
exchange fees) and account maintenance costs.
D. Related Parties
The Managing Owner and its affiliates perform services for the Trust which
include, but are not limited to: brokerage services; accounting and financial
management; registrar, transfer and assignment functions; investor
communications; printing and other administrative services. Except for costs
related to brokerage services, PSI or its affiliates pay the costs of these
services as well as the Trust's routine operational, administrative, legal and
auditing costs.
The Trust's assets are maintained either in trading or cash accounts at PSI,
the Trust's commodity broker, or for margin purposes, with the various exchanges
on which the Trust is permitted to trade. PSI credits the Trust monthly with
100% of the interest it earns on the average net assets in the Trust's accounts.
The Trust, acting through its Trading Manager, executes over-the-counter,
spot, forward and/or option foreign exchange transactions with PSI. PSI then
engages in back-to-back trading with an affiliate, Prudential-Bache Global
Markets, Inc. ('PBGM'). PBGM attempts to earn a profit on such transactions.
PBGM keeps its prices on foreign currency competitive with other interbank
currency trading desks. All over-the-counter currency transactions are conducted
between PSI and the Trust pursuant to a line of credit. PSI may require that
collateral be posted against the marked-to-market positions of the Trust.
As of December 31, 2000, a non-U.S. affiliate of the Managing Owner owns
578.511 Limited Interests of the Trust.
E. Income Taxes
There have been no differences between the tax basis and book basis of
Interest holders' capital since inception of the Trust.
160
F. Derivative Instruments and Associated Risks
The Trust is exposed to various types of risks associated with the derivative
instruments and related markets in which it invests. These risks include, but
are not limited to, risk of loss from fluctuations in the value of derivative
instruments held (market risk) and the inability of counterparties to perform
under the terms of the Trust's investment activities (credit risk).
Market Risk
Trading in futures and forward (including foreign exchange transactions)
contracts involves entering into contractual commitments to purchase or sell a
particular commodity at a specified date and price. The gross or face amount of
the contracts, which is typically many times that of the Trust's net assets
being traded, significantly exceeds the Trust's future cash requirements since
the Trust intends to close out its open positions prior to settlement. As a
result, the Trust is generally subject only to the risk of loss arising from the
change in the value of the contracts. As such, the Trust considers the 'fair
value' of its derivative instruments to be the net unrealized gain or loss on
the contracts. The market risk associated with the Trust's commitments to
purchase commodities is limited to the gross or face amount of the contracts
held. However, when the Trust enters into a contractual commitment to sell
commodities, it must make delivery of the underlying commodity at the contract
price and then repurchase the contract at prevailing market prices. Since the
repurchase price to which a commodity can rise is unlimited, entering into
commitments to sell commodities exposes the Trust to unlimited risk.
Market risk is influenced by a wide variety of factors including government
programs and policies, political and economic events, the level and volatility
of interest rates, foreign currency exchange rates, the diversification effects
among the derivative instruments the Trust holds and the liquidity and inherent
volatility of the markets in which the Trust trades.
Credit Risk
When entering into futures or forward contracts, the Trust is exposed to
credit risk that the counterparty to the contract will not meet its obligations.
The counterparty for futures contracts traded in the United States and on most
foreign futures exchanges is the clearinghouse associated with such exchanges.
In general, clearinghouses are backed by its corporate members who are required
to share any financial burden resulting from the non-performance by one of its
members and, as such, should significantly reduce this credit risk. In cases
where the clearinghouse is not backed by the clearing members (i.e., some
foreign exchanges), it is normally backed by a consortium of banks or other
financial institutions. On the other hand, the sole counterparty to the Trust's
forward transactions is PSI, the Trust's commodity broker. The Trust has entered
into a master netting agreement with PSI and, as a result, presents unrealized
gains and losses on open forward positions as a net amount in the statements of
financial condition. The amount at risk associated with counterparty
non-performance of all of the Trust's contracts is the net unrealized gain
included in the statements of financial condition. There can be no assurance
that any counterparty, clearing member or clearinghouse will meet its
obligations to the Trust.
The Managing Owner attempts to minimize both credit and market risks by
requiring the Trust and its Trading Manager to abide by various trading
limitations and policies. The Managing Owner monitors compliance with these
trading limitations and policies which include, but are not limited to,
executing and clearing all trades with creditworthy counterparties; limiting the
amount of margin or premium required for any one commodity or all commodities
combined; and generally limiting transactions to contracts which are traded in
sufficient volume to permit the taking and liquidating of positions.
Additionally, pursuant to the Amended Advisory Agreement among the Trust, the
Managing Owner and the Trading Manager, the Trust shall automatically terminate
the Trading Manager if the NAV allocated to the Trading Manager declines by
33 1/3% from the value at the beginning of any year or since the commencement of
trading activities. Furthermore, the Amended and Restated Declaration of Trust
and Trust Agreement provides that the Trust will liquidate its positions, and
eventually dissolve, if the Trust experiences a decline in the NAV of 50% from
the value at the beginning of any year or since the commencement of trading
activities. In each case, the decline in NAV is after giving effect for
distributions and redemptions. The Managing Owner may impose additional
restrictions (through modifications of such trading limitations and policies)
upon the trading activities of the Trading Manager as it, in good faith, deems
to be in the best interests of the Trust.
PSI, when acting as the Trust's futures commission merchant in accepting
orders for the purchase or sale of domestic futures contracts, is required by
Commodity Futures Trading Commission ('CFTC') regulations
161
to separately account for and segregate as belonging to the Trust all assets of
the Trust relating to domestic futures trading and is not to commingle such
assets with other assets of PSI. At December 31, 2000, such segregated assets
totalled $23,255,703. Part 30.7 of the CFTC regulations also requires PSI to
secure assets of the Trust related to foreign futures trading which totalled
$8,149,103 at December 31, 2000. There are no segregation requirements for
assets related to forward trading.
As of December 31, 2000, the Trust's open futures and forward contracts
mature within one year.
At December 31, 2000, the fair value of open futures and forward contracts
was:
Assets Liabilities
----------------- -----------------
Futures Contracts:
Domestic exchanges
Interest rates $ 1,022,561 $ --
Stock indices 221,700 --
Currencies 1,479,050 111,600
Commodities 881,010 131,336
Foreign exchanges
Interest rates 870,562 --
Stock indices 388,967 27,913
Commodities 127,439 45,745
Forward Contracts:
Currencies 882,242 11,751
----------------- -----------------
$ 5,873,531 $ 328,345
----------------- -----------------
----------------- -----------------
162
EXHIBIT A
FIRST AMENDED AND RESTATED
DECLARATION OF TRUST
AND
TRUST AGREEMENT
OF
WORLD MONITOR TRUST II
Dated as of May 15, 1999
By and Among
PRUDENTIAL SECURITIES FUTURES MANAGEMENT INC.,
WILMINGTON TRUST COMPANY
and
THE INTERESTHOLDERS
from time to time hereunder
TABLE OF CONTENTS
Page
ARTICLE I
DEFINITIONS; THE TRUST . . . . . . . . . . . . . . . . . 1
SECTION 1.1 Definitions. . . . . . . . . . . . . . . 1
SECTION 1.2 Name . . . . . . . . . . . . . . . . . . 7
SECTION 1.3 Delaware Trustee; Business Offices . . . 7
SECTION 1.4 Declaration of Trust . . . . . . . . . . 7
SECTION 1.5 Purposes and Powers. . . . . . . . . . . 7
SECTION 1.6 Tax Treatment. . . . . . . . . . . . . . 8
SECTION 1.7 General Liability of the Managing Owner. 8
SECTION 1.8 Legal Title. . . . . . . . . . . . . . . 9
SECTION 1.9 Series Trust. . . . . . . . . . . . . . 9
ARTICLE II
THE TRUSTEE. . . . . . . . . . . . . . . . . . . . . . . 9
SECTION 2.1 Term; Resignation. . . . . . . . . . . . 9
SECTION 2.2 Powers . . . . . . . . . . . . . . . . . 10
SECTION 2.3 Compensation and Expenses of the Trustee 10
SECTION 2.4 Indemnification . . . . . . . . . . . . 10
SECTION 2.5 Successor Trustee. . . . . . . . . . . . 10
SECTION 2.6 Liability of Trustee . . . . . . . . . . 11
SECTION 2.7 Reliance; Advice of Counsel. . . . . . . 12
ARTICLE III
INTERESTS; CAPITAL CONTRIBUTIONS . . . . . . . . . . . 13
SECTION 3.1 General. . . . . . . . . . . . . . . . 14
SECTION 3.2 Establishment of Series of Interests.. 14
SECTION 3.3 Establishment of Classes. . . . . . . 14
SECTION 3.4 Limited Interests. . . . . . . . . . . 14
SECTION 3.5 Assets of Series. . . . . . . . . . . 22
SECTION 3.6 Liabilities of Series. . . . . . . . . 22
SECTION 3.7 Dividends and Distributions. . . . . . . 24
SECTION 3.8 Voting Rights. . . . . . . . . . . . . . 25
SECTION 3.9 Equality . . . . . . . . . . . . . . . . 25
SECTION 3.10 Exchange of Interests . . . . . . . . . 25
(i)
ARTICLE IV
THE MANAGING OWNER . . . . . . . . . . . . . . . . . . 26
SECTION 4.1 Management of the Trust. . . . . . . . 26
SECTION 4.2 Authority of Managing Owner. . . . . . 29
SECTION 4.3 Obligations of the Managing Owner. . . 29
SECTION 4.4 General Prohibitions . . . . . . . . . 31
SECTION 4.5 Liability of Covered Persons . . . . . 32
SECTION 4.6 Indemnification of the Managing Owner. 32
SECTION 4.7 Expenses and Limitations Thereon . . . 34
SECTION 4.8 Compensation to the Managing Owner . . 35
SECTION 4.9 Other Business of Interestholders. . . 35
SECTION 4.10 Voluntary Withdrawal of the Managing
Owner. . . . . . . . . . . . . . . . . . . 35
SECTION 4.11 Authorization of Registration
Statements . . . . . . . . . . . . . . . . 35
SECTION 4.12 Litigation. . . . . . . . . . . . . . 36
ARTICLE V
TRANSFERS OF INTERESTS . . . . . . . . . . . . . . . . 36
SECTION 5.1 General Prohibition. . . . . . . . . . 36
SECTION 5.2 Transfer of Managing Owner's General
Interests. . . . . . . . . . . . . . . . . 36
SECTION 5.3 Transfer of Limited Interests. . . . . 37
ARTICLE VI
DISTRIBUTION AND ALLOCATIONS . . . . . . . . . . . . . 40
SECTION 6.1 Capital Accounts . . . . . . . . . . . 40
SECTION 6.2 Weekly Allocations . . . . . . . . .. 40
SECTION 6.3 Allocation of Profit and Loss for United
States Federal Income
Tax Purposes. . . . . . . . . . . . . . . 41
SECTION 6.4 Allocation of Distributions. . . . . . 42
SECTION 6.5 Admissions of Interestholders; Transfers42
SECTION 6.6 Liability for State and Local and Other
Taxes. . . . . . . . . . . . . . . . . . . 43
ARTICLE VII
REDEMPTIONS. . . . . . . . . . . . . . . . . . . . . . 43
SECTION 7.1 Redemption of Interests. . . . . . . . 43
SECTION 7.2 Redemption by the Managing Owner . .. 45
SECTION 7.3 Redemption Fee . . . . . . . . . . . 45
SECTION 7.4 Exchange of Interests. . . . . . . . 45
(ii)
ARTICLE VIII
THE LIMITED OWNERS . . . . . . . . . . . . . . . . . . 45
SECTION 8.1 No Management or Control; Limited
Liability. . . . . . . . . . . . . . . . . 45
SECTION 8.2 Rights and Duties. . . . . . . . . . . 46
SECTION 8.3 Limitation on Liability. . . . . . . . 47
ARTICLE IX
BOOKS OF ACCOUNT AND REPORTS . . . . . . . . . . . . . 48
SECTION 9.1 Books of Account . . . . . . . . . . . 48
SECTION 9.2 Annual Reports and Monthly Statements. 48
SECTION 9.3 Tax Information. . . . . . . . . . . . 48
SECTION 9.4 Calculation of Net Asset Value of a
Series . . . . . . . . . . . . . . . . . 48
SECTION 9.5 Other Reports. . . . . . . . . . . . . 48
SECTION 9.6 Maintenance of Records . . . . . . . . 49
SECTION 9.7 Certificate of Trust . . . . . . . . . 49
SECTION 9.8 Registration of Interests. . . . . . . 49
ARTICLE X
FISCAL YEAR. . . . . . . . . . . . . . . . . . . . . . 49
SECTION 10.1 Fiscal Year . . . . . . . . . . . . . 49
ARTICLE XI
AMENDMENT OF TRUST AGREEMENT; MEETINGS . . . . . . . . 50
SECTION 11.1 Amendments to the Trust Agreement . . 50
SECTION 11.2 Meetings of the Trust . . . . . . . . 51
SECTION 11.3 Action Without a Meeting. . . . . . . 52
ARTICLE XII
TERM . . . . . . . . . . . . . . . . . . . . . . . . . 52
SECTION 12.1 Term. . . . . . . . . . . . . . . . . 52
ARTICLE XIII
TERMINATION. . . . . . . . . . . . . . . . . . . . . . 52
SECTION 13.1 Events Requiring Dissolution of the
Trust or any Series. . . . . . . . . . . . 52
SECTION 13.2 Distributions on Dissolution. . . . . 54
SECTION 13.3 Termination; Certificate of
Cancellation . . . . . . . . . . . . . . 54
(iii)
ARTICLE XIV
POWER OF ATTORNEY. . . . . . . . . . . . . . . . . . . 55
SECTION 14.1 Power of Attorney Executed Concurrently55
SECTION 14.2 Effect of Power of Attorney . . . . . 55
SECTION 14.3 Limitation on Power of Attorney . . . 56
ARTICLE XV
MISCELLANEOUS. . . . . . . . . . . . . . . . . . . . . . 56
SECTION 15.1 Governing Law . . . . . . . . . . . . . 56
SECTION 15.2 Provisions In Conflict With Law or
Regulations. . . . . . . . . . . . . . . . 57
SECTION 15.3 Construction. . . . . . . . . . . . . 57
SECTION 15.4 Notices . . . . . . . . . . . . . . . 57
SECTION 15.5 Counterparts. . . . . . . . . . . . . 57
SECTION 15.6 Binding Nature of Trust Agreement . . 57
SECTION 15.7 No Legal Title to Trust Estate. . . . 58
SECTION 15.8 Creditors . . . . . . . . . . . . . . 58
SECTION 15.9 Integration . . . . . . . . . . . . . 58
EXHIBIT A
CERTIFICATE OF TRUST
OF WORLD MONITOR TRUST II . . . . . . . . . . . . . . . 60
(iv)
WORLD MONITOR TRUST II
FIRST AMENDED AND RESTATED DECLARATION OF TRUST AND TRUST
AGREEMENT
This FIRST AMENDED AND RESTATED DECLARATION OF TRUST AND
TRUST AGREEMENT of WORLD MONITOR TRUST II ("Trust Agreement")
is made and entered into as of the 15th day of May,
1999, by and among PRUDENTIAL SECURITIES FUTURES
MANAGEMENT INC., a Delaware corporation (the "Managing
Owner"), WILMINGTON TRUST COMPANY, a Delaware banking
company, as trustee (the "Trustee"), and the
INTERESTHOLDERS from time to time hereunder.
WHEREAS, the parties entered into a Declaration
of Trust and Trust Agreement dated April 22, 1999 (the
"Initial Trust Agreement");
WHEREAS, the parties hereto desire to amend
certain provisions of the Initial Trust Agreement related
to the governance of the Trust and to restate in detail
their respective rights and duties relating to the Trust.
NOW, THEREFORE, in consideration of the mutual
promises and agreements herein contained, the receipt and
sufficiency of which are hereby acknowledged, the parties,
intending to be legally bound, hereby agree as follows:
ARTICLE I
DEFINITIONS; THE TRUST
SECTION 1.1 Definitions. These definitions contain
certain provisions required by the NASAA Guidelines and,
except for minor exceptions, are included verbatim from
such Guidelines, and, accordingly, may not, in all cases,
be relevant. As used in this Trust Agreement, the
following terms shall have the following meanings unless
the context otherwise requires:
"Affiliate of the Managing Owner" means: (i) any
Person directly or indirectly owning, controlling or
holding with power to vote 10% or more of the outstanding
voting securities of the Managing Owner; (ii) any Person
10% or more of whose outstanding voting securities are
directly or indirectly owned, controlled or held with power
to vote, by the Managing Owner; (iii) any Person, directly
or indirectly, controlling, controlled by, or under common
control of the Managing Owner; (iv) any officer, director
or partner of the Managing Owner; or (v) if such Person is
an officer, director or partner of the Managing Owner, any
Person for which such Person acts in any such capacity.
"Business Day" means a day other than Saturday, Sunday
or other day when banks and/or securities exchanges in the
City of New York or the City of Wilmington are authorized
or obligated by law or executive order to close.
"Business Trust Statute" means Chapter 38 of Title 12
of the Delaware Code, 12 Del.C. S 3801 et seq., as the same
may be amended from time to time.
"Capital Contribution" means the amount contributed
and agreed to be contributed to the Trust or any Series in
the Trust by any subscriber or by the Managing Owner, as
applicable, in accordance with Article III hereof.
"CE Act" means the Commodity Exchange Act, as amended.
"Certificate of Trust" means the Certificate of Trust
of the Trust in the form attached hereto as Exhibit A,
filed with the Secretary of State of the State of Delaware
pursuant to Section 3810 of the Business Trust Statute.
"CFTC" means the Commodity Futures Trading Commission.
"Code" means the Internal Revenue Code of 1986, as
amended.
"Commodities" means positions in Commodity Contracts,
forward contracts, foreign exchange positions and traded
physical commodities, as well as cash commodities resulting
from any of the foregoing positions.
"Commodity Broker" means any person who engages in the
business of effecting transactions in Commodity Contracts
for the account of others or for his or her own account.
"Commodity Contract" means any contract or option
thereon providing for the delivery or receipt at a future
date of a specified amount and grade of a traded physical
commodity at a specified price and delivery point.
"Continuous Offering Period" means the period
following the conclusion of the Initial Offering Period and
ending on the date when the number of Interests permitted
to be sold pursuant to Section 3.4(f) are sold.
"Corporate Trust Office" means the principal office at
which at any particular time the corporate trust business
of the Trustee is administered, which office at the date
hereof is located at Rodney Square North, 1100 North Market
Street, Wilmington, Delaware 19890, Attention: Corporate
Trust Administration.
"Dealing Day" shall have the meaning set forth in the
Prospectus.
"Disposition Gain" means, for each Fiscal Year of the
Trust, the Series' aggregate recognized gain (including the
portion thereof, if any, treated as ordinary income)
resulting from each disposition of Series assets during
such Fiscal Year with respect to which gain or loss is
recognized for federal income tax purposes, including,
without limitation, any gain or loss required to be
recognized by the Series for federal income tax purposes
pursuant to Section 988 or 1256 (or any successor
provisions) of the Code.
"Disposition Loss" means, for each Fiscal Year of the
Trust, the Series' aggregate recognized loss (including the
portion thereof, if any, treated as ordinary loss)
resulting from
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each disposition of Series assets during
such Fiscal Year with respect to which gain or loss is
recognized for federal income tax purposes, including,
without limitation, any gain or loss required to be
recognized by the Series for federal income tax purposes
pursuant to Sections 988 or 1256 (or any successor
provisions) of the Code.
"DOL" means the United States Department of Labor.
"Employee Benefit Plan Investors" means Employee
Benefit Plans subject to Title I of ERISA, government
plans, church plans, Individual Retirement Accounts, Keogh
Plans covering only self-employed persons and new
employees, and Employee Benefit Plans covering only the
sole owner of a business and/or his spouse.
"ERISA" means the Employee Retirement Income Security
Act of 1974, as amended.
"Fiscal Quarter" shall mean each period ending on the
last day of each March, June, September and December of
each Fiscal Year.
"Fiscal Year" shall have the meaning set forth in
Article X hereof.
"Incentive Fee" shall have the meaning set forth in the
Prospectus.
"Initial Offering Period" means the period with
respect to a Series commencing with the initial effective
date of the Prospectus and terminating no later than the
one hundred and twentieth (120th) day following such date
unless extended for up to an additional 60 days at the sole
discretion of the Managing Owner.
"Interestholders" means the Managing Owner and all
Limited Owners, as holders of Interests of a Series, where
no distinction is required by the context in which the term
is used.
"Interests" means the beneficial interest of each
Interestholder in the profits, losses, distributions,
capital and assets of a Series of the Trust. The Managing
Owner's Capital Contributions shall be represented by
"General" Interests and a Limited Owner's Capital
Contributions shall be represented by "Limited" Interests.
Interests need not be represented by certificates.
"Limited Owner" means any person or entity who becomes
a holder of Limited Interests (as defined in Article III)
and who is listed as such on the books and records of the
Trust, and may include the Managing Owner with respect to
the Limited Interests purchased by it.
"Losses" means, for each Fiscal Year of each Series of
the Trust, losses of the Series as determined for federal
income tax purposes, and each item of income, gain, loss or
deduction entering into the computation thereof, except
that any gain or loss taken into account in determining the
Disposition Gain or the Disposition Loss of the Series for
such Fiscal Year shall not enter into such computations.
"Managing Owner" means Prudential Securities Futures
Management Inc. or any substitute therefor as provided
herein.
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"Management Fee" shall have the meaning set forth in the
Prospectus.
"Margin Call" means a demand for additional funds
after the initial good faith deposit required to maintain
a customer's account in compliance with the requirements of
a particular commodity exchange or of a commodity broker.
"NASAA Guidelines" means the North American Securities
Administrators Association, Inc. Guidelines for the
Registration of Commodity Pool Programs as last amended and
restated.
"Net Asset Value of a Series" means the total assets
in the Trust Estate of a Series including, but not limited
to, all cash and cash equivalents (valued at cost plus
accrued interest and amortization of original issue
discount) less total liabilities of the Series, each
determined on the basis of generally accepted accounting
principles in the United States, consistently applied under
the accrual method of accounting ("GAAP"), including, but
not limited to, the extent specifically set forth below:
(a) Net Asset Value of a Series shall include
any unrealized profit or loss on open Commodities
positions, and any other credit or debit accruing to
the Series but unpaid or not received by the Series.
(b) All open commodity futures contracts and
options traded on a United States exchange are
calculated at their then current market value, which
shall be based upon the settlement price for that
particular commodity futures contract and option
traded on the applicable United States exchange on the
date with respect to which Net Asset Value of a Series
is being determined; provided, that if a commodity
futures contract or option traded on a United States
exchange could not be liquidated on such day, due to
the operation of daily limits or other rules of the
exchange upon which that position is traded or
otherwise, the settlement price on the first
subsequent day on which the position could be
liquidated shall be the basis for determining the
market value of such position for such day. The
current market value of all open commodity futures
contracts and options traded on a non-United States
exchange shall be based upon the liquidating value for
that particular commodity futures contract and option
traded on the applicable non-United States exchange on
the date with respect to which Net Asset Value of a
Series is being determined; provided, that if a
commodity futures contract or option traded on
a non-United States exchange could not be liquidated on such
day, due to the operation of rules of the exchange
upon which that position is traded or otherwise, the
liquidating value on the first subsequent day on which
the position could be liquidated shall be the basis
for determining the market value of such position for
such day. The current market value of all open
forward contracts entered into by a Series shall be
the mean between the last bid and last asked prices
quoted by the bank or financial institution which is
a party to the contract on the date with respect to
which Net Asset Value of a Series is being determined;
provided, that if such quotations are not available on
such date, the mean between the last bid and asked
prices on the first subsequent day on which such
quotations are available shall be the basis for
determining the market value of such forward contract
for such day. The Managing Owner may in its
discretion value any of the Trust Estate pursuant to
such other principles as it may deem fair and
equitable so long as such principles are consistent
with normal industry standards.
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(c) Interest earned on a Series' commodity
brokerage account shall be accrued at least weekly.
(d) The amount of any distribution made pursuant
to Article VI hereof shall be a liability of the
Series from the day when the distribution is declared
until it is paid.
"Net Asset Value of a Series per Interest" means the
Net Asset Value of a Series divided by the number of
Interests of a Series outstanding on the date of
calculation.
"Net Worth" means the excess of total assets over
total liabilities as determined by generally accepted
accounting principles. Net Worth shall be determined
exclusive of home, home furnishings and automobiles.
"New High Net Trading Profits" shall have the meaining
set forth in the Prospectus.
"NFA" means the National Futures Association.
"Organization and Offering Expenses" shall have the
meaning set forth in Section 4.7 of this Trust Agreement.
"Person" means any natural person, partnership,
limited liability company, business trust, corporation,
association, "Benefit Plan Investor" (as defined in the
Prospectus) or other legal entity.
"Profits" means, for each Fiscal Year of each Series
of the Trust, as determined for Federal income tax
purposes, with each item of income, gain, loss or deduction
entering into the computation thereof, except that any gain
or loss taken into account in determining the Disposition
Gain or the Disposition Loss of a Series for such Fiscal
Year shall not enter into such computations.
"Prospectus" means the final prospectus and disclosure
document of the Trust and each Series thereof, constituting
a part of each Registration Statement, as filed with the
Securities and Exchange Commission and declared effective
thereby, as the same may at any time and from time to time
be amended or supplemented after the effective date(s) of
the Registration Statement(s).
"PSI" means Prudential Securities Incorporated, the
Trust's Commodity Broker, selling agent and the parent of
the Managing Owner.
"Pyramiding" means the use of unrealized profits on
existing Commodities positions to provide margins for
additional Commodities positions of the same or a related
commodity.
"Redemption Date" means the Dealing Day upon which
Interests held by the Interestholders may be redeemed in
accordance with the provisions of Article VII hereof.
"Registration Statement" means a registration
statement on Form S-1, as amended, filed for a Series with
the Securities and Exchange Commission pursuant to which
the Trust registered
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the Limited Interests of a Series, as
the same may at any time and from time to time be further
amended or supplemented.
"Series" means a separate series of the Trust as
provided in Sections 3806(b)(2) and 3804 of the Business
Trust Statute, the Interests of which shall be beneficial
interests in the Trust Estate separately identified with
and belonging to such Series.
"Sponsor" means any person directly or indirectly
instrumental in organizing the Trust or any person who will
manage or participate in the management of the Trust,
including a Commodity Broker who pays any portion of the
Organizational Expenses of the Trust and any other person
who regularly performs or selects the persons who perform
services for the Trust. Sponsor does not include wholly
independent third parties such as attorneys, accountants,
and underwriters whose only compensation is for
professional services rendered in connection with the
offering of the units. The term "Sponsor" shall be deemed
to include its Affiliates.
"Subscription Agreement" means the agreement included
as an exhibit to the Prospectus pursuant to which
subscribers may subscribe for the purchase of the Limited
Interests.
"Trading Advisor" means initially Bridgewater Associates,
Inc. for the Series D Interests, Graham Capital
Management, Inc., for the Series E Interests, and Campbell
& Company, Inc. for the Series F Interests,
and any other entity or entities, acting in its
capacity as a commodity trading advisor (i.e., any person
who for any consideration engages in the
business of advising others, either directly
or indirectly, as to the value, purchase, or sale of
Commodity Contracts or commodity options) to a Series, and
any substitute(s) therefor as provided herein.
"Trust" means the World Monitor Trust II formed pursuant
to this Trust Agreement.
"Trust Agreement" means this Declaration of Trust and
Trust Agreement as the same may at any time or from time to
time be amended.
"Trustee" means Wilmington Trust Company or any
substitute therefor as provided herein, acting not in its
individual capacity but solely as trustee of the Trust.
"Trust Estate" means, with respect to a Series, any
cash, commodity futures, forward and option contracts, all
funds on deposit in the Series' accounts, and any other
property held by the Series, and all proceeds therefrom,
including any rights of the Series pursuant to any
Subscription Agreement and any other agreements to which
the Trust or a Series thereof is a party.
"Valuation Date" means the date as of which the Net
Asset Value of a Series is determined.
"Valuation Period" means a regular period of time
between Valuation Dates.
"Valuation Point" shall have the meaning set forth in
the Prospectus.
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SECTION 1.2 Name.
The name of the Trust is "World Monitor Trust II"
in which name the Trustee and the Managing Owner may engage
in the business of the Trust, make and execute contracts
and other instruments on behalf of the Trust and sue and be
sued on behalf of the Trust.
SECTION 1.3 Delaware Trustee; Business Offices.
(a) The sole Trustee of the Trust is Wilmington
Trust Company, which is located at the Corporate Trust
Office or at such other address in the State of Delaware as
the Trustee may designate in writing to the
Interestholders. The Trustee shall receive service of
process on the Trust in the State of Delaware at the
foregoing address. In the event Wilmington Trust Company
resigns or is removed as the Trustee, the Trustee of the
Trust in the State of Delaware shall be the successor
Trustee.
(b) The principal office of the Trust, and such
additional offices as the Managing Owner may establish,
shall be located at such place or places inside or outside
the State of Delaware as the Managing Owner may designate
from time to time in writing to the Trustee and the
Interestholders. Initially, the principal office of the
Trust shall be at One New York Plaza, 13th floor, New York,
New York 10292.
SECTION 1.4 Declaration of Trust. The Trustee hereby
acknowledges that the Trust has received the sum of $1,000
per Series in bank accounts in the name of each Series of
the Trust controlled by the Managing Owner from the
Managing Owner as grantor of the Trust, and hereby declares
that it shall hold such sum in trust, upon and subject to
the conditions set forth herein for the use and benefit of
the Interestholders. It is the intention of the parties
hereto that the Trust shall be a business trust under the
Business Trust Statute and that this Trust Agreement shall
constitute the governing instrument of the Trust. It is
not the intention of the parties hereto to create a general
partnership, limited partnership, joint stock association,
corporation, bailment or any form of legal relationship
other than a Delaware business trust except to the extent
that each Series in such Trust is deemed to constitute a
partnership under the Code and applicable state and local
tax laws. Nothing in this Trust Agreement shall be
construed to make the Interestholders partners or members
of a joint stock association except to the extent such
Interestholders are deemed to be partners under the Code
and applicable state and local tax laws. Notwithstanding
the foregoing, it is the intention of the parties thereto
to create a partnership among the Interestholders of each
Series for purposes of taxation under the Code and
applicable state and local tax laws. Effective as of the
date hereof, the Trustee and the Managing Owner shall have
all of the rights, powers and duties set forth herein and
in the Business Trust Statute with respect to accomplishing
the purposes of the Trust. The Trustee has filed the
certificate of trust required by Section 3810 of the
Business Trust Statute in connection with the formation of
the Trust under the Business Trust Statute.
SECTION 1.5 Purposes and Powers. The purposes of the
Trust and each Series shall be (a) to trade, buy, sell,
spread or otherwise acquire, hold or dispose of commodity
futures, forward and option contracts, including foreign
futures, forward contracts and foreign exchange positions
worldwide; (b) to enter into any lawful transaction and
engage in any lawful activities in furtherance of or
incidental to the foregoing purposes; and (c) as determined
from time to time
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by the Managing Owner, to engage in any
other lawful business or activity for which a business
trust may be organized under the Business Trust Statute.
The Trust shall have all of the powers specified in Section
15.1 hereof, including, without limitation, all of the
powers which may be exercised by a Managing Owner on behalf
of the Trust under this Trust Agreement.
SECTION 1.6 Tax Treatment.
(a) Each of the parties hereto, by entering into
this Trust Agreement, (i) expresses its intention that the
Interests of each Series will qualify under applicable tax
law as interests in a partnership which holds the Trust
Estate of each Series for their benefit, (ii) agrees that
it will file its own federal, state and local income,
franchise and other tax returns in a manner that is
consistent with the treatment of each Series as a
partnership in which each of the Interestholders thereof is
a partner and (iii) agrees to use reasonable efforts to
notify the Managing Owner promptly upon a receipt of any
notice from any taxing authority having jurisdiction over
such holders of Interests of such Series with respect to
the treatment of the Interests as anything other than
interests in a partnership.
(b) The Tax Matters Partner (as defined in
Section 6231 of the Code and any corresponding state and
local tax law) of each Series shall initially be the
Managing Owner. The Tax Matters Partner, at the expense of
each Series, (i) shall prepare or cause to be prepared and
filed each Series' tax returns as a partnership for
federal, state and local tax purposes and (ii) shall be
authorized to perform all duties imposed by S 6221 et seq.
of the Code, including, without limitation, (A) the power
to conduct all audits and other administrative proceedings
with respect to the Series' tax items; (B) the power to
extend the statute of limitations for all Interestholders
with respect to the Series' tax items; (C) the power to
file a petition with an appropriate federal court for
review of a final administrative adjustment of a Series;
and (D) the power to enter into a settlement with the IRS
on behalf of, and binding upon, those Limited Owners having
less than one percent (1%) interest in the Series, unless
a Limited Owner shall have notified the IRS and the
Managing Owner that the Managing Owner shall not act on
such Limited Owner's behalf. The designation made by each
Interestholder of a Series in this Section 1.6(b) is hereby
approved by each Interestholder of such Series as an
express condition to becoming an Interestholder. Each
Interestholder agrees to take any further action as may be
required by regulation or otherwise to effectuate such
designation. Subject to Section 4.6, each Series hereby
indemnifies, to the full extent permitted by law, the
Managing Owner from and against any damages or losses
(including attorneys' fees) arising out of or incurred in
connection with any action taken or omitted to be taken by
it in carrying out its responsibilities as Tax Matters
Partner, provided such action taken or omitted to be taken
does not constitute fraud, negligence or misconduct.
(c) Each Interestholder shall furnish the
Managing Owner and the Trustee with information necessary
to enable the Managing Owner to comply with United States
federal income tax information reporting requirements in
respect of such Interestholder's Interests.
SECTION 1.7 General Liability of the Managing Owner.
(a) The Managing Owner shall be liable for the
acts, omissions, obligations and expenses of each Series of
the Trust, to the extent not paid out of the assets of the
Series, to
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the same extent the Managing Owner would be so
liable if each Series were a partnership under the Delaware
Revised Uniform Limited Partnership Act and the Managing
Owner were a general partner of such partnership. The
foregoing provision shall not, however, limit the ability
of the Managing Owner to limit its liability by contract.
The obligations of the Managing Owner under this Section
1.7 shall be evidenced by its ownership of the General
Interests which, solely for purposes of the Business Trust
Statute, will be deemed to be a separate class of Interests
in each Series. Without limiting or affecting the
liability of the Managing Owner as set forth in this
Section 1.7, notwithstanding anything in this Trust
Agreement to the contrary, Persons having any claim against
the Trust by reason of the transactions contemplated by
this Trust Agreement and any other agreement, instrument,
obligation or other undertaking to which the Trust is a
party, shall look only to the Trust Estate in accordance
with Section 3.6 hereof for payment or satisfaction
thereof.
(b) Subject to Sections 8.1 and 8.3 hereof, no
Interestholder, other than the Managing Owner, to the
extent set forth above, shall have any personal liability
for any liability or obligation of the Trust or any Series
thereof.
SECTION 1.8 Legal Title. Legal title to all the
Trust Estate shall be vested in the Trust as a separate
legal entity; except where applicable law in any
jurisdiction requires any part of the Trust Estate to be
vested otherwise, the Managing Owner may cause legal title
to the Trust Estate or any portion thereof to be held by or
in the name of the Managing Owner or any other Person as
nominee.
SECTION 1.9 Series Trust. The Interests of the Trust
shall be divided into Series as provided in Section
3806(b)(2) of the Business Trust Statute. Accordingly, it
is the intent of the parties hereto that Articles IV, V,
VI, VII, VIII, IX, X and XIII of this Trust Agreement shall
apply also with respect to each such Series as if each such
Series were a separate business trust under the Business
Trust Act, and each reference to the term "Trust" in such
Articles shall be deemed to be a reference to each Series
to the extent necessary to give effect to the foregoing
intent. The use of the terms "Trust" or "Series" in this
Agreement shall in no event alter the intent of the parties
hereto that the Trust receive the full benefit of the
limitation on interseries liability as set forth in Section
3804 of the Business Trust Statute.
ARTICLE II
THE TRUSTEE
SECTION 2.1 Term; Resignation.
(a) Wilmington Trust Company has been appointed
and hereby agrees to continue to serve as the Trustee of
the Trust. The Trust shall have only one trustee unless
otherwise determined by the Managing Owner. The Trustee
shall serve until such time as the Managing Owner removes
the Trustee or the Trustee resigns and a successor Trustee
is appointed by the Managing Owner in accordance with the
terms of Section 2.5 hereof.
(b) The Trustee may resign at any time upon the
giving of at least sixty (60) days' advance written notice
to the Trust; provided, that such resignation shall not
become
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effective unless and until a successor Trustee shall
have been appointed by the Managing Owner in accordance
with Section 2.5 hereof. If the Managing Owner does not
act within such sixty (60) day period, the Trustee may
apply to the Court of Chancery of the State of Delaware for
the appointment of a successor Trustee.
SECTION 2.2 Powers. Except to the extent expressly set
forth in Section 1.3 and this Article II, the duty and
authority of the Trustee to manage the business and affairs
of the Trust is hereby delegated to the Managing Owner,
which duty and authority the Managing Owner may further
delegate as provided herein, all pursuant to Section
3806(b)(7) of the Business Trust Statute. The Trustee
shall have only the rights, obligations and liabilities
specifically provided for herein and in the Business Trust
Statute and shall have no implied rights, obligations and
liabilities with respect to the business and affairs of the
Trust. The Trustee shall have the power and authority to
execute, deliver, acknowledge and file all necessary
documents and to maintain all necessary records of the
Trust as required by the Business Trust Statute. The
Trustee shall provide prompt notice to the Managing Owner
of its performance of any of the foregoing. The Managing
Owner shall reasonably keep the Trustee informed of any
actions taken by the Managing Owner with respect to the
Trust that affect the rights, obligations or liabilities of
the Trustee hereunder or under the Business Trust Statute.
SECTION 2.3 Compensation and Expenses of the Trustee.
The Trustee shall be entitled to receive from the Managing
Owner or an Affiliate of the Managing Owner (other
than the Trust) reasonable compensation for its services hereunder
as set forth in a separate fee agreement and shall be
entitled to be reimbursed by the Managing Owner or an
Affiliate of the Managing Owner for reasonable
out-of-pocket expenses incurred by it in the performance of
its duties hereunder, including without limitation, the
reasonable compensation, out-of-pocket expenses and
disbursements of counsel and such other agents as the
Trustee may employ in connection with the exercise and
performance of its rights and duties hereunder.
SECTION 2.4 Indemnification. The Managing Owner
agrees, whether or not any of the transactions contemplated
hereby shall be consummated, to assume liability for, and
does hereby indemnify, protect, save and keep harmless the
Trustee and its successors, assigns, legal representatives,
officers, directors, agents and servants (the "Indemnified
Parties") from and against any and all liabilities,
obligations, losses, damages, penalties, taxes (excluding
any taxes payable by the Trustee on or measured by any
compensation received by the Trustee for its services
hereunder or any indemnity payments received by the Trustee
pursuant to this Section 2.4), claims, actions, suits,
costs, expenses or disbursements (including legal fees and
expenses) of any kind and nature whatsoever (collectively,
"Expenses"), which may be imposed on, incurred by or
asserted against the Indemnified Parties in any way
relating to or arising out of the formation, operation or
termination of the Trust, the execution, delivery and
performance of any other agreements to which the Trust is
a party or the action or inaction of the Trustee hereunder
or thereunder, except for Expenses resulting from the gross
negligence or willful misconduct of the Indemnified
Parties. The indemnities contained in this Section 2.4
shall survive the termination of this Trust Agreement or
the removal or resignation of the Trustee. The Indemnified
Parties shall not be entitled to indemnification from the
Trust Estate.
SECTION 2.5 Successor Trustee. Upon the resignation
or removal of the Trustee, the Managing Owner shall appoint
a successor Trustee by delivering a written instrument to
the
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outgoing Trustee. Any successor Trustee must satisfy
the requirements of Section 3807 of the Business Trust
Statute. Any resignation or removal of the Trustee and
appointment of a successor Trustee shall not become
effective until a written acceptance of appointment is
delivered by the successor Trustee to the outgoing Trustee
and the Managing Owner and any fees and expenses due to the
outgoing Trustee are paid. Following compliance with the
preceding sentence, the successor Trustee shall become
fully vested with all of the rights, powers, duties and
obligations of the outgoing Trustee under this Trust
Agreement, with like effect as if originally named as
Trustee, and the outgoing Trustee shall be discharged of
its duties and obligations under this Trust Agreement.
SECTION 2.6 Liability of Trustee. Except as
otherwise provided in this Article II, in accepting the
trust created hereby, Wilmington Trust Company acts solely
as Trustee hereunder and not in its individual capacity,
and all Persons having any claim against the Trustee by
reason of the transactions contemplated by this Trust
Agreement and any other agreement to which the Trust is a
party shall look only to the Trust Estate in accordance
with Section 3.6 hereof for payment or satisfaction
thereof; provided, however, that in no event is the
foregoing intended to affect or limit the liability of the
Managing Owner as set forth in Section 1.7 hereof. The
Trustee shall not be liable or accountable hereunder or
under any other agreement to which
the Trust is a party, except for its own gross
negligence or willful misconduct.
In particular, but not by way of limitation:
(a) The Trustee shall have no liability or
responsibility for the validity or sufficiency of this
Trust Agreement or for the form, character, genuineness,
sufficiency, value or validity of the Trust Estate;
(b) The Trustee shall not be liable for any
actions taken or omitted to be taken by it in accordance
with the instructions of the Managing Owner;
(c) The Trustee shall not have any liability for
the acts or omissions of the Managing Owner;
(d) The Trustee shall not be liable for its
failure to supervise the performance of any obligations of
the Managing Owner, any commodity broker, selling agent or
any Trading Advisor(s);
(e) No provision of this Trust Agreement shall
require the Trustee to expend or risk funds or otherwise
incur any financial liability in the performance of any of
its rights or powers hereunder if the Trustee shall have
reasonable grounds for believing that repayment of such
funds or adequate indemnity against such risk or liability
is not reasonably assured or provided to it;
(f) Under no circumstances shall the Trustee be
liable for indebtedness evidenced by or other obligations
of the Trust arising under this Trust Agreement or any
other agreements to which the Trust is a party;
(g) The Trustee shall be under no obligation to
exercise any of the rights or powers vested in it by this
Trust Agreement, or to institute, conduct or defend any
litigation under this Trust Agreement or any other
agreements to which the Trust is a party, at the request,
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order or direction of the Managing Owner or any
Interestholders unless the Managing Owner or such
Interestholders have offered to the Trustee security or
indemnity satisfactory to it against the costs, expenses
and liabilities that may be incurred by the Trustee
(including, without limitation, the reasonable fees and
expenses of its counsel) therein or thereby; and
(h) Notwithstanding anything contained herein to
the contrary, the Trustee shall not be required to take any
action in any jurisdiction other than in the State of
Delaware if the taking of such action will (i) require the
consent or approval or authorization or order of or the
giving of notice to, or the registration with or taking of
any action in respect of, any state or other governmental
authority or agency of any jurisdiction other than the
State of Delaware, (ii) result in any fee, tax or other
governmental charge under the laws of any jurisdiction or
any political subdivision thereof in existence as of the
date hereof other than the State of Delaware becoming
payable by the Trustee or (iii) subject the Trustee to
personal jurisdiction, other than
in the State of Delaware, for causes of action arising
from personal acts unrelated
to the consummation of the transactions by the Trustee, as
the case may be, contemplated hereby.
SECTION 2.7 Reliance; Advice of Counsel.
(a) In the absence of bad faith, the Trustee may
conclusively rely upon certificates or opinions furnished
to the Trustee and conforming to the requirements of this
Trust Agreement in determining the truth of the statements
and the correctness of the opinions contained therein, and
shall incur no liability to anyone in acting on any
signature, instrument, notice, resolutions, request,
consent, order, certificate, report, opinion, bond or other
document or paper believed by it to be genuine and believed
by it to be signed by the proper party or parties and need
not investigate any fact or matter pertaining to or in any
such document; provided, however, that the Trustee shall
have examined any certificates or opinions so as to
determine compliance of the same with the requirements of
this Trust Agreement. The Trustee may accept a certified
copy of a resolution of the board of directors or other
governing body of any corporate party as conclusive
evidence that such resolution has been duly adopted by such
body and that the same is in full force and effect. As to
any fact or matter the method of the determination of which
is not specifically prescribed herein, the Trustee may for
all purposes hereof rely on a certificate, signed by the
president or any vice president or by the treasurer or
other authorized officers of the relevant party, as to such
fact or matter, and such certificate shall constitute full
protection to the Trustee for any action taken or omitted
to be taken by it in good faith in reliance thereon.
(b) In the exercise or administration of the
Trust hereunder and in the performance of its duties and
obligations under this Trust Agreement, the Trustee, at the
expense of the Managing Owner or an Affiliate of the
Managing Owner (other than the Trust) (i) may act directly
or through its agents, attorneys, custodians or nominees
pursuant to agreements entered into with any of them, and
the Trustee shall not be liable for the conduct or
misconduct of such agents, attorneys, custodians or
nominees if such agents, attorneys, custodians or nominees
shall have been selected by the Trustee with reasonable
care and (ii) may consult with counsel, accountants and
other skilled professionals to be selected with reasonable
care by it. The Trustee shall not be liable for anything
done, suffered or omitted in good faith by it in accordance
with the opinion or advice of any such counsel, accountant
or other such Persons.
A-12
ARTICLE III
INTERESTS; CAPITAL CONTRIBUTIONS
SECTION 3.1 General.
(a) The Managing Owner shall have the power and
authority, without Limited Owner approval, to issue
Interests in one or more Series from time to time as it
deems necessary or desirable. Each Series shall be
separate from all other Series in respect of the assets and
liabilities allocated to that Series and shall represent a
separate investment portfolio of the Trust. The Managing
Owner shall have exclusive power without the requirement of
Limited Owner approval to establish and designate such
separate and distinct Series, as set forth in Section 3.2,
and to fix and determine the relative rights and
preferences as between the Interests of the separate Series
as to right of redemption, special and relative rights as
to dividends and other distributions and on liquidation,
conversion rights, and conditions under which the Series
shall have separate voting rights or no voting rights.
(b) The Managing Owner may, without Limited Owner
approval, divide Interests of any Series into two or more
classes, Interests of each such class having such
preferences and special or relative rights and privileges
(including exchange rights, if any) as the Managing Owner
may determine as provided in Section 3.3. The fact that a
Series shall have been initially established and designated
without any specific establishment or designation of
classes, shall not limit the authority of the Managing
Owner to divide a Series and establish and designate
separate classes thereof.
(c) The number of Interests authorized shall be
unlimited, and the Interests so authorized may be
represented in part by fractional Interests. From time to
time, the Managing Owner may divide or combine the
Interests of any Series or class into a greater or lesser
number without thereby changing the proportionate
beneficial interests in the Series or class. The Managing
Owner may issue Interests of any Series or class thereof
for such consideration and on such terms as it may
determine (or for no consideration if pursuant to an
Interest dividend or split-up), all without action or
approval of the Limited Owners. All Interests when so
issued on the terms determined by the Managing Owner shall
be fully paid and non-assessable. The Managing Owner may
classify or reclassify any unissued Interests or any
Interests previously issued and reacquired of any Series or
class thereof into one or more Series or classes thereof
that may be established and designated from time to time.
The Managing Owner may hold as treasury Interests, reissue
for such consideration and on such terms as it may
determine, or cancel, at its discretion from time to time,
any Interests of any Series or class thereof reacquired by
the Trust. The Interests of each Series shall initially be
divided into two classes: General Interests and Limited
Interests.
(d) Upon the initial contribution by the Managing
Owner to each initial Series of the Trust, the Managing
Owner became the holder of the General Interests of each
such Series. Upon the termination of the Initial Offering
Period pursuant to Section 3.4, the Managing Owner shall
receive additional General Interests (or fractions thereof)
in each Series in consideration for the required
contributions made to each Series as of such time by the
Managing Owner pursuant to Section 3.4. During the
Continuous Offering Period, if any, the Managing
A-13
Owner shall receive, from time to time, additional General
Interests (or fractions thereof) in consideration for the
required contributions made by the Managing Owner pursuant
to Section 3.4 in any week during the Continuous Offering
Period in an amount equal to such contributions divided by
the Net Asset Value of a Series per Interest calculated as
of the Valuation Point of the week in which such
contributions were made.
(e) No certificates or other evidence of
beneficial ownership of the Interests will be issued.
(f) Every Interestholder, by virtue of having
purchased or otherwise acquired an Interest, shall be
deemed to have expressly consented and agreed to be bound
by the terms of this Trust Agreement.
SECTION 3.2 Establishment of Series of Interests.
(a) Without limiting the authority of the Managing
Owner set forth in Section 3.2(b) to establish and designate any
further Series, the Managing Owner hereby establishes and designates
three initial Series, as follows:
Series D, Series E, and Series F
The provisions of this Article III shall be applicable to the above
designated Series and any further Series that may from time to time
be established and designated by the Managing Owner as provided
in Section 3.2(b).
(b) The establishment and designation of any Series of
Interest other than those set forth above shall be effective
upon the execution by the Managing Owner of an instrument
setting forth such establishment and designation and the relative
rights and preferences of such Series, or as otherwise provided
in such instrument. At any time that there are no Interests
outstanding of any particular Series previously established and
designated, the Managing Owner may by an instrument executed by
it abolish that Series and the establishment and designation thereof.
Each instrument referred to in this paragraph shall have the status
of an amendment to this Trust Agreement.
SECTION 3.3 Establishment of Classes. The division of any Series
into two or more classes and the establishment and designation of
such classes shall be effective upon the execution by the Managing
Owner of an instrument setting forth such division, and the
establishment, designation, and relative rights and preferences of
such classes, or as otherwise provided in such instrument. The relative
rights and preferences of the classes of any Series may differ in such
respects as the Managing Owner may determine to be appropriate,
provided that such differences are set forth in the aforementioned
instrument. At any time that there are no Interests outstanding of
any particular class previously established and designated, the
Managing Owner may by an instrument executed by it abolish that class
and the establishment and designation thereof. Each instrument referred
to in this paragraph shall have the status of an amendment to this
Trust Agreement.
SECTION 3.4 Limited Interests.
A-14
(a) Offer of Series D Limited Interests.
(i) Series D Initial Offering Period.
During the Initial Offering Period, the Trust shall
offer pursuant to Securities and Exchange Commission
Rule 415, at an offering price of $100 per Series D
Limited Interest, a maximum of 500,000 Limited
Interests ($50,000,000). The offering shall be made
pursuant to and on the terms and conditions set forth
in the Prospectus. The Managing Owner shall make such
arrangements for the sale of the Limited Interests as
it deems appropriate.
(ii) Effect of the Sale of at least
50,000 Series D Interests. In the event that at least
50,000 Series D Limited Interests are sold to at least
150 subscribers during the Initial Offering Period for
the Series D Interests (including both Limited
Interests offered pursuant to the Prospectus and
Limited Interests purchased by the Managing Owner up
to $500,000), the Managing Owner will admit all
accepted subscribers pursuant to the Prospectus into
the Trust as Series D Limited Owners, by causing such
Limited Owners to execute this Trust Agreement,
pursuant to the Power of Attorney set forth in the
Subscription Agreement, and by making an entry on the
books and records of Series D of the Trust reflecting
that such subscribers have been admitted as Limited
Owners of Series D Interests, as soon as practicable
after the termination of the Series D Initial Offering
Period. Such accepted subscribers will be deemed
Series D Limited Owners at such time as such admission
is reflected on the books and records of Series D of
the Trust.
(iii) Paid-In Capital if at least 50,000
Series D Interests Are Sold. In the event that at
least 50,000 Series D Limited Interests are sold
during the Initial Offering Period, Series D shall
have paid-in capital of not less than $5,050,500
(including the Managing Owner's contribution for the
General Interests as provided in Section 3.1(d) and in
Section 3.4(a)(v) hereof).
(iv) Effect of the Sale of Less than
50,000 Series D Interests. In the event that at least
50,000 Series D Limited Interests are not sold during
the Initial Offering Period for the Series D
Interests, all proceeds of the sale of Series D
Limited Interests, together with any interest earned
thereon, will be returned to the subscribers on a pro
rata basis (taking into account the amount and time of
deposit), no later than ten (10) Business Days after
the conclusion of the Initial Offering Period for the
Series D Interests (or as soon thereafter as
practicable if payment cannot be made in such time
period). Such action will not terminate Series D.
(v) Managing Owner's Required Contribution.
In the event that 50,000 or more of the Series D
Limited Interests offered pursuant to the Prospectus
are sold during the Initial Offering Period for the
Series D Interests, the Managing Owner shall be
required to contribute in cash to the capital of
Series D an amount, which, when added to the total
contributions to Series D by all Series D
Interestholders, will be not less than one percent
(1%) of such total contributions, and in no event
shall such contribution be less than $50,500
(including the Managing Owner's Capital Contribution
pursuant to Section 3.1(d)). Thereafter, the Managing
Owner shall contribute in cash to the capital of
Series D an amount not less than 1.01% of any
additional Capital
A-15
Contributions received from the
Series D Limited Owners. The Managing Owner may, but
is not obligated to, make additional Capital
Contributions at any time during the Series D Initial
or Continuous Offering Periods. The Managing Owner
will receive Series D General Interests as provided in
Section 3.1(d). The Managing Owner shall, with
respect to any Series D Interests owned by it, enjoy
all of the rights and privileges and be subject to all
of the obligations and duties of a Series D Limited
Owner, in addition to its rights and privileges as
Managing Owner, except as otherwise provided herein.
Notwithstanding anything to the contrary in this Trust
Agreement, the interest of the Managing Owner (without
regard to any Limited Interests of the Managing Owner
in Series D) in each material item of Series D income,
gain, loss and deduction shall be equal, in the
aggregate, to at least one percent (1%) of each such
item at all times during the term of this Trust
Agreement.
(vi) Offer of Series D Limited Interests
After Initial Offering Period. In the event that
50,000 or more of the Series D Limited Interests are
sold during the Initial Offering Period for the
Series D Interests, the Trust may continue to offer
Series D Limited Interests and admit additional Series
D Limited Owners and/or accept additional
contributions from existing Series D Limited Owners
pursuant to the Prospectus.
Each additional Capital Contribution to
Series D during the Series D Continuous Offering
Period by an existing Series D Limited Owner must be
in a denomination which is an even multiple of $100.
During the Series D Continuous Offering Period, each
newly admitted Series D Limited Owner, and each
existing Series D Limited Owner that makes an
additional Capital Contribution to Series D, shall
receive Series D Limited Interests in an amount equal
to such Capital Contribution or additional Capital
Contribution, as the case may be, divided by the
Series D Net Asset Value per Series per Interest
calculated as of the Valuation Point immediately prior
to the Dealing Day on which such Capital Contribution
will become effective.
A Subscriber (including existing Series D
Limited Owners contributing additional sums) whose
subscription is received and accepted by the Managing
Owner after the termination of the Initial Offering
Period for Series D Interests shall be admitted to the
Trust and deemed a Series D Limited Owner with respect
to that subscription on the Dealing Day which occurs
at least five (5) Business Days after the Subscriber's
Subscription Agreement or Exchange Request is received
by the Trust's selling agent, counting the day of
receipt by such selling agent as one Business Day.
(vii) Subscription Agreement. Each
Series D Limited Owner who purchases any Limited
Interests offered pursuant to the Prospectus shall
contribute to the capital of Series D such amount as
he shall state in the Subscription Agreement which he
shall execute (as required therein), acknowledge and,
together with the Power of Attorney set forth therein,
deliver to the Managing Owner as a counterpart of this
Trust Agreement. All subscription amounts shall be
paid in such form as may be acceptable to the Managing
Owner at the time of the execution and delivery of
such Subscription Agreement by United States
subscribers, and in accordance with local practice and
procedure by non-United States subscribers. If the
Managing Owner determines to
A-16
accept subscription funds
by check, such funds shall be subject to prompt
collection. All subscriptions are subject to
acceptance by the Managing Owner.
(viii) Escrow Agreement. All proceeds
from the sale of Series D Limited Interests offered
pursuant to the Prospectus shall be deposited in an
interest bearing escrow account at The Chase Manhattan
Bank, in New York, N.Y. until the conclusion of the
Initial Offering Period for the Series D Interests.
In the event subscriptions for at least 50,000 of the
Series D Interests are received and accepted during
the Initial Offering for the Series D Interests, all
interest earned on the proceeds of subscriptions from
accepted subscribers for Series D Limited Interests
during its Initial Offering Period will be
contributed to Series D, for which the Series D
Limited Owners will receive additional Series D
Interests on a pro rata basis (taking into account
time and amount of deposit).
(ix) Optional Purchase of Series D
Limited Interests by Managing Owner and Trading
Advisor. Subject to approval by the Managing Owner,
any commodity broker (including, but not limited to,
PSI), any Trading Advisor, any principals,
stockholders, directors, officers, employees and
affiliates of the Managing Owner, any commodity
broker, and any Trading Advisor, may purchase any
number of Series D Limited Interests and will be
treated as Series D Limited Owners with respect to
such Interests. In addition to the Series D Interests
required to be purchased by the Managing Owner under
Section 3.4(a)(v), the Managing Owner also may
purchase any number of Series D Limited Interests as
it determines in its discretion.
(b) Offer of Series E Limited Interests.
(i) Series E Initial Offering Period.
During the Initial Offering Period, the Trust shall
offer pursuant to Securities and Exchange Commission
Rule 415, at an offering price of $100 per Series E
Limited Interest, a maximum of 500,000 Series E
Limited Interests ($50,000,000). The offering shall
be made pursuant to and on the terms and conditions
set forth in the Prospectus. The Managing Owner shall
make such arrangements for the sale of the Series E
Limited Interests as it deems appropriate.
(ii) Effect of the Sale of at least
50,000 Series E Interests. In the event that at least
50,000 Series E Limited Interests are sold to at least
150 subscribers during the Initial Offering Period for
the Series E Interests (including both Limited
Interests offered pursuant to the Prospectus and
Limited Interests purchased by the Managing Owner up
to $500,000), the Managing Owner will admit all
accepted subscribers pursuant to the Prospectus into
the Trust as Series E Limited Owners, by causing such
Limited Owners to execute this Trust Agreement,
pursuant to the Power of Attorney set forth in the
Subscription Agreement, and by making an entry on the
books and records of Series E of the Trust reflecting
that such subscribers have been admitted as Limited
Owners of Series E Interests, as soon as practicable
after the termination of the Series E Initial Offering
Period. Such accepted subscribers will be deemed
Series E Limited Owners at such time as such admission
is reflected on the books and records of Series E of
the Trust.
A-17
(iii) Paid-In Capital if at least 50,000
Series E Interests Are Sold. In the event that at
least 50,000 Series E Limited Interests are sold
during the Initial Offering Period, Series E shall
have paid-in capital of not less than $5,050,500
(including the Managing Owner's contribution for the
General Interests as provided in Section 3.1(d) and in
Section 3.4(b)(v) hereof).
(iv) Effect of the Sale of Less than
50,000 Series E Interests. In the event that at least
50,000 Series E Limited Interests are not sold during
the Initial Offering Period for the Series E
Interests, all proceeds of the sale of Series E
Limited Interests, together with any interest earned
thereon, will be returned to the subscribers on a pro
rata basis (taking into account the amount and time of
deposit), no later than ten (10) Business Days after
the conclusion of the Initial Offering Period for the
Series E Interests (or as soon thereafter as
practicable if payment cannot be made in such time
period). Such action will not terminate Series E.
(v) Managing Owner's Required Contribution.
In the event that 50,000 or more of the Series E
Limited Interests offered pursuant to the Prospectus
are sold during the Initial Offering Period for the
Series E Interests, the Managing Owner shall be
required to contribute in cash to the capital of
Series E an amount, which, when added to the total
contributions to Series E by all Series E
Interestholders, will be not less than one percent
(1%) of such total contributions, and in no event
shall such contribution be less than $50,500
(including the Managing Owner's Capital
Contribution pursuant to Section 3.1(d)). Thereafter, the Managing
Owner shall contribute in cash to the capital of
Series E an amount not less than 1.01% of any
additional Capital Contributions received from the
Series E Limited Owners. The Managing Owner may, but
is not obligated to, make additional Capital
Contributions at any time during the Series E Initial
or Continuous Offering Periods. The Managing Owner
will receive Series E General Interests as provided in
Section 3.1(b). The Managing Owner shall, with
respect to any Series E Interests owned by it, enjoy
all of the rights and privileges and be subject to all
of the obligations and duties of a Series E Limited
Owner, in addition to its rights and privileges as
Managing Owner, except as otherwise provided herein.
Notwithstanding anything to the contrary in this Trust
Agreement, the interest of the Managing Owner (without
regard to any Limited Interests of the Managing Owner
in Series E) in each material item of Series E income,
gain, loss and deduction shall be equal, in the
aggregate, to at least one percent (1%) of each such
item at all times during the term of this Trust
Agreement.
(vi) Offer of Series E Limited Interests
After Initial Offering Period. In the event that
50,000 or more of the Series E Limited Interests are
sold during the Initial Offering Period for the
Series E Interests, the Trust may continue to offer
Series E Limited Interests and admit additional Series
E Limited Owners and/or accept additional
contributions from existing Series E Limited Owners
pursuant to the Prospectus as amended or supplemented
from time to time.
Each additional Capital Contribution to
Series E during the Series E Continuous Offering
Period by an existing Series E Limited Owner must be
in a denomination which is an even multiple of $100.
During Series E Continuous Offering
A-18
Period, each newly
admitted Series E Limited Owner, and each existing
Series E Limited Owner that makes an additional
Capital Contribution to Series E, shall receive Series
E Limited Interests in an amount equal to such Capital
Contribution or additional Capital Contribution, as
the case may be, divided by the Series E Net Asset
Value per Interest calculated as of the Valuation
Point immediately prior to the Dealing Day on which
such Capital Contribution will become effective.
A Subscriber (including existing Series E
Limited Owners contributing additional sums) whose
subscription is received and accepted by the Managing
Owner after the termination of the Initial Offering
Period for Series E Interests shall be admitted to the
Trust and deemed a Series E Limited Owner with respect
to that subscription on the first Dealing Day which
occurs at least five (5) Business Days after the
Subscriber's Subscription Agreement or Exchange
Request is received by the Trust's selling agent,
counting the day of receipt by such selling agent as
one Business Day.
(vii) Subscription Agreement. Each
Series E Limited Owner who purchases any Limited
Interests offered pursuant to the Prospectus shall
contribute to the capital of Series E such amount as
he shall state in the Subscription Agreement
which he shall execute (as required therein), acknowledge and,
together with the Power of Attorney set forth therein,
deliver to the Managing Owner as a counterpart of this
Trust Agreement. All subscription amounts shall be
paid in such form as may be acceptable to the Managing
Owner at the time of the execution and delivery of
such Subscription Agreement by United States
subscribers, and in accordance with local practice and
procedure by non-United States subscribers. To the
extent that the Managing Owner determines to accept a
subscription check, it shall be subject to prompt
collection. All subscriptions are subject to
acceptance by the Managing Owner.
(viii) Escrow Agreement. All proceeds
from the sale of Series E Limited Interests offered
pursuant to the Prospectus shall be deposited in an
interest bearing escrow account at The Chase Manhattan
Bank, in New York, N.Y. until the conclusion of the
Initial Offering Period for the Series E Interests.
In the event subscriptions for at least 50,000 of the
Series E Interests are received and accepted during
the Initial Offering for the Series E Interests, all
interest earned on the proceeds of subscriptions from
accepted subscribers for Series E Limited Interests
during its Initial Offering Period will be
contributed to Series E, for which the Series E
Limited Owners will receive additional Series E
Interests on a pro rata basis (taking into account
time and amount of deposit) .
(ix) Optional Purchase of Series E
Limited Interests by Managing Owner and Trading
Advisor. Subject to approval by the Managing Owner,
any commodity broker (including, but not limited to,
PSI), any Trading Advisor, any principals,
stockholders, directors, officers, employees and
affiliates of the Managing Owner, any commodity
broker, and any Trading Advisor, may purchase any
number of Series E Limited Interests and will be
treated as Series E Limited Owners with respect to
such Interests. In addition to the Series E Interests
required to be purchased by the Managing Owner under
Section 3.4(b)(v), the Managing Owner also may
purchase any number of Series E Limited Interests as
it determines in its discretion.
A-19
(c) Offer of Series F Limited Interests.
(i) Series F Initial Offering Period.
During the Initial Offering Period, the Trust shall
offer pursuant to Securities and Exchange Commission
Rule 415, at an offering price of $100 per Series F
Limited Interest, a maximum of 500,000 Series F
Limited Interests ($50,000,000). No fractional
Limited Interests shall be issued during the Initial
Offering Period. The offering shall be made pursuant
to and on the terms and conditions set forth in the
Prospectus. The Managing Owner shall make such
arrangements for the sale of the Limited Interests as
it deems appropriate.
(ii) Effect of the Sale of at least
50,000 Series F Interests. In the event that at least
50,000 Series F Limited Interests are sold to at least
150 subscribers during the Initial Offering Period for
the Series F Interests (including both Limited
Interests offered pursuant to the Prospectus and
Limited Interests purchased by the Managing Owner up
to $500,000), the Managing Owner will admit all
accepted subscribers pursuant to the Prospectus into
the Trust as Series F Limited Owners, by causing such
Limited Owners to execute this Trust Agreement,
pursuant to the Power of Attorney set forth in the
Subscription Agreement, and by making an entry on the
books and records of Series F of the Trust reflecting
that such subscribers have been admitted as Limited
Owners of Series F Interests, as soon as practicable
after the termination of the Series F Initial Offering
Period. Such accepted subscribers will be deemed
Series F Limited Owners at such time as such admission
is reflected on the books and records of Series F of
the Trust.
(iii) Paid-In Capital if at least 50,000
Series F Interests Are Sold. In the event that at
least 50,000 Series F Limited Interests are sold
during the Initial Offering Period, Series F shall
have paid-in capital of not less than $5,050,500
(including the Managing Owner's contribution for the
General Interests as provided in Section 3.1(d) and in
Section 3.4(c)(v) hereof).
(iv) Effect of the Sale of Less than
50,000 Series F Interests. In the event that at least
50,000 Series F Limited Interests are not sold during
the Initial Offering Period for the Series F
Interests, all proceeds of the sale of Series F
Limited Interests, together with any interest earned
thereon, will be returned to the subscribers on a pro
rata basis (taking into account the amount and time of
deposit), no later than ten (10) Business Days after
the conclusion of the Initial Offering Period for the
Series F Interests (or as soon thereafter as
practicable if payment cannot be made in such time
period). Such action will not terminate Series F.
(v) Managing Owner's Required Contribution.
In the event that 50,000 or more of the Series F
Limited Interests offered pursuant to the Prospectus
are sold during the Initial Offering Period for the
Series F Interests, the Managing Owner shall be
required to contribute in cash to the capital of
A-20
Series F an amount, which, when added to the total
contributions to Series F by all Series F
Interestholders, will be not less than one percent
(1%) of such total contributions, and in no event
shall such contribution be less than $50,500
(including the Managing Owner's Capital Contribution
pursuant to Section 3.1(d)). Thereafter, the Managing
Owner shall contribute in cash to the capital of
Series F an amount not less than 1.01% of any
additional Capital Contributions received from the
Series F Limited Owners. The Managing Owner may, but
is not obligated to, make additional Capital
Contributions at any time during the Series F Initial
or Continuous Offering Periods. The Managing Owner
will receive Series F General Interests as provided in
Section 3.1(d). The Managing Owner shall, with
respect to any Series F Interests owned by it, enjoy
all of the rights and privileges and be subject to all
of the obligations and duties of a Series F Limited
Owner, in addition to its rights and privileges as
Managing Owner, except as otherwise provided herein.
Notwithstanding anything to the contrary in this Trust
Agreement, the interest of the Managing Owner (without
regard to any Limited Interests of the Managing Owner
in Series F) in each material item of Series F income,
gain, loss and deduction shall be equal, in the
aggregate, to at least one percent (1%) of each such
item at all times during the term of this Trust
Agreement.
(vi) Offer of Series F Limited Interests
After Initial Offering Period. In the event that
50,000 or more of the Series F Limited Interests are
sold during the Initial Offering Period for the
Series F Interests, the Trust may continue to offer
Series F Limited Interests and admit additional Series
F Limited Owners and/or accept additional
contributions from existing Series F Limited Owners
pursuant to the Prospectus as amended or supplemented
from time to time.
Each additional Capital Contribution to
Series F during the Series F Continuous Offering
Period by an existing Series F Limited Owner must be
in a denomination which is an even multiple of $100.
During Series F Continuous Offering Period, each newly
admitted Series F Limited Owner, and each existing
Series F Limited Owner that makes an additional
Capital Contribution to Series F, shall receive Series
F Limited Interests in an amount equal to such Capital
Contribution or additional Capital Contribution, as
the case may be, divided by the Series F Net Asset
Value per Interest calculated as of the Valuation
Point immediately prior to the Dealing Day on which
such Capital Contribution will become effective.
A Subscriber (including existing Series F
Limited Owners contributing additional sums) whose
subscription is received and accepted by the Managing
Owner after the termination of the Initial Offering
Period for Series F Interests shall be admitted to the
Trust and deemed a Series F Limited Owner with respect
to that subscription on the first Dealing Day which
occurs at least five (5) Business Days after the
Subscriber's Subscription Agreement or Exchange
Request is received by the Trust's selling agent,
counting the day of receipt by such selling agent as
one Business Day.
(vii) Subscription Agreement. Each
Series F Limited Owner who purchases any Limited
Interests offered pursuant to the Prospectus shall
contribute to the capital of Series F such amount as
he shall state in the Subscription Agreement which he
shall execute (as required therein), acknowledge and,
together with the Power of Attorney set forth therein,
deliver to the Managing Owner as a counterpart of this
Trust Agreement. All subscription amounts shall be
paid in such form as may be acceptable to the Managing
Owner at the time of the execution and delivery of
such Subscription Agreement by United States
subscribers, and in accordance with local practice and
A-21
procedure by non-United States subscribers. To the
extent that the Managing Owner determines to accept a
subscription check, it shall be subject to prompt
collection. All subscriptions are subject to
acceptance by the Managing Owner.
(viii) Escrow Agreement. All proceeds
from the sale of Series F Limited Interests offered
pursuant to the Prospectus shall be deposited in an
interest bearing escrow account at The Chase Manhattan
Bank, in New York, N.Y. until the conclusion of the
Initial Offering Period for the Series F Interests.
In the event subscriptions for at least 50,000 of the
Series F Interests are received and accepted during
the Initial Offering for the Series F Interests, all
interest earned on the proceeds of subscriptions from
accepted subscribers for Series F Limited Interests
during its Initial Offering Period will be
contributed to the Series F, for which the Series F
Limited Owners will receive additional Series F
Interests on a pro rata basis (taking into account
time and amount of deposit) .
(ix) Optional Purchase of Series F
Limited Interests by Managing Owner and Trading
Advisor. Subject to approval by the Managing Owner,
any commodity broker (including, but not limited to,
PSI), any Trading Advisor, any principals,
stockholders, directors, officers, employees and
affiliates of the Managing Owner, any commodity
broker, and any Trading Advisor, may purchase any
number of Series F Limited Interests and will be
treated as Series F Limited Owners with respect to
such Interests. In addition to the Series F Interests
required to be purchased by the Managing Owner under
Section 3.4(c)(v), the Managing Owner also may
purchase any number of Series F Limited Interests as
it determines in its discretion.
(d) Termination of the Trust. If the minimum
number of Interests in each Series being offered are not
sold during the Initial Offering Period for each Series,
then the Trust shall be terminated, and the Managing Owner
shall cause the certificate of cancellation required by
Section 3810 of the Business Trust Statute to be filed.
SECTION 3.5 Assets of Series. All consideration
received by the Trust for the issue or sale of Interests of
a particular Series together with all of the Trust Estate
in which such consideration is invested or reinvested, all
income, earnings, profits, and proceeds thereof, including
any proceeds derived from the sale, exchange or liquidation
of such assets, and any funds or payments derived from any
reinvestment of such proceeds in whatever form the same may
be, shall irrevocably belong to that Series for all
purposes, subject only to the rights of creditors of such
Series and except as may otherwise be required by
applicable tax laws, and shall be so recorded upon the
books of account of the Trust. Separate and distinct
records shall be maintained for each Series and the assets
associated with a Series shall be held and accounted for
separately from the other assets of the Trust, or any other
Series. In the event that there is any Trust Estate, or
any income, earnings, profits, and proceeds thereof, funds,
or payments which are not readily identifiable as belonging
to any particular Series, the Managing Owner shall allocate
them among any one or more of the Series established and
designated from time to time in such manner and on such
basis as the Managing Owner, in its sole discretion, deems
fair and equitable. Each such allocation by the Managing
Owner shall be conclusive and binding upon all
Interestholders for all purposes.
SECTION 3.6 Liabilities of Series.
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(a) The Trust Estate belonging to each particular
Series shall be charged with the liabilities of the Trust
in respect of that Series and only that Series; and all
expenses, costs, charges and reserves attributable to that
Series, and any general liabilities, expenses, costs,
charges or reserves of the Trust which are not readily
identifiable as belonging to any particular Series, shall
be allocated and charged by the Managing Owner to and among
any one or more of the Series Established and designated
from time to time in such manner and on such basis as the
Managing Owner in its sole discretion deems fair and
equitable. Each allocation of liabilities, expenses,
costs, charges and reserves by the Managing Owner shall be
conclusive and binding upon all Interestholders for all
purposes. The Managing Owner shall have full discretion,
to the extent not inconsistent with applicable law, to
determine which items shall be treated as income and which
items as capital, and each such determination and
allocation shall be conclusive and binding upon the
Interestholders. Every written agreement, instrument or
other undertaking made or issued by or on behalf of a
particular Series shall include a recitation limiting the
obligation or claim represented thereby to that Series and
its assets.
(b) Without limitation of the foregoing
provisions of this Section, but subject to the right of the
Managing Owner in its discretion to allocate general
liabilities, expenses, costs, charges or reserves as herein
provided, the debts, liabilities, obligations and expenses
incurred, contracted for or otherwise existing with respect
to a particular Series shall be enforceable against the
assets of such Series only and against the Managing Owner,
and not against the assets (i) of the Trust generally or
(ii) of any other Series. Notice of this limitation on
interseries liabilities shall be set forth in the
Certificate of Trust of the Trust (whether originally or by
amendment) as filed or to be filed in the Office of the
Secretary of State of the State of Delaware pursuant to the
Business Trust Statute, and upon the giving of such notice
in the Certificate of Trust, the statutory provisions of
Section 3804 of the Business Trust Statute relating to
limitations on interseries liabilities (and the statutory
effect under Section 3804 of setting forth such notice in
the Certificate of Trust) shall become applicable to the
Trust and each Series. Every Interest, note, bond,
contract, instrument, certificate or other undertaking made
or issued by or on behalf of a particular Series shall
include a recitation limiting the obligation on
Interests represented thereby to that Series and its
assets.
(c) (1) Except as set forth below, any debts,
liabilities, obligations, indebtedness, expenses,
interests and claims of any nature and all kinds and
descriptions (collectively, "Claims and Interests"),
if any, of the Managing Owner and the Trustee (the
"Subordinated Claims") incurred, contracted for or
otherwise existing, arising from, related to or in
connection with all Series, any combination of Series
or one particular Series and their respective assets
(the "Applicable Series") and the assets of the Trust
shall be expressly subordinate and junior in right of
payment to any and all other Claims against the Trust
and any Series thereof, and any of their respective
assets, which may arise as a matter of law or pursuant
to any contract, provided, however, that the Claims of
each of the Managing Owner and the Trustee (if any)
against the Applicable Series shall not be considered
Subordinated Claims with respect to enforcement
against and distribution and repayment from the
Applicable Series, the Applicable Series' assets and
the Managing Owner and its assets; and provided
further that the valid Claims of either the Managing
Owner or the Trustee, if any, against the Applicable
Series shall be pari passu and equal in right of
repayment and distribution with all other valid Claims
against the Applicable Series and (ii) the Managing
Owner and the Trustee will not take, demand
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or receive from any Series or the Trust or any of their
respective assets (other than the Applicable Series,
the Applicable Series' assets and the Managing Owner
and its assets) any payment for the Subordinated
Claims;
(i) The Claims of each of the Managing
Owner and the Trustee with respect to the Applicable
Series shall only be asserted and enforceable against
the Applicable Series, the Applicable Series' assets
and the Managing Owner and its assets; and such Claims
shall not be asserted or enforceable for any reason
whatsoever against any other Series, the Trust
generally, or any of their respective assets;
(ii) If the Claims of the Managing Owner
or the Trustee against the Applicable Series or the
Trust are secured in whole or in part, each of the
Managing Owner and the Trustee hereby waives (under
section 1111(b) of the Bankruptcy Code (11 U.S.C. S
1111(b)) any right to have any deficiency Claims
(which deficiency Claims may arise in the event such
security is inadequate to satisfy such Claims) treated
as unsecured Claims against the Trust or any Series
(other than the Applicable Series), as the case may
be;
(iii) In furtherance of the foregoing, if
and to the extent that the Managing Owner and the
Trustee receive monies in connection with the
Subordinated Claims from a Series or the Trust (or
their respective assets), other than the Applicable
Series, the Applicable Series' assets and the Managing
Owner and its assets, the Managing Owner and the
Trustee shall be deemed to hold such monies in trust
and shall promptly remit such monies to the Series or
the Trust that paid such amounts for distribution by
the Series or the Trust in accordance with the terms
hereof; and
(iv) The foregoing Consent shall apply at all
times notwithstanding that the Claims are satisfied,
and notwithstanding that the agreements in respect of
such Claims are terminated, rescinded or canceled.
(d) Any agreement entered into by the Trust, any
Series, or the Managing Owner, on behalf of the Trust
generally or any Series, including, without limitation, the
Subscription Agreement entered into with each
Interestholder, will include language substantially similar
to the language set forth in Section 3.6(c).
SECTION 3.7 Dividends and Distributions.
(a) Dividends and distributions on Interests of
a particular Series or any class thereof may be paid with
such frequency as the Managing Owner may determine, which
may be daily or otherwise, to the Interestholders in that
Series or class, from such of the income and capital gains,
accrued or realized, from the Trust Estate belonging to
that Series, or in the case of a class, belonging to that
Series and allocable to that class, as the Managing Owner
may determine, after providing for actual and accrued
liabilities belonging to that Series. All dividends and
distributions on Interests in a particular Series or class
thereof shall be distributed pro rata to the
Interestholders in that Series or class in proportion to
the total outstanding Interests in that Series or class
held by such Interestholders at the date and time of record
established for the payment of such dividends or
distribution, except to the extent otherwise
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required or permitted by the preferences and special or relative
rights and privileges of any Series or class. Such dividends and
distributions may be made in cash or Interests of that
Series or class or a combination thereof as determined by
the Managing Owner or pursuant to any program that the
Managing Owner may have in effect at the time for the
election by each Interestholder of the mode of the making
of such dividend or distribution to that Interestholder.
(b) The Interests in a Series or a class of the
Trust shall represent beneficial interests in the Trust
Estate belonging to such Series or in the case of a class,
belonging to such Series and allocable to such class. Each
Interestholder in a Series or a class shall be entitled to
receive its pro rata share of distributions of income and
capital gains made with respect to such Series or such
class. Upon reduction or withdrawal of its Interests or
indemnification for liabilities incurred by reason of being
or having been a holder of Interests in a Series or a
class, such Interestholder shall be paid solely out of the
funds and property of such Series or in the case of a
class, the funds and property of such Series and allocable
to such class of the Trust. Upon liquidation or
termination of a Series of the Trust, Interestholders in
such Series or class shall be entitled to receive a pro
rata share of the Trust Estate belonging to such Series or
in the case of a class, belonging to such Series and
allocable to such class.
SECTION 3.8 Voting Rights. Notwithstanding any other
provision hereof, on each matter submitted to a vote of the
Interestholders of a Series, each Interestholder shall be
entitled to a proportionate vote based upon the product of
the Net Asset Value of a Series per Interest multiplied by
the number of Interests, or fraction thereof, standing in
its name on the books of such Series. As to any matter
which affects the Interests of more than one Series, the
Interestholders of each affected Series shall be entitled
to vote, and each such Series shall vote as a separate
class.
SECTION 3.9 Equality. Except as provided herein or
in the instrument designating and establishing any class or
Series, all Interests of each particular Series shall
represent an equal proportionate beneficial interest in the
assets belonging to that Series subject to the liabilities
belonging to that Series, and each Interest of any
particular Series or classes shall be equal to each other
Interest of that Series or class; but the provisions of
this sentence shall not restrict any distinctions
permissible under Section 3.7 that may exist with respect
to dividends and distributions on Interests of the same
Series or class. The Managing Owner may from time to time
divide or combine the Interests of any particular Series or
class into a greater or lesser number of Interests of that
Series or class without thereby changing the proportionate
beneficial interest in the assets belonging to that Series
or in any way affecting the rights of Interestholders of
any other Series or class.
SECTION 3.10 Exchange of Interests. Subject to
compliance with the requirements of applicable law, the
Managing Owner shall have the authority to provide that
Interestholders of any Series shall have the right to
exchange said Interests into one or more other Series in
accordance with such requirements and procedures as may be
established by the Managing Owner. The Managing Owner
shall also have the authority to provide that
Interestholders of any class of a particular Series shall
have the right to exchange said Interests into one or more
other classes of that particular Series or any other Series
in accordance with such requirements and procedures as may
be established by the Managing Owner.
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ARTICLE IV
THE MANAGING OWNER
SECTION 4.1 Management of the Trust. Pursuant to
Section 3806 of the Business Trust Statute, the Trust shall
be managed by the Managing Owner and the conduct of the
Trust's business shall be controlled and conducted solely
by the Managing Owner in accordance with this Trust
Agreement.
SECTION 4.2 Authority of Managing Owner. In addition
to and not in limitation of any rights and powers conferred
by law or other provisions of this Trust Agreement, and
except as limited, restricted or prohibited by the express
provisions of this Trust Agreement or the Business Trust
Statute, the Managing Owner shall have and may exercise on
behalf of the Trust or any Series in the Trust, all powers
and rights necessary, proper, convenient or advisable to
effectuate and carry out the purposes, business and
objectives of the Trust, which shall include, without
limitation, the following:
(a) To enter into, execute, deliver and maintain
contracts, agreements and any or all other documents and
instruments, and to do and perform all such things, as may
be in furtherance of Trust purposes or necessary or
appropriate for the offer and sale of the Interests and the
conduct of Trust activities, including, but not limited to,
contracts with third parties for:
(i) commodity brokerage services,
provided, however, that in no event shall the fees payable
by the Trust for such services exceed 14% annually of the
average Net Asset Value of each Series, excluding
the Series' assets not directly related to trading
activity, which fees shall include fees related
to out-of-pocket brokerage expenses, in accordance
with limitations imposed by Section IV
of the NASAA Guidelines on May 15, 1999; and
provided further, to the extent that such limitations
are amended to become more restrictive,
such fees will not exceed such more restrictive
limitations; and provided, further, that such services
may be performed by an Affiliate or Affiliates of the
Managing Owner so long as the Managing Owner has made
a good faith determination that: (A) the Affiliate
which it proposes to engage to perform such services
is qualified to do so (considering the prior
experience of the Affiliate or the individuals
employed thereby); (B) the terms and conditions of the
agreement pursuant to which such Affiliate is to
perform services for the Trust are no less favorable
to the Trust than could be obtained from equally-qualified
unaffiliated third parties; and (C) the
maximum period covered by the agreement pursuant to
which such affiliate is to perform services for the
Trust shall not exceed one year, and such agreement
shall be terminable without penalty upon sixty (60)
days' prior written notice by the Trust; and
(ii) (A) commodity trading advisory services
relating to the purchase and sale of all Commodities
positions on behalf of each Series, which services
may not be performed by the Managing Owner or an
Affiliate(s) of the Managing Owner, provided, however,
that in no event shall the Management Fees and
Incentive Fees payable by the Trust
for such services exceed 6% of a Series' Net Asset
Value and 15% of a Series' New High Net Trading
Profits, respectively, except that for each 1%
reduction in Management Fees plus administrative
expenses set forth in the first proviso to
(B) below below 6% of a
Series' Net Asset Value, Incentive Fees
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may be increased by an
additional 2% of Net High Net Trading Profits; and (B)
administrative services necessary to the prudent
operation of the Trust, provided, however, that
notwithstanding any other provision of this
Agreement, in no event shall the fees payable by the
Trust for administrative services (which do not
include Management Fees, Incentive Fees, or commodity
brokerage services, third party legal and audit charges or
extraordinary expenses), when combined with Management Fees,
exceed 6% annually of the Net Asset Value of each Series,
each in accordance with the limitations set forth in
Section IV of the NASAA Guidelines on May 15, 1999;
provided, however, that to the extent that
such limitations are amended to become more
restrictive, such fees will not exceed
such more restrictive limitations. All advisory
services shall be performed by persons with at least
three years experience and who are also appropriately
registered under federal and/or state law (i.e., all
commodities advice with respect to commodities
transactions shall be given by persons who are
registered with the CFTC as a commodity trading
advisor and are members of the NFA as a commodity
trading advisor), but shall not be performed by any
person affiliated with the Trust's Commodities broker.
(b) To establish, maintain, deposit into, sign
checks and/or otherwise draw upon accounts on behalf of
each Series of the Trust with appropriate banking and
savings institutions, and execute and/or accept any
instrument or agreement incidental to the Trust's business
and in furtherance of its purposes, any such instrument or
agreement so executed or accepted by the Managing Owner in
the Managing Owner's name shall be deemed executed and
accepted on behalf of the Trust by the Managing Owner;
(c) To deposit, withdraw, pay, retain and
distribute the Trust Estate or any portion thereof in any
manner consistent with the provisions of this Trust
Agreement;
(d) To supervise the preparation and filing of
the Registration Statement and supplements and amendments
thereto, and the Prospectus;
(e) To pay or authorize the payment of
distributions to the Interestholders and expenses of each
Series;
(f) To invest or direct the investment of funds
of any Series not then delegated to a Trading Advisor(s)
and prohibit any transactions contemplated hereunder which
may constitute prohibited transactions under ERISA or the
Code;
(g) To make any elections on behalf of each
Series under the Code, or any other applicable federal or
state tax law as the Managing Owner shall determine to be
in the best interests of the Series;
(h) To redeem mandatorily any Limited Interests
upon at least ten (10) days' prior written notice, if (i)
the Managing Owner determines that the continued
participation of such Limited Owner in the Trust might
cause the Trust, a Series in the Trust or any
Interestholder to be deemed to be managing Plan Assets
under ERISA, (ii) there is an unauthorized assignment
pursuant to the provisions of Article V, or (iii) in the
event that any transaction would or might violate any law
or constitute a prohibited transaction under ERISA or
A-27
the Code and a statutory, class or individual exemption from
the prohibited transaction provisions of ERISA for such
transaction or transactions does not apply or cannot be
obtained from the DOL (or the Managing Owner determines not
to seek such an exemption). In the case of mandatory
redemptions, the Redemption Date shall be the close of
business on the date written notice of intent to redeem is
sent by the Managing Owner to a Limited Owner. A notice
may be revoked prior to the payment date by written notice
from the Managing Owner to a Limited Owner;
(i) In the sole discretion of the Managing Owner,
to admit an Affiliate or Affiliates of the Managing Owner
as additional Managing Owners. Notwithstanding the
foregoing, the Managing Owner may not admit Affiliate(s) of
the Managing Owner as an additional Managing Owner if it
has received notice of its removal as a Managing Owner,
pursuant to Section 8.2(d) hereof, and if the concurrence
of at least a majority in interest (over 50%) of the
outstanding Interests of all Series (not including
Interests owned by the Managing Owner) is not obtained;
(j) To override any trading instructions: (i)
that the Managing Owner, in its sole discretion, determines
in good faith to be in violation of any trading policy or
limitation of the Trust, including as set forth in Section
4.2(k) below; (ii) as and to the extent necessary, upon the
failure of any Trading Advisor to comply with a request to
make the necessary amount of funds available to the Trust
within five (5) days of such request, to fund
distributions, redemptions (including special redemptions),
or reapportionments among Trading Advisors or to pay the
expenses of any Series in the Trust; and provided further,
that the Managing Owner may make Commodities trading
decisions at any time at which any Trading Advisor shall
become incapacitated or some other emergency shall arise as
a result of which such Trading Advisor shall be unable or
unwilling to act and a successor Trading Advisor has not
yet been retained;
(k) Monitor the trading activities of the Trading
Advisor so that:
(i) Any Series does not establish new
Commodities positions for any one contract month or
option if such additional Commodities positions would
result in a net long or short position for that
Commodities position requiring as margin or premium
more than fifteen percent (15%) of the Trust Estate of
a Series.
(ii) Any Series does not acquire
additional Commodities positions in any commodities
interest contract or option if such additional
Commodities positions would result in the aggregate
net long or short Commodities positions requiring as
margin or premium for all outstanding Commodities
positions more than sixty-six and two-thirds percent
(66 2/3%) of the Trust Estate of a Series. Under
certain market conditions, such as an abrupt increase
in margins required by a commodity exchange or its
clearinghouse or an inability to liquidate open
Commodities positions because of daily price
fluctuation limits or both, a Series may be required
to commit as margin in excess of the foregoing limit.
In such event the Managing Owner will cause each
Trading Advisor to reduce its open futures or options
positions to comply with the foregoing limit before
initiating new Commodities positions.
A-28
SECTION 4.3 Obligations of the Managing Owner. In
addition to the obligations expressly provided by the
Business Trust Statute or this Trust Agreement, the
Managing Owner shall:
(a) Devote such of its time to the business and
affairs of the Trust as it shall, in its discretion
exercised in good faith, determine to be necessary to
conduct the business and affairs of the Trust for the
benefit of the Trust and the Limited Owners;
(b) Execute, file, record and/or publish all
certificates, statements and other documents and do any and
all other things as may be appropriate for the formation,
qualification and operation of the Trust and each Series of
the Trust and for the conduct of its business in all
appropriate jurisdictions;
(c) Retain independent public accountants to
audit the accounts of each Series in the Trust;
(d) Employ attorneys to represent the Trust or a
Series thereof;
(e) Use its best efforts to maintain the status
of the Trust as a "business trust" for state law purposes,
and of each Series of the Trust as a "partnership" for
federal income tax purposes;
(f) Monitor the trading policies and limitations
of each Series, as set forth in the Prospectus, and the
activities of the Trust's Trading Advisor(s) in carrying
out those policies in compliance with the Prospectus;
(g) Monitor the brokerage fees charged to each
Series, and the services rendered by futures commission
merchants to each Series, to determine whether the fees
paid by, and the services rendered to, each Series for
futures brokerage are at competitive rates and are the best
price and services available under the circumstances, and
if necessary, renegotiate the brokerage fee structure to
obtain such rates and services for each Series. In making
this determination the Managing Owner shall not rely solely
on the brokerage rates paid by other major commodity pools.
No material change related to brokerage fees shall be made
except upon (i) twenty (20) Business Days' prior notice to
the Limited Owners, which notice shall include a
description of the Limited Owners' voting rights as set
forth in Section 8.2 hereof and a description of the
Limited Owners' redemption rights as set forth in Section
7.1 hereof, and (ii) consent of the Limited Owners holding
Interests representing at least a majority (over 50%) in
Net Asset Value of the Series affected (excluding Interests
held by the Managing Owner). No increase in such fees
shall take effect except at the beginning of a Fiscal
Quarter following consent of the Limited Owners as provided
in this subparagraph (g).
(h) Have fiduciary responsibility for the
safekeeping and use of the Trust Estate of each Series,
whether or not in the Managing Owner's immediate possession
or control, and the Managing Owner will not employ or
permit others to employ such funds or assets of each Series
(including any interest earned thereon as provided for in
the Prospectus) in any manner except as and to the extent
permitted by the NASAA Guidelines for the benefit of each
Series in the Trust, including, among other things, the
utilization of any portion of the Trust Estate as
compensating balances for the exclusive benefit of the
Managing Owner. The
A-29
Managing Owner shall at all times act
with integrity and good faith and exercise due diligence in
all activities relating to the conduct of the business of
each Series and in resolving conflicts of interest. The
Trust shall not permit any Limited Owner to contract away
the fiduciary duty owed to the Limited Owners by the
Managing Owner under this Agreement or the Delaware
Business Trust Act. To the extent that, at law or in
equity, the Managing Owner or any officer, director,
employee or agent thereof or any Affiliate of the Managing
Owner (collectively, the "Covered Persons"), has duties
(including fiduciary duties) and liabilities relating
thereto to any Series, any other Interestholder or Covered
Person or the Trustee, such Covered Person acting under the
Trust Agreement shall not be liable to the Series, any
other Interestholder or Covered Person or the Trustee for
such Covered Person's good faith reliance on the provisions
of the Trust Agreement; and the duties and liabilities of
such Covered Person may be expanded or restricted by the
provisions of this Trust Agreement.
(i) Agree that, at all times from and after the
sale of at least the Subscription Minimum (as defined in
the Prospectus), for so long as it remains a Managing Owner
of the Trust, it shall have a minimum "net worth" (as
defined below) of, and not take any affirmative action to
reduce its "net worth" below, $1,000,000, or such higher
amount as may be required under the NASAA Guidelines as they
may be amended from time to time. The NASAA
Guidelines define "net worth" as the excess of total
assets over total liabilities determined by generally
accepted accounting principles;
(j) Admit substituted Limited Owners in
accordance with this Trust Agreement;
(k) Refuse to recognize any attempted transfer or
assignment of an Interest that is not made in accordance
with the provisions of Article V; and
(l) Maintain a current list in alphabetical
order, of the names and last known addresses and, if
available, business telephone numbers of, and number of
Interests owned by, each Interestholder (as provided in
Section 3.4 hereof) and the other Trust documents described
in Section 9.6 at the Trust's principal place of business,
which documents shall be made available thereat at
reasonable times during ordinary business hours for
inspection by any Limited Owner or his representative for
any purpose reasonably related to the Limited Owner's
interest as a beneficial owner of the Trust. Such list
shall be printed on white paper in clearly legible print
and shall be updated quarterly. Upon request, for any
purpose reasonably related to the Limited Owner's interest
as a beneficial owner of the Trust, including without
limitation, matters relating to an Interestholder's voting
rights hereunder or the exercise of a Limited Owner's
rights under federal proxy law, either in person or by
mail, the Managing Owner will furnish a copy of such list
to a Limited Owner or his representative within ten (10)
days of a request therefor, upon payment of the cost of
reproduction and mailing; provided, however, that the
Limited Owner requesting such list shall give written
assurance that the list will not, in any event, be used for
commercial purposes. Subject to applicable law, a Limited
Owner shall give the Managing Owner at least ten (10)
Business Days' prior written notice for any inspection and
copying permitted pursuant to this Section 4.3(l) by the
Limited Owner or his authorized attorney or agent.
A-30
(m) Notify the Interestholders within seven (7)
days from the date of:
(i) any material change in contracts with
any Series' Trading Advisor;
(ii) any material modification made in the
calculation of the Incentive Fee paid
to any Trading Advisor; and
(iii) any material change affecting the
compensation of any person compensated
by a Series.
SECTION 4.4 General Prohibitions. The Trust or any
Series shall not:
(a) Borrow money from or loan money to any
Interestholder or other Person or any other Series, except
that the foregoing is not intended to prohibit (i) the
deposit on margin with respect to the initiation and
maintenance of each Series' Commodities positions or (ii)
obtaining lines of credit for the trading of forward
contracts; provided, however, that each Series is
prohibited from incurring any indebtedness on a non-recourse basis;
(b) Create, incur, assume or suffer to exist any
lien, mortgage, pledge conditional sales or other title
retention agreement, charge, security interest or
encumbrance, except (i) the right and/or obligation of a
commodity broker to close out sufficient commodities
positions of each Series so as to restore the Series'
account to proper margin status in the event that the
Series fails to meet a Margin Call, (ii) liens for taxes
not delinquent or being contested in good faith and by
appropriate proceedings and for which appropriate reserves
have been established, (iii) deposits or pledges to secure
obligations under workmen's compensation, social security
or similar laws or under unemployment insurance, (iv)
deposits or pledges to secure contracts (other than
contracts for the payment of money), leases, statutory
obligations, surety and appeal bonds and other obligations
of like nature arising in the ordinary course of business,
or (v) mechanic's, warehousemen's, carrier's, workmen's,
materialmen's or other like liens arising in the ordinary
course of business with respect to obligations which are
not due or which are being contested in good faith, and for
which appropriate reserves have been established if
required by generally accepted accounting principles, and
liens arising under ERISA;
(c) Commingle its assets with those of any other
Person, except to the extent permitted under the CE Act
and the regulations promulgated thereunder, or with those
of any other Series;
(d) Directly or indirectly pay or award any
finder's fees, commissions or other compensation to any
Persons engaged by a potential Limited Owner for investment
advice as an inducement to such advisor to advise the
potential Limited Owner to purchase Limited Interests in
the Trust;
(e) Engage in Pyramiding of its Commodities
positions; provided, however, that a Trading Advisor(s) may
take into account the Series' open trade equity on existing
positions in determining generally whether to acquire
additional Commodities positions on behalf of the Series;
A-31
(f) Permit rebates to be received by the Managing
Owner or any Affiliate of the Managing Owner, or permit the
Managing Owner or any Affiliate of the Managing Owner to
engage in any reciprocal business arrangements which would
circumvent the foregoing prohibition;
(g) Permit the Trading Advisor(s) to share in any
portion of brokerage fees related to commodity brokerage
services paid by a Series with respect to its commodity
trading activities;
(h) Enter into any contract with the Managing
Owner or an Affiliate of the Managing Owner (except for
selling agreements for the sale of Interests) (i) which has
a term of more than one year and which does not provide
that it may be canceled by the Trust without penalty on
sixty (60) days prior written notice or (ii) for the
provision of goods and services, except at rates and terms
at least as favorable as those which may be obtained from
third parties in arms-length negotiations;
(i) Permit churning of its Commodity trading
account(s) for the purpose of generating excess brokerage
commissions;
(j) Enter into any exclusive brokerage contract;
and
(k) Operate the Trust in any manner so as to
contravene section 3804 of the Business Trust Statute.
SECTION 4.5 Liability of Covered Persons. A Covered
Person shall have no liability to the Trust or to any
Interestholder or other Covered Person for any loss
suffered by the Trust which arises out of any action or
inaction of such Covered Person if such Covered Person, in
good faith, determined that such course of conduct was in
the best interest of the Trust and such course of conduct
did not constitute negligence or misconduct of such Covered
Person. Subject to the foregoing, neither the Managing
Owner nor any other Covered Person shall be personally
liable for the return or repayment of all or any portion of
the capital or profits of any Limited Owner or assignee
thereof, it being expressly agreed that any such return of
capital or profits made pursuant to this Trust Agreement
shall be made solely from the assets of the Trust without
any rights of contribution from the Managing Owner or any
other Covered Person.
SECTION 4.6 Indemnification of the Managing Owner.
(a) The Managing Owner shall be indemnified by
the Trust or a Series thereof against any losses,
judgments, liabilities, expenses and amounts paid in
settlement of any claims sustained by it in connection with
its activities for a particular Series of the Trust,
provided that (i) the Managing Owner was acting on behalf
of or performing services for the relevant Series and has
determined, in good faith, that such course of conduct was
in the best interests of the Series and such liability
or loss was not the result of negligence, misconduct, or a
breach of this Trust Agreement on the part of the Managing
Owner and (ii) any such indemnification will only be
recoverable from the Trust Estate. All rights to
indemnification permitted herein and payment of associated
expenses shall not be affected by the dissolution or other
cessation to exist of the Managing Owner, or the
withdrawal, adjudication of bankruptcy or insolvency of the
Managing Owner, or the filing of a voluntary or involuntary
petition in bankruptcy under Title 11 of the
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U.S. Code by or against the Managing Owner. Any
indemnification under this Section 4.6(a), unless
ordered by a court, shall be made by the Trust
only as authorized in the specific case
and only upon a determination by independent legal counsel
in a written opinion that indemnification of the Managing
Owner is proper in the circumstances because it has met the
applicable standard of conduct set forth hereunder, it
being understood that the source of payments made in
respect of indemnification under this Trust Agreement shall
be the assets of each Series on a pro rata basis, as the
case may be.
(b) Notwithstanding the provisions of Section
4.6(a) above, the Managing Owner and any Person acting as
broker-dealer for each Series shall not be indemnified
for any losses, liabilities or expenses arising from or out
of an alleged violation of federal or state securities laws
unless (i) there has been a successful adjudication on the
merits of each count involving alleged securities law
violations as to the particular indemnitee and the court
approves the indemnification of such expenses (including,
without limitation, litigation costs), (ii) such claims
have been dismissed with prejudice on the merits by a court
of competent jurisdiction as to the particular indemnitee
and the court approves the indemnification of such expenses
(including, without limitation, litigation costs) or (iii)
a court of competent jurisdiction approves a settlement of
the claims against a particular indemnitee and finds that
indemnification of the settlement and related costs should
be made.
(c) In any claim for indemnification for federal
or state securities law violations, the party seeking
indemnification shall place before the court the position
of the Securities and Exchange Commission, the position of
the Massachusetts Securities Division, the Pennsylvania
Securities Commission, the Tennessee Securities Division
and the position of any other applicable state securities
division which requires disclosure with respect to the
issue of indemnification for securities law violations.
(d) The Trust shall not incur the cost of that
portion of any insurance which insures any party against
any liability, the indemnification of which is herein
prohibited.
(e) Expenses incurred in defending a threatened
or pending civil, administrative or criminal action suit or
proceeding against the Managing Owner shall be paid by the
Trust in advance of the final disposition of such action,
suit or proceeding, if (i) the legal action relates to the
performance of duties or services by the Managing Owner on
behalf of the Trust or a particular Series of the Trust;
(ii) the legal action is initiated by a third party who is
not a Limited Owner or the legal action is initiated by a
Limited Owner and a court of competent jurisdiction
specifically approves such advance; and (iii) the
Managing Owner undertakes to repay the advanced funds with
interest to the Trust in cases in which it is not entitled
to indemnification under this Section 4.6.
(f) The term "Managing Owner" as used only in
this Section 4.6 shall include, in addition to the Managing
Owner, any other Covered Person performing services on
behalf of the Trust or any Series thereof and acting within
the scope of the Managing Owner's authority as set forth in
this Trust Agreement.
(g) In the event the Trust or any Series is made
a party to any claim, dispute, demand or litigation or
otherwise incurs any loss, liability, damage, cost or
expense as a result
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of or in connection with any Limited
Owner's (or assignee's) obligations or liabilities
unrelated to Trust business, such Limited Owner (or
assignees cumulatively) shall indemnify, defend, hold
harmless, and reimburse the Trust for all such loss,
liability, damage, cost and expense incurred, including
attorneys' and accountants' fees.
(h) The payment of any amount pursuant to this
Section shall be subject to Section 3.6 with respect to the
allocation of liabilities and other amounts, as
appropriate, among the Series of the Trust.
SECTION 4.7 Expenses and Limitations Thereon.
(a) The Managing Owner or an Affiliate of the
Managing Owner shall be responsible for the payment of all
Organization and Offering Expenses incurred in the creation
of the Trust and each Series thereof and sale of Interests.
Organization and Offering Expenses shall mean those
expenses incurred in connection with the formation,
qualification and registration of the Trust and the
Interests and in offering, distributing and processing the
Interests under applicable federal and state law, and any
other expenses actually incurred and, directly or
indirectly, related to the organization of the Trust or the
initial and continuous offering of the Interests,
including, but not limited to, expenses such as: (i)
initial and ongoing registration fees, filing fees, escrow
fees and taxes, (ii) costs of preparing, printing
(including typesetting), amending, supplementing, mailing
and distributing the Registration Statement, the Exhibits
thereto and the Prospectus during the Initial and
Continuous Offering Periods, (iii) the costs of qualifying,
printing, (including typesetting), amending, supplementing,
mailing and distributing sales materials used in connection
with the offering and issuance of the Interests during the
Initial and Continuous Offering Periods, (iv) travel,
telegraph, telephone and other expenses in connection with
the offering and issuance of the Interests during the
Initial and Continuous Offering Periods, (v) accounting,
auditing and legal fees (including disbursements related
thereto) incurred in connection therewith, and (vi) any
extraordinary expenses (including, but not limited to,
legal claims and liabilities and litigation costs and any
permitted indemnification associated therewith) related
thereto.
(b) Subject to Section 4.2(a), all ongoing
charges, costs and expenses of the Trust's operation,
including, but not limited to, the routine
expenses associated with (i) preparation of
monthly, annual and other reports required by applicable
federal and state regulatory authorities; (ii) Trust
meetings and preparing, printing and mailing of proxy
statements and reports to Interestholders; (iii) the
payment of any distributions related to redemption of
Interests; (iv) routine services of the Trustee, legal
counsel and independent accountants; (v) routine accounting
and bookkeeping services, whether performed by an outside
service provider or by Affiliates of the Managing Owner;
(vi) postage and insurance; (vii) client relations
and services; (viii) computer equipment and system
maintenance; (ix) the fixed fee to be paid to
Prudential Securities Incorporated, the Trust's Commodity
Broker; (x) required payments to the Trust's Trading Advisors;
and (xi) extraordinary expenses (including, but not
limited to, legal claims and liabilities and
litigation costs and any indemnification
related thereto) shall be billed to and/or paid by the
appropriate Series of the Trust, subject to such
other limitations as are set forth herein concerning the
limitations on the Series' liability for the liabilities of
another Series. provided, however, the aggregate annual
expenses set forth in subsections 4.7(b)(i), (ii),
(iii), (iv), (v), (vi), (vii), and (viii), above
incurred by each Series, shall in no event exceed,
1.5% annually of
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the Net Asset Value of that Series.
Any expenses incurred by a Series in excess of this amount
is not the responsibility of that Series.
(c) The Managing Owner or any Affiliate of the
Managing Owner may only be reimbursed for the actual cost
to the Managing Owner or such Affiliate of any expenses
which it advances on behalf of the Trust or any series
thereof for which payment one or more Series of the Trust
is responsible. In addition, payment to the Managing Owner
or such Affiliate for indirect expenses incurred in
performing services for the Trust or any Series thereof,
such as salaries and fringe benefits of officers and
directors, rent or depreciation, utilities and other
administrative items generally falling within the category
of the Managing Owner's "overhead," is prohibited.
SECTION 4.8 Compensation to the Managing Owner.
Except as provided in Section 7.1(c) with respect to the
payment of redemption charges, the Managing Owner shall
not, in its capacity as Managing Owner, receive any salary,
fees, profits or distributions. The Managing Owner shall,
in its capacity as an Interestholder, be entitled to
receive allocations and distributions pursuant to the
provisions of this Trust Agreement.
SECTION 4.9 Other Business of Interestholders.
Except as otherwise specifically provided herein, any of
the Interestholders and any shareholder, officer, director,
employee or other person holding a legal or beneficial
interest in an entity which is an Interestholder, may
engage in or possess an interest in other business ventures
of every nature and description, independently or with
others, and the pursuit of such ventures, even if
competitive with the business of the Trust, shall not be
deemed wrongful or improper. The Managing Owner and
Affiliates of the Managing Owner shall not engage in a
venture competitive with the Trust except as described in
the Prospectus.
SECTION 4.10 Voluntary Withdrawal of the Managing
Owner . The Managing Owner may withdraw voluntarily as the
Managing Owner of the Trust only upon one hundred and
twenty (120) days' prior written notice to all Limited
Owners and the Trustee and the prior approval of Limited
Owners holding Interests equal to at least a majority (over
50%) of the Net Asset Value of each Series (excluding
Interests held by the withdrawing Managing Owner). If the
withdrawing Managing Owner is the last remaining Managing
Owner, Limited Owners holding Interests equal to at least
a majority (over 50%) of the Net Asset Value of each Series
(not including Interests held by the Managing Owner) may
vote to elect and appoint, effective as of a date on or
prior to the withdrawal, a successor Managing Owner who
shall carry on the business of the Trust. If the Managing
Owner withdraws as Managing Owner and the Limited Owners or
remaining Managing Owner elect to continue the Trust, the
withdrawing Managing Owner shall pay all expenses incurred
as a result of its withdrawal. In the event of its removal
or withdrawal, the Managing Owner shall be entitled to a
redemption of its Interest at the Net Asset Value of a
Series thereof on the next Redemption Date following the
date of removal or withdrawal.
SECTION 4.11 Authorization of Registration
Statements . Each Limited Owner (or any permitted assignee
thereof) hereby agrees that the Managing Owner is
authorized to execute, deliver and perform the agreements,
acts, transactions and matters contemplated hereby or
described in or contemplated by the Registration
Statements on behalf of the Trust without any
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further act, approval or vote of the Limited Owners of
the Trust, notwithstanding any other provision of this Trust
Agreement, the Business Trust Statute or any applicable
law, rule or regulation.
SECTION 4.12 Litigation. The Managing Owner is
hereby authorized to prosecute, defend, settle or
compromise actions or claims at law or in equity as may
be necessary or proper to enforce or protect the Trust's
interests. The Managing Owner shall satisfy any judgment,
decree or decision of any court, board or authority having
jurisdiction or any settlement of any suit or claim prior
to judgment or final decision thereon, first, out of any
insurance proceeds available therefor, next, out of the
Trust's assets and, thereafter, out of the assets (to the
extent that it is permitted to do so under the various
other provisions of this Agreement) of the Managing Owner.
ARTICLE V
TRANSFERS OF INTERESTS
SECTION 5.1 General Prohibition. A Limited Owner may
not sell, assign, transfer or otherwise dispose of, or
pledge, hypothecate or in any manner encumber any or all of
his Interests or any part of his right, title and interest
in the capital or profits of any Series in the Trust except
as permitted in this Article V and any act in violation of
this Article V shall not be binding upon or recognized by
the Trust (regardless of whether the Managing Owner shall
have knowledge thereof), unless approved in writing by the
Managing Owner.
SECTION 5.2 Transfer of Managing Owner's General
Interests.
(a) Upon an Event of Withdrawal (as defined in
Section 13.1), the Managing Owner's General Interests shall
be purchased by the Trust for a purchase price in cash
equal to the Net Asset Value thereof. The Managing Owner
will not cease to be a Managing Owner of the Trust merely
upon the occurrence of its making an assignment for the
benefit of creditors, filing a voluntary petition in
bankruptcy, filing a petition or answer seeking for itself
any reorganization, arrangement, composition, readjustment,
liquidation, dissolution or similar relief under any
statute, law or regulation, filing an answer or other
pleading admitting or failing to contest material
allegations of a petition filed against it in any
proceeding of this nature or seeking, consenting to or
acquiescing in the appointment of a trustee, receiver or
liquidator for itself or of all or any substantial part of
its properties.
(b) To the full extent permitted by law, nothing
in this Trust Agreement shall be deemed to prevent the
merger of the Managing Owner with another corporation, the
reorganization of the Managing Owner into or with any other
corporation, the transfer of all the capital stock of the
Managing Owner or the assumption of the Interests, rights,
duties and liabilities of the Managing Owner by, in the
case of a merger, reorganization or consolidation, the
surviving corporation by operation of law.
(c) Upon assignment of all of its Interests, the
Managing Owner shall not cease to be a Managing Owner of
the Trust, or to have the power to exercise any rights or
powers as a Managing Owner, or to have liability for the
obligations of the Trust under Section 1.7
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hereof, until an additional Managing Owner, who shall
carry on the business of the Trust, has been
admitted to the Trust.
SECTION 5.3 Transfer of Limited Interests.
(a) Permitted assignees of the Limited Owners
shall be admitted as substitute Limited Owners, pursuant to
this Article V, only upon the consent of the Managing
Owner, which may be withheld by the Managing Owner
(x) if the proposed assignee does not meet the
established suitability requirements, or (y)
to avoid adverse legal consequences to any
Series in the Trust.
(i) A substituted Limited Owner is a
permitted assignee that has been admitted to any
Series as a Limited Owner with all the rights and
powers of a Limited Owner hereunder. If all of the
conditions provided in Section 5.3(b) below are
satisfied, the Managing Owner shall admit permitted
assignees into the Trust as Limited Owners by making
an entry on the books and records of the Series
reflecting that such permitted assignees have been
admitted as Limited Owners, and such permitted
assignees will be deemed Limited Owners at such time
as such admission is reflected on the books and
records of the Series.
(ii) A permitted assignee is a Person to
whom a Limited Owner has assigned his Limited
Interests with the consent of the Managing Owner, as
provided below in Section 5.3(d), but who has not
become a substituted Limited Owner. A permitted
assignee shall have no right to vote, to obtain any
information on or account of the Series'
transactions or to inspect the Series' books, but
shall only be entitled to receive the share of the
profits, or the return of the Capital Contribution, to
which his assignor would otherwise be entitled as set
forth in Section 5.3(d) below to the extent of the
Limited Interests assigned. Each Limited Owner agrees
that any permitted assignee may become a substituted
Limited Owner without the further act or consent of
any Limited Owner, regardless of whether his permitted
assignee becomes a substituted Limited Owner.
(iii) A Limited Owner shall bear all
extraordinary costs (including attorneys' and
accountants' fees), if any, related to any transfer,
assignment, pledge or encumbrance of his Limited
Interests.
(b) No permitted assignee of the whole or any
portion of a Limited Owner's Limited Interests shall have
the right to become a substituted Limited Owner in place of
his assignor unless all of the following conditions are
satisfied:
(i) The written consent of the Managing
Owner to such substitution shall be obtained, the
granting or denial of which shall be within the sole
and absolute discretion of the Managing Owner.
(ii) A duly executed and acknowledged
written instrument of assignment has been filed with
the Trust setting forth the intention of the assignor
that the permitted assignee become a substituted
Limited Owner in his place;
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(iii) The assignor and permitted assignee
execute and acknowledge and/or deliver such other
instruments as the Managing Owner may deem necessary
or desirable to effect such admission, including his
execution, acknowledgment and delivery to the Managing
Owner, as a counterpart to this Trust Agreement, of a
Power of Attorney in the form set forth in the
Subscription Agreement; and
(iv) Upon the request of the Managing
Owner, an opinion of the Trust's independent legal
counsel is obtained to the effect that (A) the
assignment will not jeopardize the Series' tax
classification as a partnership and (B) the
assignment does not violate this Trust Agreement or
the Business Trust Statute.
(c) Any Person admitted to any Series as an
Interestholder shall be subject to all of the provisions of
this Trust Agreement as if an original signatory hereto.
(d) (i) Subject to the provisions of Section
5.3(e) below, compliance with the suitability
standards imposed by the Trust for the purchase of new
Interests, applicable federal securities and state
"Blue Sky" laws and the rules of any other applicable
governmental authority, a Limited Owner shall have the
right to assign all or any of his Limited Interests to
any assignee by a written assignment (on a form
acceptable to the Managing Owner) the terms of which
are not in contravention of any of the provisions of
this Trust Agreement, which assignment has been
executed by the assignor and received by the Trust and
recorded on the books thereof. An assignee of a
Limited Interest (or any interest therein) will not be
recognized as a permitted assignee without the consent
of the Managing Owner, which consent the Managing
Owner shall withhold only under the following
circumstances: (A) if necessary, in the judgment of
the Managing Owner (and upon receipt of an opinion of
counsel to this effect), to preserve the
classification of each Series of the Trust as a
partnership for federal income tax purposes or to
preserve the characterization or treatment of any
Series' income or loss; or (B) if such assignment is
effectuated through an established securities market
or a secondary market (or the substantial equivalent
thereof). The Managing Owner shall withhold its
consent to assignments made under the foregoing
circumstances, and shall exercise such right by taking
any actions as it seems necessary or appropriate in
its reasonable discretion so that such transfers or
assignments of rights are not in fact recognized, and
the assignor or transferor continues to be recognized
by the Trust as an Interestholder for all purposes
hereunder, including the payment of any cash
distribution. The Managing Owner shall incur no
liability to any investor or prospective investor for
any action or inaction by it in connection with the
foregoing, provided it acted in good faith.
(ii) Except as specifically provided in
this Trust Agreement, a permitted assignee of an
Interest shall be entitled to receive distributions
from the Series attributable to the Interest acquired
by reason of such assignment from and after the
effective date of the assignment of such Interest to
him. The "effective date" of an assignment of a
Limited Interest as used in this clause shall be the
Dealing Day of the next succeeding week, provided the
Managing Owner shall have been in receipt of the
written instrument of assignment for at least five (5)
Business Days prior thereto. If the assignee is (A)
an ancestor or descendant of the Limited Owner, (B)
the personal representative or heir of a deceased
Limited Owner, (C) the trustee of a trust whose
beneficiary is the Limited Owner or another person to
whom a transfer could otherwise
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be made or (D) the
shareholders, partners, or beneficiaries of a
corporation, partnership or trust upon its termination
or liquidation, then the "effective date" of an
assignment of an Interest in the Trust shall be the
first day of the week immediately following the week
in which the written instrument of assignment is
received by the Managing Owner.
(iii) Anything herein to the contrary
notwithstanding, the Trust and the Managing Owner
shall be entitled to treat the permitted assignor of
such Interest as the absolute owner thereof in all
respects, and shall incur no liability for
distributions made in good faith to him, until such
time as the written assignment has been received by,
and recorded on the books of, the Trust.
(e) (i) No assignment or transfer of an Interest
may be made which would result in the Limited Owners
and permitted assignees of the Limited Owners owning,
directly or indirectly, individually or in the
aggregate, five percent (5%) or more of the stock of
the Managing Owner or any related person as defined in
Sections 267(b) and 707(b)(1) of the Code. If any
such assignment or transfer would otherwise be made by
bequest, inheritance of operation of law, the Interest
transferred shall be deemed sold by the transferor to
the Series immediately prior to such transfer in the
same manner as provided in Section 5.3(e)(iii).
(ii) No assignment or transfer of an
interest in any Series may be made which would
contravene the NASAA Guidelines, as adopted in any
state in which the proposed transferor and transferee
reside including, without limitation, the restriction
set forth in Paragraph F(2) of Article V thereof,
which precludes any assignment (except for assignments
by gift, inheritance, intra family assignment, family
dissolutions and transfers to affiliates), which would
result in either the assignee or the
assignor holding Interests in any combination of
Series valued at less than $5,000 (or $2,000
in the case of IRAs), provided,
however, that this limitation shall not apply in
respect of a Limited Owner wishing to assign its or
his entire interest in all Series of the Trust.
(iii) Anything else to the contrary
contained herein notwithstanding: (A) In any
particular twelve (12) consecutive month period no
assignment or transfer of an Interest may be made
which would result in increasing the aggregate total
of Interests previously assigned and/or transferred in
said period to forty-nine percent (49%) or more of the
outstanding Interests of any Series. This limitation
is hereinafter referred to as the "forty-nine percent
(49%) limitation"; (B) Clause (ii)(A) hereof shall
not apply to a transfer by gift, bequest or
inheritance, or a transfer to the Trust, and, for
purposes of the forty-nine percent (49%) limitation,
any such transfer shall not be treated as such; (C)
If, after the forty-nine percent (49%) limitation is
reached in any consecutive twelve (12) month period,
a transfer of an Interest would otherwise take place
by operation of law (but not including any transfer
referred to in clause (iii)(B) hereof) and would cause
a violation of the forty-nine percent (49%)
limitation, then said Interest(s) shall be deemed to
have been sold by the transferor to the Trust in
liquidation of said Interest(s) immediately prior to
such transfer for a liquidation price equal to the Net
Asset Value of a Series of said Interest(s) on such
date of transfer. The liquidation price shall be paid
within ninety (90) days after the date of the
transfer.
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(f) The Managing Owner, in its sole discretion,
may cause any Series to make, refrain from making, or once
having made, to revoke, the election referred to in Section
754 of the Code, and any similar election provided by state
or local law, or any similar provision enacted in lieu
thereof.
(g) The Managing Owner, in its sole discretion,
may cause any Series to make, refrain from making, or once
having made, to revoke the election by a qualified fund
under Section 988(c)(1)(E)(V), and any similar election
provided by state or local law, or any similar provision
enacted in lieu thereof.
(h) Each Limited Owner hereby agrees to indemnify
and hold harmless the Trust and each Interestholder against
any and all losses, damages, liabilities or expense
(including, without limitation, tax liabilities or loss of
tax benefits) arising, directly or indirectly, as a result
of any transfer or purported transfer by such Limited Owner
in violation of any provision contained in this Section
5.3.
ARTICLE VI
DISTRIBUTION AND ALLOCATIONS
SECTION 6.1 Capital Accounts. A capital account
shall be established for each Interestholder on the books
of the Series in which an Interest is owned (such
account sometimes hereinafter referred to as a "book
capital account"). The initial balance of each
Interestholder's book capital account shall be the amount
of his initial Capital Contribution to a Series.
SECTION 6.2 Weekly Allocations. As of the close of
business (as determined by the Managing Owner) on the
Valuation Point of each week during each Fiscal Year of
the Trust, the following determinations and allocations
shall be made:
(a) First, any increase or decrease in the
Trust's Net Asset Value of a Series as of such date as
compared to the next previous determination of Net Asset
Value of a Series shall be credited or charged to the book
capital accounts of the Interestholders in the ratio that
the balance of each Interestholder's book capital account
bears to the balance of all Interestholders' book capital
accounts; and
(b) Next, the amount of any distribution to be
made to an Interestholder and any amount to be paid to an
Interestholder upon redemption of his Interests shall be
charged to that Interestholder's book capital account as of
the applicable record date and Redemption Date,
respectively.
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SECTION 6.3 Allocation of Profit and Loss for United
States Federal Income Tax Purposes. As of the end of each
Fiscal Year of each Series, the Series' recognized profit
and loss shall be allocated among the Interestholders
pursuant to the following subparagraphs for federal income
tax purposes. Except as otherwise provided herein, such
allocations of profit and loss shall be pro rata from
Disposition Gain (or Disposition Loss) and Profits (or
Losses).
(a) First, the Profits or Losses of the Series
shall be allocated pro rata among the Interestholders based
on their respective book capital accounts as of the last
day of each week in which such Profits or Losses accrued.
(b) Next, Disposition Gain or Disposition Loss
from the Series' trading activities for each Fiscal Year of
the Trust shall be allocated among the Interestholders as
follows:
(i) There shall be established a tax capital
account with respect to each outstanding Interest.
The initial balance of each tax capital account shall
be the amount paid by the Interestholder to the
Series for the Interest. Tax capital accounts shall
be adjusted as of the end of each Fiscal Year as
follows: (A) Each tax capital account shall be
increased by the amount of income (Profits or
Disposition Gain) which shall have been allocated to
the Interestholder who shall hold the Interest
pursuant to Section 6.3(a) above and Sections
6.3(b)(ii) and 6.3(b)(iii) below; (B) Each tax
capital account shall be decreased by the amount of
expense or loss (Losses or Disposition Losses) which
shall have been allocated to the Interestholder who
shall hold the Interest pursuant to Section 6.3(a)
above and Sections 6.3(b)(iv) and 6.3(b)(v) below and
by the amount of any distribution which shall have
been received by the Interestholder with respect to
the Interest (other than on redemption of Interests);
and (C) If an Interest is redeemed, the tax capital
account with respect to such Interest shall be
eliminated on the Redemption Date.
(ii) Disposition Gain realized during
any week shall be allocated first among all
Interestholders whose book capital accounts shall be
in excess of their Interests' tax capital accounts
(after making the adjustments, other than adjustments
resulting from the allocations to be made pursuant to
this Section 6.3(b)(ii) for the current week,
described in Section 6.3(b)(i) above) in the ratio
that each such Interestholder's excess shall bear to
all such Interestholder's excesses.
(iii) Disposition Gain realized during
any week that remains after the allocation pursuant
to Section 6.3(b)(ii) above shall be allocated to
those Interestholders who were Interestholders during
such week in the ratio that each such
Interestholder's book capital account bears to all
such Interestholders' book capital accounts for such
week.
(iv) Disposition Loss realized during
any week shall be allocated first among all
Interestholders whose Interests' tax capital accounts
shall be in excess of their book capital accounts
(after making the adjustments, other than adjustments
resulting from the allocations to be made pursuant to
this Section 6.3(b)(iv) for the current week,
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described in Section 6.3(b)(i) above) in the ratio
that each such Interestholder's excess shall bear to
all such Interestholders' excesses.
(v) Disposition Loss realized during any
week that remains after the allocation pursuant to
Section 6.3(b)(iv) above shall be allocated to those
Interestholders who were Interestholders during such
week in the ratio that each such Interestholder's
book capital account bears to all such
Interestholders' book capital accounts for such
calendar week.
(c) The tax allocations prescribed by this
Section 6.3 shall be made to each holder of an Interest
whether or not the holder is a substituted Limited Owner.
For purposes of this Section 6.3, tax allocations shall be
made to the Managing Owner's Interests on an Interest--
equivalent basis.
(d) The allocation of income and loss (and items
thereof) for federal income tax purposes set forth in this
Section 6.3 is intended to allocate taxable income and loss
among Interestholders generally in the ratio and to the
extent that net profit and net loss shall be
allocated to such Interestholders under Section 6.2 so as to
eliminate, to the extent possible, any disparity between an
Interestholder's book capital account and his tax capital
account, consistent with the principles set forth in
Sections 704(b) and (c)(2) of the Code.
(e) Notwithstanding this Section 6.3, if after
taking into account any distributions to be made with
respect to such Interest for the relevant period pursuant
to Section 6.4 herein, any allocation would produce a
deficit in the book capital account of an Interest, the
portion of such allocation that would create such a deficit
shall instead be allocated pro rata to the book capital
accounts of the other Interests held by the same
Interestholder (subject to the same limitation) and, as to
any balance, shall be allocated pro rata to the book
capital accounts of all the remaining Interestholders
(subject to the same limitation).
SECTION 6.4 Allocation of Distributions. Initially,
distributions shall be made by the Managing Owner, and the
Managing Owner shall have sole discretion in determining
the amount and frequency of distributions, other than
redemptions, which a Series shall make with respect to
the Interests; provided, however, that a Series shall not
make any distribution that violates the Business Trust
Statute. The aggregate distributions made in a Fiscal Year
(other than distributions on termination, which shall be
allocated in the manner described in Article VIII) shall be
allocated among the holders of record of Interests in the
ratio in which the number of Interests held of record by
each of them bears to the number of Interests held of
record by all of the Interestholders as of the record date
of such distribution; provided, further, however, that any
distribution made in respect of an Interest shall not
exceed the book capital account for such Interest.
SECTION 6.5 Admissions of Interestholders; Transfers.
For purposes of this Article VI, Interestholders shall be
deemed admitted, and a tax and book capital account shall
be established in respect of the Interests acquired by such
Interestholder or in respect of additional Interests
acquired by an existing Interestholder, as of the Dealing
Day following the week in which such Interestholder's
Subscription Agreement or Exchange Request, as the case may
be, is received, provided the Managing Owner shall have
been in receipt of such Subscription
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Agreement or Exchange Request for at least five (5)
Business Days, or in which the transfer of
Interests to such Interestholder is
recognized, except that persons accepted as subscribers to
the Trust pursuant to Section 3.4(b) shall be deemed
admitted on the date determined pursuant to such Section.
Any Interestholder to whom an Interest had been transferred
shall succeed to the tax and book capital accounts
attributable to the Interest transferred.
SECTION 6.6 Liability for State and Local and Other
Taxes. In the event that any Series shall be separately
subject to taxation by any state or local or by any foreign
taxing authority, the Series shall be obligated to pay such
taxes to such jurisdiction. In the event that the Series
shall be required to make payments to any Federal, state or
local or any foreign taxing authority in respect of any
Interestholder's allocable share of Series income, the
amount of such taxes shall be considered a loan by the
Series to such Interestholder, and such Interestholder
shall be liable for, and shall pay to the Series, any taxes
so required to be withheld and paid over by the Series
within ten (10) days after the Managing Owner's request
therefor. Such Interestholder shall also be liable for
(and the Managing Owner shall be entitled to redeem
additional Interests of the foreign Interestholder as
necessary to satisfy) interest on the amount of taxes paid
over by the Series to the IRS or other taxing authority,
from the date of the Managing Owner's request for payment
to the date of payment or the redemption, as the case may
be, at the rate of two percent (2%) over the prime rate
charged from time to time by Citibank, N.A. The amount, if
any, payable by the Series to the Interestholder in respect
of its Interests so redeemed, or in respect of any other
actual distribution by the Series to such Interestholder,
shall be reduced by any obligations owed to the Series by
the Interestholder, including, without limitation, the
amount of any taxes required to be paid over by the Series
to the IRS or other taxing authority and interest thereon
as aforesaid. Amounts, if any, deducted by the Series from
any actual distribution or redemption payment to such
Interestholder shall be treated as an actual distribution
to such Interestholder for all purposes of this Trust
Agreement.
ARTICLE VII
REDEMPTIONS
SECTION 7.1 Redemption of Interests. The
Interestholders recognize that the profitability of any
Series depends upon long-term and uninterrupted investment
of capital. It is agreed, therefore, that Series profits
and gains may be automatically reinvested, and that
distributions, if any, of profits and gains to the
Interestholders will be on a limited basis. Nevertheless,
the Interestholders contemplate the possibility that one or
more of the Limited Owners may elect to realize and
withdraw profits, or withdraw capital through the
redemption of Interests prior to the dissolution of a
Series. In that regard and subject to the provisions of
Section 4.2(h):
(a) Subject to the conditions set forth in this
Article VII, each Limited Owner (or any permitted assignee
thereof) shall have the right to redeem a Limited Interest
or portion thereof on the first Dealing Day following the
date the Managing Owner is in receipt of an acceptable form
of written notice of redemption for at least five (5)
Business Days (a "Redemption Date"). Interests will be
redeemed on a "first in, first out" basis based on time of
receipt of redemption requests at a redemption price equal
to the Net Asset Value of a Series per
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Interest calculated as of the Valuation Point immediately
preceding the applicable Redemption Date. If an Interestholder
(or permitted assignee thereof) is permitted to redeem any or
all of his Interests as of a date other than a Redemption
Date, such adjustments in the determination and allocation
among the Interestholders of Disposition Gain, Disposition
Loss, Profits, Losses and items of income or deduction for
tax accounting purposes shall be made as are necessary or
appropriate to reflect and give effect to the redemption.
(b) The value of an Interest for purposes of
redemption shall be the book capital account balance of
such Interest at the Valuation Point immediately preceding
the Redemption Date, less any amount owing by such Limited
Owner (and his permitted assignee, if any) to the Trust
pursuant to Sections 4.6(g), 5.3(h) or 6.6 of this Trust
Agreement. If redemption of an Interest shall be requested
by a permitted assignee, all amounts which shall be owed to
the Trust under Sections 4.6(g), 5.3(h) or 6.6 hereof by
the Interestholder of record, as well as all amounts which
shall be owed by all permitted assignees of such Interests,
shall be deducted from the Net Asset Value of a Series of
such Interests upon redemption.
(c) The effective date of redemption shall
be the Redemption Date, and payment of the value of the
redeemed Interests (except for Interests redeemed as part
of an Exchange as provided in Section 7.4) generally shall
be made within ten (10) Business Days following the
Redemption Date; provided, that all liabilities, contingent
or otherwise, of the Trust or any Series in the Trust,
except any liability to Interestholders on account of their
Capital Contributions, have been paid or there remains
property of the Series sufficient to pay them; and provided
further, that under extraordinary circumstances as may be
determined by the Managing Owner in its sole discretion,
including, but not limited to, the inability to liquidate
Commodity positions as of such Redemption Date, or default
or delay in payments due the Trust from commodity brokers,
banks or other Persons, or significant administrative
hardship, the Trust may in turn delay payment to Limited
Owners requesting redemption of Interests of the
proportionate part of the value of redeemed Interests
represented by the sums which are the subject of such
default or delay, in which event payment for redemption of
such Interests will be made to Limited Owners as soon
thereafter as is practicable. A Limited Owner may revoke
his notice of intent to redeem on or prior to the
Redemption Date by written instructions to the Managing
Owner. If a Limited Owner revokes his notice of intent to
redeem and thereafter wishes to redeem, such Limited Owner
will be required to submit written notice thereof in
accordance with Section 7.1(d) and will be redeemed on
the first Redemption Date to occur after the Managing Owner
shall have been in receipt of such written notice for at
least five (5) Business Days.
(d) A Limited Owner (or any permitted
assignee thereof) wishing to redeem Interests must provide
the Managing Owner with written notice of his intent to
redeem, which notice shall specify the name and address of
the redeeming Limited Owner and the amount of Limited
Interests sought to be redeemed. The notice of redemption
shall be in the form annexed to the Prospectus or in any
other form acceptable to the Managing Owner and shall be
mailed or delivered to the principal place of business of
the Managing Owner. Such notice must include
representations and warranties that the redeeming Limited
Owner (or any permitted assignee thereof) is the lawful and
beneficial owner of the Interests to be redeemed and that
such Interests are not subject to any pledge or otherwise
encumbered in any fashion. In certain circumstances, the
Trust may require additional documents, such as, but not
limited to, trust instruments, death certificates,
appointments as executor or administrator or certificates
of corporate authority.
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Limited Owners requesting
redemption shall be notified in writing within five (5)
Business Days following the Redemption Date whether or not
their Interests will be redeemed, unless payment for the
redeeming Interests is made within that five (5) Business
Day period, in which case the notice of acceptance of the
redemption shall not be required.
(e) The Managing Owner may suspend
temporarily any redemption if the effect of such
redemption, either alone or in conjunction with other
redemptions, would be to impair the Trust's ability to
operate in pursuit of its objectives. In addition, the
Managing Owner may mandatorily redeem Interests pursuant to
Section 4.2(h).
(f) Interests that are redeemed shall be
extinguished and shall not be retained or reissued by the
Trust or any Series.
(g) Except as discussed above, all requests
for redemption in proper form will be honored, and the
Series' positions will be liquidated to the extent
necessary to discharge its liabilities on the Redemption
Date.
SECTION 7.2 Redemption by the Managing Owner.
Notwithstanding any provision in this Trust Agreement to
the contrary, for so long as it shall act as the Trust's
Managing Owner, the Managing Owner shall not transfer or
redeem any of its General Interests to the extent that any
such transfer or redemption would result in its having less
than a one percent (1%) interest in the Trust.
SECTION 7.3 Redemption Fee. The Managing Owner will
receive a redemption fee, as provided in the Prospectus, of
the Net Asset Value of an Interest of any Series redeemed
during the first and second successive six-month periods
following the effective date of its purchase. This
redemption fee will not be charged if you simultaneously
(i) exchange the redeemed Interest or portion thereof for
an Interest of equal value in another Series, or (ii)
invest your redemption proceeds in another futures fund
sponsored by Prudential Securities. The redemption fees
may be waived by the Managing Owner in other circumstances
as set forth in the Prospectus.
SECTION 7.4 Exchange of Interests. Interests in one
Series may be exchanged, without applicability of
redemption fees, for Interests of equivalent value of any
other Series (an "Exchange") on any Dealing Day, subject to
the conditions on Redemptions in this Article VII, except
that an Exchange will be made on the first Dealing Day
following the date the Managing Owner is in receipt of an
Exchange Request for at least five (5) Business Days.
ARTICLE VIII
THE LIMITED OWNERS
SECTION 8.1 No Management or Control; Limited
Liability . The Limited Owners shall not participate in
the management or control of the Trust's business nor shall
they transact any business for the Trust or any Series
thereof or have the power to sign for or bind the Trust or
any Series thereof, said power being vested solely and
exclusively in the Managing Owner. Except as provided in
Section 8.3 hereof, no Limited Owner shall be bound by, or
be personally liable for, the expenses, liabilities or
obligations of the Trust in excess of his Capital
Contribution plus his share of the Trust Estate of any
Series in which such Limited Owners own
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an Interest and profits remaining in the Series, if any.
Except as provided in Section 8.3 hereof, each Limited
Interest owned by a Limited Owner shall be fully paid and no
assessment shall be made against any Limited Owner. No
salary shall be paid to any Limited Owner in his capacity
as a Limited Owner, nor shall any Limited Owner have a
drawing account or earn interest on his contribution.
SECTION 8.2 Rights and Duties. The Limited Owners
shall have the following rights, powers, privileges, duties
and liabilities:
(a) The Limited Owners shall have the right to
obtain information of all things affecting the Trust (or
any Series thereof in which it holds an Interest), provided
that such is for a purpose reasonably related to the
Limited Owner's interest as a beneficial owner of the
Trust, including, without limitation, such reports as are
set forth in Article IX and such information as is set
forth in Section 4.3(l) hereof. In the event that the
Managing Owner neglects or refuses to produce or mail to a
Limited Owner a copy of the information set forth in
Section 4.3(l) hereof, the Managing Owner shall be liable
to such Limited Owner for the costs, including reasonable
attorney's fees, incurred by such Limited Owner to compel
the production of such information, and for any actual
damages suffered by such Limited Owner as a result of such
refusal or neglect; provided, however, it shall be a
defense of the Managing Owner that the actual purpose of
the Limited Owner's request for such information was not
reasonably related to the Limited Owner's interest as a
beneficial owner in the Trust (e.g., to secure such
information in order to sell it, or to use the same for a
commercial purpose unrelated to the participation of such
Limited Owner in the Trust). The foregoing rights are in
addition to, and do not limit, other remedies available to
Limited Owners under federal or state law.
(b) The Limited Owners shall receive from the
Series in which they hold Interests, the share of the
distributions provided for in this Trust Agreement in the
manner and at the times provided for in this Trust
Agreement.
(c) Except for the Limited Owners' redemption
rights set forth in Article VII hereof or upon a mandatory
redemption effected by the Managing Owner pursuant to
Section 4.2(h) hereof, Limited Owners shall have the right
to demand the return of their capital account only upon the
dissolution and winding up of the Series in which they hold
Interests and only to the extent of funds available
therefor. In no event shall a Limited Owner be entitled to
demand or receive property other than cash. Except with
respect to Series or class differences, no Limited Owner
shall have priority over any other Limited Owner either as
to the return of capital or as to profits, losses or
distributions. No Limited Owner shall have the right to
bring an action for partition against the Trust.
(d) Limited Owners holding Interests representing
at least a majority (over 50%) in Net Asset Value of each
affected Series (not including Interests held by the
Managing Owner and its Affiliates, including the commodity
broker) voting separately as a class may vote to (i)
continue the Series as provided in Section 13.1(b), (ii)
approve the voluntary withdrawal of the Managing Owner and
elect a successor Managing Owner as provided in Section
4.10,
(iii) remove the Managing Owner on reasonable prior
written notice to the Managing Owner, (iv) elect and
appoint one or more additional Managing Owners, (v) approve
a material change in the trading policies of a Series, or
the brokerage fees paid by a Series, as set forth in the
Prospectus,
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which change shall not be effective without the
prior written approval of such majority, (vi) approve the
termination of any agreement entered into between the Trust
and the Managing Owner or any Affiliate of the Managing
Owner for any reason, without penalty, (vii) approve
amendments to this Trust Agreement as set forth in Section
11.1 hereof, and (viii) terminate the Series as provided in
Section 13.1(g), and in the case of (iv), (v) and (vi) in
each instance on sixty (60) days' prior written notice.
Except as set forth above, the Limited Owners
shall have no voting or other rights with respect to the
Trust. Prior to the exercise by the Limited Owners of the
rights set forth in Section 8.2(d), the Trust will, if
practicable, provide the Limited Owners with an opinion of
independent legal counsel in each state where the Trust may
be deemed to be conducting its business with respect to
whether or not such exercise would constitute such
participation in the control of the Trust business as would
adversely affect the Limited Owners limited liability under
the laws of such state.
SECTION 8.3 Limitation on Liability.
(a) Except as provided in Sections 4.6(g), 5.3(h)
and 6.6 hereof, and as otherwise provided under Delaware
law, the Limited Owners shall be entitled to the same
limitation of personal liability extended to stockholders
of private corporations for profit organized under the
general corporation law of Delaware and no Limited Owner
shall be liable for claims against, or debts of any Series
of the Trust in excess of his Capital Contribution to that
Series and his share of the Trust Estate and undistributed
profits, except in the event that the liability is founded
upon misstatements or omissions contained in such Limited
Owner's Subscription Agreement delivered in connection with
his purchase of Interests. In addition, and subject to the
exceptions set forth in the immediately preceding sentence,
the Trust shall not make a claim against a Limited Owner
with respect to amounts distributed to such Limited Owner
or amounts received by such Limited Owner upon redemption
unless, under Delaware law, such Limited Owner is liable to
repay such amount.
(b) The Trust shall indemnify, on a pro rata
basis among Series, to the full extent permitted by law
and the other provisions of this Agreement, and to the
extent of the Trust Estate, each Limited Owner (excluding
the Managing Owner to the extent of its ownership of any
Limited Interests) against any claims of liability asserted
against such Limited Owner solely because he is a
beneficial owner of one or more Series' Interests (other
than for taxes for which such Limited Owner is liable under
Section 6.6 hereof).
(c) Every written note, bond, contract,
instrument, certificate or undertaking made or issued by
the Managing Owner shall give notice to the effect that the
same was executed or made by or on behalf of the Trust and
that the obligations of such instrument are not binding
upon the Limited Owners individually but are binding only
upon the assets and property of the Trust, and no resort
shall be had to the Limited Owners' personal property for
satisfaction of any obligation or claim thereunder, and
appropriate references may be made to this Trust Agreement
and may contain any further recital which the Managing
Owner deems appropriate, but the omission thereof shall not
operate to bind the Limited Owners individually or
otherwise invalidate any such note, bond, contract,
instrument, certificate or undertaking. Nothing
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contained in this Section 8.3 shall diminish the limitation on the
liability of each Series to the extent set forth in Section
3.5 and 3.6 hereof.
ARTICLE IX
BOOKS OF ACCOUNT AND REPORTS
SECTION 9.1 Books of Account. Proper books of
account for each Series shall be kept and shall be audited
annually by an independent certified public accounting firm
selected by the Managing Owner in its sole discretion, and
there shall be entered therein all transactions, matters
and things relating to the Series' business as are required
by the CE Act and regulations promulgated thereunder, and
all other applicable rules and regulations, and as are
usually entered into books of account kept by Persons
engaged in a business of like character. The books of
account shall be kept at the principal office of the Trust
and each Limited Owner (or any duly constituted designee of
a Limited Owner) shall have, at all times during normal
business hours, free access to and the right to inspect and
copy the same for any purpose reasonably related to the
Limited Owner's interest as a beneficial owner of any
Series, including such access as is required under CFTC
rules and regulations. Such books of account shall be
kept, and each Series shall report its Profits and Losses
on, the accrual method of accounting for financial
accounting purposes on a Fiscal Year basis as described in
Article X.
SECTION 9.2 Annual Reports and Monthly Statements.
Each Limited Owner shall be furnished as of the end of each
month and as of the end of each Fiscal Year with (a) such
reports (in such detail) as are required to be given to
Limited Owners by the CFTC and the NFA, (b) any other
reports (in such detail) required by any other governmental
authority which has jurisdiction over the activities of the
Trust and (c) any other reports or information which the
Managing Owner, in its discretion, determines to be
necessary or appropriate.
SECTION 9.3 Tax Information. Appropriate tax
information (adequate to enable each Limited Owner to
complete and file his federal tax return) shall be
delivered to each Limited Owner as soon as practicable
following the end of each Fiscal Year but generally no
later than March 15.
SECTION 9.4 Calculation of Net Asset Value of a
Series. Net Asset Value of a Series will be estimated as
required. Upon request, on any Business Day, the Managing
Owner shall make available to any Limited Owner the
estimated Net Asset Value of a Series per Interest. Each
Limited Owner shall be notified of any decline in the
estimated Net Asset Value of a Series per Interest to less
than 50% of the Net Asset Value of a Series per Interest as
of the last day of the preceding month within seven (7)
Business Days of such occurrence. Included in such
notification shall be a description of the Limited Owners'
voting rights as set forth in Section 8.2 hereof .
SECTION 9.5 Other Reports. The Managing Owner shall
send such other reports and information, if any, to the
Limited Owners as it may deem necessary or appropriate.
Each Limited Owner shall be notified of (a) any material
change in the terms of the Advisory Agreement, including
any change in the Trading Advisor or any modification in
connection with
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the method of calculating the incentive
fee; (b) any change of Trustee; (c) any other material
change affecting the compensation of any party within seven
(7) Business Days of such occurrence; and (d) a description
of any material effect on the Interests such changes may
have. Included in such notification shall be a description
of the Limited Owners' voting rights as set forth in
Section 8.2 hereof and redemption rights as set forth in
Section 7.1 hereof. In addition, the Managing Owner shall
submit to the Securities Administrator of any State having
jurisdiction over the Trust any information required to be
filed with such Administrator, including, but not limited
to, reports and statements required to be distributed to
the Limited Owners.
SECTION 9.6 Maintenance of Records. The Managing
Owner shall maintain (a) for a period of at least eight (8)
Fiscal Years all books of account required by Section 9.1
hereof; a list of the names and last known address of, and
number of Interests owned by, all Interestholders, a copy
of the Certificate of Trust and all certificates of
amendment thereto, together with executed copies of any
powers of attorney pursuant to which any certificate has
been executed; copies of the Series' federal, state and
local income tax returns and reports, if any; and a record
of the information obtained to indicate that a Limited
Owner meets the investor suitability standards set forth in
the Prospectus, and (b) for a period of at least six (6)
Fiscal Years copies of any effective written trust
agreements, subscription agreements and any financial
statements of the Trust.
SECTION 9.7 Certificate of Trust. Except as
otherwise provided in the Business Trust Statute or this
Trust Agreement, the Managing Owner shall not be required
to mail a copy of any Certificate of Trust filed with the
Secretary of State of the State of Delaware to each Limited
Owner; however, such certificates shall be maintained at
the principal office of the Trust and shall be available
for inspection and copying by the Limited Owners in
accordance with this Trust Agreement. The Certificate of
Trust shall not be amended in any respect if the effect of
such amendment is to diminish the limitation on interseries
liability under Section 3804 of the Business Trust Statute.
SECTION 9.8 Registration of Interests. Subject to
Section 4.3(l) hereof, the Managing Owner shall keep, at
the Trust's principal place of business, an Interest
Register in which, subject to such reasonable regulations
as it may provide, it shall provide for the registration of
Interests and of transfers of Interests. Subject to the
provisions of Article V, the Managing Owner may treat the
Person in whose name any Interest shall be registered in
the Interest Register as the Interestholder of such
Interest for the purpose of receiving distributions
pursuant to Article VI and for all other purposes
whatsoever.
ARTICLE X
FISCAL YEAR
SECTION 10.1 Fiscal Year. The Fiscal Year shall
begin on the 1st day of January and end on the 31st day of
December of each year. The first Fiscal Year of the Trust
shall commence on the date of filing of the Certificate of
Trust and end on the 31st day of December 1999. The Fiscal
Year in which any Series in the Trust shall terminate shall
end on the date of termination of the Series.
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ARTICLE XI
AMENDMENT OF TRUST AGREEMENT; MEETINGS
SECTION 11.1 Amendments to the Trust Agreement.
(a) Amendments to this Trust Agreement may be
proposed by the Managing Owner or by Limited Owners holding
Interests equal to at least ten percent (10%) of the Net
Asset Value of each Series of the Trust, unless the
proposed amendment affects only certain Series, in which
case such amendment may be proposed by Limited Owners
holding Interests equal to at least ten percent (10%) of
Net Asset Value of a Series of each affected Series.
Following such proposal, the Managing Owner shall submit to
the Limited Owners of each affected Series a verbatim
statement of any proposed amendment, and statements
concerning the legality of such amendment and the effect of
such amendment on the limited liability of the Limited
Owners. The Managing Owner shall include in any such
submission its recommendations as to the proposed
amendment. The amendment shall become effective only upon
the written approval or affirmative vote of Limited Owners
holding Interests equal to at least a majority (over 50%)
of the Net Asset Value of a Series (excluding Interests
held by the Managing Owner and its Affiliates) of the Trust
or, if the proposed amendment affects only certain Series,
of each affected Series, or such higher percentage as may
be required by applicable law, and upon receipt of an
opinion of independent legal counsel as set forth in
Section 8.2 hereof and to the effect that the amendment is
legal, valid and binding and will not adversely affect the
limitations on liability of the Limited Owners as described
in Section 8.3 of this Trust Agreement. Notwithstanding
the foregoing, where any action taken or authorized
pursuant to any provision of this Trust Agreement requires
the approval or affirmative vote of Limited Owners holding
a greater interest in Limited Interests than is required to
amend this Trust Agreement under this Section 11.1, and/or
the approval or affirmative vote of the Managing Owners, an
amendment to such provision(s) shall be effective only upon
the written approval or affirmative vote of the minimum
number of Interestholders which would be required to take
or authorize such action, or as may otherwise be required
by applicable law, and upon receipt of an opinion of
independent legal counsel as set forth above in this
Section 11.1. In addition, except as otherwise provided
below, reduction of the capital account of any assignee or
modification of the percentage of Profits, Losses or
distributions to which an assignee is entitled hereunder
shall not be affected by amendment to this Trust Agreement
without such assignee's approval.
(b) Notwithstanding any provision to the contrary
contained in Section 11.1(a) hereof, the Managing Owner
may, without the approval of the Limited Owners, make such
amendments to this Trust Agreement which (i) are necessary
to add to the representations, duties or obligations of the
Managing Owner or surrender any right or power granted to
the Managing Owner herein, for the benefit of the Limited
Owners, (ii) are necessary to cure any ambiguity, to
correct or supplement any provision herein which may be
inconsistent with any other provision herein or in the
Prospectus, or to make any other provisions with respect to
matters or questions arising under this Trust Agreement or
the Prospectus which will not be inconsistent with the
provisions of the Trust Agreement or the Prospectus, or
(iii) the Managing Owner deems advisable, provided,
however, that no amendment shall be adopted pursuant to
this clause (iii) unless the adoption thereof (A) is not
adverse to the interests of the Limited Owners; (B) is
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consistent with Section 4.1 hereof; (C) except as otherwise
provided in Section 11.1(c) below, does not affect the
allocation of Profits and Losses among the Limited Owners
or between the Limited Owners and the Managing Owner; and
(D) does not adversely affect the limitations on liability
of the Limited Owners, as described in Article VIII hereof
or the status of the each Series as a partnership for
federal income tax purposes.
(c) Notwithstanding any provision to the contrary
contained in Sections 11.1(a) and (b) hereof, the Managing
Owner may, without the approval of the Limited Owners,
amend the provisions of Article VI of this Trust Agreement
relating to the allocations of Profits, Losses, Disposition
Gain, Disposition Loss and distributions among the
Interestholders if the Trust is advised at any time by the
Trust's accountants or legal counsel that the allocations
provided in Article VI of this Trust Agreement are unlikely
to be respected for federal income tax purposes, either
because of the promulgation of new or revised Treasury
Regulations under Section 704 of the Code or other
developments in the law. The Managing Owner is empowered
to amend such provisions to the minimum extent necessary in
accordance with the advice of the accountants and counsel
to effect the allocations and distributions provided in
this Trust Agreement. New allocations made by the Managing
Owner in reliance upon the advice of the accountants or
counsel described above shall be deemed to be made pursuant
to the obligation of the Managing Owner to the Trust and
the Limited Owners, and no such new allocation shall give
rise to any claim or cause of action by any Limited Owner.
(d) Upon amendment of this Trust Agreement, the
Certificate of Trust shall also be amended, if required by
the Business Trust Statute, to reflect such change.
(e) No amendment shall be made to this Trust
Agreement without the consent of the Trustee if such
amendment adversely affects any of the rights, duties or
liabilities of the Trustee; provided, however, that the
Trustee may not withhold its consent for any action which
the Limited Owners are permitted to take under Section
8.2(d) above. The Trustee shall execute and file any
amendment to the Certificate of Trust if so directed by the
Managing Owner or if such amendment is required in the
opinion of the Trustee.
(f) No provision of this Agreement may be
amended, waived or otherwise modified orally but only by a
written instrument adopted in accordance with this Section.
SECTION 11.2 Meetings of the Trust. Meetings of the
Interestholders of the Trust or any Series thereof may be
called by the Managing Owner and will be called by it upon
the written request of Limited Owners holding Interests
equal to at least ten percent (10%) of the Net Asset Value
of a Series of the Trust or any Series thereof. Such call
for a meeting shall be deemed to have been made upon the
receipt by the Managing Owner of a written request from the
requisite percentage of Limited Owners. The Managing Owner
shall deposit in the United States mails, within fifteen
(15) days after receipt of said request, written notice to
all Interestholders of the Trust or any Series thereof of
the meeting and the purpose of the meeting, which shall be
held on a date, not less than thirty (30) nor more than
sixty (60) days after the date of mailing of said notice,
at a reasonable time and place. Any notice of meeting
shall be accompanied by a description of the action to be
taken at the meeting and an opinion of independent counsel
as to the effect of such proposed action on the liability
of Limited Owners for the debts of the Trust.
Interestholders may vote in person or by proxy at any such
meeting.
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SECTION 11.3 Action Without a Meeting. Any action
required or permitted to be taken by Interestholders by
vote may be taken without a meeting by written consent
setting forth the actions so taken. Such written consents
shall be treated for all purposes as votes at a meeting.
If the vote or consent of any Interestholder to any action
of the Trust or any Interestholder, as contemplated by this
Agreement, is solicited by the Managing Owner, the
solicitation shall be effected by notice to each
Interestholder given in the manner provided in Section
15.4. The vote or consent of each Interestholder so
solicited shall be deemed conclusively to have been cast or
granted as requested in the notice of solicitation, whether
or not the notice of solicitation is actually received by
that Interestholder, unless the Interestholder expresses
written objection to the vote or consent by notice given in
the manner provided in Section 15.4 below and actually
received by the Trust within 20 days after the notice of
solicitation is effected. The Managing Owner and all
persons dealing with the Trust shall be entitled to act in
reliance on any vote or consent which is deemed cast or
granted pursuant to this Section and shall be fully
indemnified by the Trust in so doing. Any action taken or
omitted in reliance on any such deemed vote or consent of
one or more Interestholders shall not be void or voidable
by reason of timely communication made by or on behalf of
all or any of such Interestholders in any manner other than
as expressly provided in Section 15.4.
ARTICLE XII
TERM
SECTION 12.1 Term. The term for which the Trust and
each Series is to exist shall commence on the date of the
filing of the Certificate of Trust, and shall terminate
pursuant to the provisions of Article XIII hereof or as
otherwise provided by law.
ARTICLE XIII
TERMINATION
SECTION 13.1 Events Requiring Dissolution of the
Trust or any Series. The Trust or, as the case may be,
any Series thereof shall dissolve at any time upon the
happening of any of the following events:
(a) The filing of a certificate of dissolution or
revocation of the Managing Owner's charter (and the
expiration of 90 days after the date of notice to the
Managing Owner of revocation without a reinstatement of its
charter) or upon the withdrawal, removal, adjudication or
admission of bankruptcy or insolvency of the Managing Owner
(each of the foregoing events an "Event of Withdrawal")
unless (i) at the time there is at least one remaining
Managing Owner and that remaining Managing Owner carries on
the business of the Trust and each Series or (ii) within
ninety (90) days of such Event of Withdrawal all the
remaining Interestholders agree in writing to continue the
business of the Trust and each Series and to select,
effective as of the date of such event, one or more
successor Managing Owners. If the Trust is terminated as
the result of an Event of Withdrawal and a failure of
all remaining Interestholders to continue the business of
the Trust and to appoint a successor Managing Owner as
provided in clause (b)(ii) above,
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within one hundred and
twenty (120) days of such Event of Withdrawal, Limited
Owners holding Interests representing at least a majority
(over 50%) of the Net Asset Value of each Series (not
including Interests held by the Managing Owner and its
Affiliates) may elect to continue the business of the Trust
and each Series thereof by forming a new business trust
(the "Reconstituted Trust") on the same terms and
provisions as set forth in this Trust Agreement (whereupon
the parties hereto shall execute and deliver any documents
or instruments as may be necessary to reform the Trust).
Any such election must also provide for the election of a
Managing Owner to the Reconstituted Trust. If such an
election is made, all Limited Owners of the Trust shall be
bound thereby and continue as Limited Owners of the
Reconstituted Trust.
(b) The occurrence of any event which would make
unlawful the continued existence of the Trust or any Series
thereof, as the case may be.
(c) The failure to sell the Subscription
Minimums (as defined in the Prospectus) of all Series or
any number of Series to at least 150 subscribers during the
Initial Offering Period.
(d) In the event of the suspension, revocation or
termination of the Managing Owner's registration as a
commodity pool operator under the CE Act, or membership as
a commodity pool operator with the NFA unless at the time
there is at least one remaining Managing Owner whose
registration or membership has not been suspended, revoked
or terminated.
(e) The Trust or, as the case may be, any Series
becomes insolvent or bankrupt.
(f) The Limited Owners holding Interests
representing at least a majority (over 50%) of the Net
Asset Value of a Series (which excludes the Interests of
the Managing Owner) vote to dissolve the Series, notice
of which is sent to the Managing Owner not less than ninety
(90) Business Days prior to the effective date of such
Series' termination.
(g) The Limited Owners of each Series
holding Interests representing at least a majority (over
50%) of the Net Asset Value of the Series (which excludes
the Interests of the Managing Owner) vote to dissolve the
Trust, notice of which is sent to the Managing Owner not
less than ninety (90) Business Days prior to the effective
date of such terminations.
(h) The decline of the Net Asset Value of a
Series of the Trust Estate by fifty percent (50%) from the
Net Asset Value of a Series of the Trust Estate (i) at the
commencement of the Series' trading activities or (ii) on
the first day of a fiscal year, in each case after
appropriate adjustment for distributions, additional
capital contributions and redemptions.
(i) The determination of the Managing Owner
that the Series' aggregate net assets in relation to the
operating expenses of the Series make it unreasonable or
imprudent to continue the business of the Series.
The death, legal disability, bankruptcy, insolvency,
dissolution, or withdrawal of any Limited Owner (as long as
such Limited Owner is not the sole Limited Owner of the
Trust) shall not result in the termination of the or any
Series thereof, and such Limited Owner, his estate,
A-53
custodian or personal representative shall have no right to
withdraw or value such Limited Owner's Interests except as
provided in Section 7.1 hereof. Each Limited Owner (and
any assignee thereof) expressly agrees that in the event of
his death, he waives on behalf of himself and his estate,
and he directs the legal representative of his estate and
any person interested therein to waive the furnishing of
any inventory, accounting or appraisal of the assets of the
Series in which they own an Interest and any right to an
audit or examination of the books of the Series in which
they own an Interest, except for such rights as are set
forth in Article IX hereof relating to the Books of Account
and reports of the Series.
SECTION 13.2 Distributions on Dissolution. Upon the
dissolution of the Trust or any Series, the Managing Owner
(or in the event there is no Managing Owner, such person
(the "Liquidating Trustee") as the majority in interest of
the Limited Owners may propose and approve) shall take full
charge of the Series assets and liabilities. Any
Liquidating Trustee so appointed shall have and may
exercise, without further authorization or approval of any
of the parties hereto, all of the powers conferred upon the
Managing Owner under the terms of this Trust Agreement,
subject to all of the applicable limitations, contractual
and otherwise, upon the exercise of such powers, and
provided that the Liquidating Trustee shall not have
general liability for the acts, omissions, obligations and
expenses of the Trust. Thereafter, the business and
affairs of the Trust or Series shall be wound up and all
assets shall be liquidated as promptly as is consistent
with obtaining the fair value thereof, and the proceeds
therefrom shall be applied and distributed in the following
order of priority: (a) to the expenses of liquidation and
termination and to creditors, including Interestholders who
are creditors, to the extent otherwise permitted by law, in
satisfaction of liabilities of the Series of the Trust
(whether by payment or the making of reasonable provision
for payment thereof) other than liabilities for
distributions to Interestholders, and (b) to the Managing
Owner and each Limited Owner pro rata in accordance with
his positive book capital account balance, less any amount
owing by such Interestholder to the Series, after giving
effect to all adjustments made pursuant to Article VI and
all distributions theretofore made to the Interestholders
pursuant to Article VI. After the distribution of all
remaining assets of the Series, the Managing Owner will
contribute to the Series an amount equal to the lesser of
(i) the deficit balance, if any, in its book capital
account, and (ii) the excess of 1.01% of the total Capital
Contributions of the Limited Owners over the capital
previously contributed by the Managing Owner. Any Capital
Contributions made by the Managing Owner pursuant to this
Section shall be applied first to satisfy any amounts then
owed by the Series to its creditors, and the balance, if
any, shall be distributed to those Interestholders in the
Series whose book capital account balances (immediately
following the distribution of any liquidation proceeds)
were positive, in proportion to their respective positive
book capital account balances.
SECTION 13.3 Termination; Certificate of
Cancellation. Following the dissolution and distribution
of the assets of all Series of the Trust, the Trust shall
terminate and Managing Owner or Liquidating Trustee, as the
case may be, shall execute and cause such certificate of
cancellation of the Certificate of Trust to be filed in
accordance with the Business Trust Statute.
Notwithstanding anything to the contrary contained in this
Trust Agreement, the existence of the Trust as a separate
legal entity shall continue until the filing of such
certificate of cancellation.
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ARTICLE XIV
POWER OF ATTORNEY
SECTION 14.1 Power of Attorney Executed Concurrently.
Concurrently with the written acceptance and adoption of
the provisions of this Trust Agreement, each Limited Owner
shall execute and deliver to the Managing Owner a Power of
Attorney as part of the Subscription Agreement, or in such
other form as may be prescribed by the Managing Owner.
Each Limited Owner, by its execution and delivery hereof,
irrevocably constitutes and appoints the Managing Owner and
its officers and directors, with full power of
substitution, as the true and lawful attorney-in-fact and
agent for such Limited Owner with full power and authority
to act in his name and on his behalf in the execution,
acknowledgment, filing and publishing of Trust documents,
including, but not limited to, the following:
(a) Any certificates and other instruments,
including but not limited to, any applications for
authority to do business and amendments thereto, which the
Managing Owner deems appropriate to qualify or continue the
Trust as a business trust in the jurisdictions in which the
Trust may conduct business, so long as such qualifications
and continuations are in accordance with the terms of this
Trust Agreement or any amendment hereto, or which may be
required to be filed by the Trust or the Interestholders
under the laws of any jurisdiction;
(b) Any instrument which may be required to be
filed by the Trust under the laws of any state or by any
governmental agency, or which the Managing Owner deems
advisable to file; and
(c) This Trust Agreement and any documents which
may be required to effect an amendment to this Trust
Agreement approved under the terms of the Trust Agreement,
and the continuation of the Trust, the admission of the
signer of the Power of Attorney as a Limited Owner or of
others as additional or substituted Limited Owners, or the
termination of the Trust, provided such continuation,
admission or termination is in accordance with the terms of
this Trust Agreement.
SECTION 14.2 Effect of Power of Attorney. The Power
of Attorney concurrently granted by each Limited Owner to
the Managing Owner:
(a) Is a special, irrevocable Power of Attorney
coupled with an interest, and shall survive and not be
affected by the death, disability, dissolution,
liquidation, termination or incapacity of the Limited
Owner;
(b) May be exercised by the Managing Owner for
each Limited Owner by a facsimile signature of one of its
officers or by a single signature of one of its officers
acting as attorney-in-fact for all of them; and
(c) Shall survive the delivery of an assignment
by a Limited Owner of the whole or any portion of his
Limited Interests; except that where the assignee thereof
has been approved by the Managing Owner for admission to
the Trust as a substituted Limited Owner, the Power of
Attorney of the assignor shall survive the delivery of such
assignment for the sole
A-55
purpose of enabling the Managing
Owner to execute, acknowledge and file any instrument
necessary to effect such substitution.
Each Limited Owner agrees to be bound by any
representations made by the Managing Owner and by any
successor thereto, determined to be acting in good faith
pursuant to such Power of Attorney and not constituting
negligence or misconduct.
SECTION 14.3 Limitation on Power of Attorney. The
Power of Attorney concurrently granted by each Limited
Owner to the Managing Owner shall not authorize the
Managing Owner to act on behalf of Limited Owners in any
situation in which this Trust Agreement requires the
approval of Limited Owners unless such approval has been
obtained as required by this Trust Agreement. In the event
of any conflict between this Trust Agreement and any
instruments filed by the Managing Owner or any new Managing
Owner pursuant to this Power of Attorney, this Trust
Agreement shall control.
ARTICLE XV
MISCELLANEOUS
SECTION 15.1 Governing Law. The validity and
construction of this Trust Agreement and all amendments
hereto shall be governed by the laws of the State of
Delaware, and the rights of all parties hereto and the
effect of every provision hereof shall be subject to and
construed according to the laws of the State of Delaware
without regard to the conflict of laws provisions thereof;
provided, however, that causes of action for violations of
federal or state securities laws shall not be governed by
this Section 15.1, and provided, further, that the parties
hereto intend that the provisions hereof shall control over
any contrary or limiting statutory or common law of the
State of Delaware (other than the Business Trust Statute)
and that, to the maximum extent permitted by applicable
law, there shall not be applicable to the Trust, the
Trustee, the Managing Owner, the Interestholders or this
Trust Agreement any provision of the laws (statutory or
common) of the State of Delaware (other than the Business
Trust Statute) pertaining to trusts which relate to or
regulate in a manner inconsistent with the terms hereof:
(a) the filing with any court or governmental body or
agency of trustee accounts or schedules of trustee fees and
charges, (b) affirmative requirements to post bonds for
trustees, officers, agents, or employees of a trust, (c)
the necessity for obtaining court or other governmental
approval concerning the acquisition, holding or disposition
of real or personal property, (d) fees or other sums
payable to trustees, officers, agents or employees of a
trust, (e) the allocation of receipts and expenditures to
income or principal, (f) restrictions or limitations on the
permissible nature, amount or concentration of trust
investments or requirements relating to the titling,
storage or other manner of holding of trust assets, or (g)
the establishment of fiduciary or other standards or
responsibilities or limitations on the acts or powers of
trustees or managers that are inconsistent with the
limitations on liability or authorities and powers of the
Trustee or the Managing Owner set forth or referenced in
this Trust Agreement. Section 3540 of Title 12 of the
Delaware Code shall not apply to the Trust. The Trust
shall be of the type commonly called a "business trust,"
and without limiting the provisions hereof, the Trust may
exercise all powers that are ordinarily exercised by such
a trust under Delaware law. The Trust specifically
reserves the right to exercise any of the powers or
privileges afforded to business trusts and the absence of
a specific
A-56
reference herein to any such power, privilege or
action shall not imply that the Trust may not exercise such
power or privilege or take such actions.
SECTION 15.2 Provisions In Conflict With Law or
Regulations.
(a) The provisions of this Trust Agreement are
severable, and if the Managing Owner shall determine, with
the advice of counsel, that any one or more of such
provisions (the "Conflicting Provisions") are in conflict
with the Code, the Business Trust Statute or other
applicable federal or state laws, the Conflicting
Provisions shall be deemed never to have constituted a part
of this Trust Agreement, even without any amendment of this
Trust Agreement pursuant to this Trust Agreement; provided,
however, that such determination by the Managing Owner
shall not affect or impair any of the remaining provisions
of this Trust Agreement or render invalid or improper any
action taken or omitted prior to such determination. No
Managing Owner or Trustee shall be liable for making or
failing to make such a determination.
(b) If any provision of this Trust Agreement
shall be held invalid or unenforceable in any jurisdiction,
such holding shall not in any manner affect or render
invalid or unenforceable such provision in any other
jurisdiction or any other provision of this Trust Agreement
in any jurisdiction.
SECTION 15.3 Construction. In this Trust Agreement,
unless the context otherwise requires, words used in the
singular or in the plural include both the plural and
singular and words denoting any gender include all genders.
The title and headings of different parts are inserted for
convenience and shall not affect the meaning, construction
or effect of this Trust Agreement.
SECTION 15.4 Notices. All notices or communications
under this Trust Agreement (other than requests for
redemption of Interests, notices of assignment, transfer,
pledge or encumbrance of Interests, and reports and notices
by the Managing Owner to the Limited Owners) shall be in
writing and shall be effective upon personal delivery, or
if sent by mail, postage prepaid, or if sent
electronically, by facsimile or by overnight courier; and
addressed, in each such case, to the address set forth in
the books and records of the Trust or such other address as
may be specified in writing, of the party to whom such
notice is to be given, upon the deposit of such notice in
the United States mail, upon transmission and electronic
confirmation thereof or upon deposit with a representative
of an overnight courier, as the case may be. Requests for
redemption, notices of assignment, transfer, pledge or
encumbrance of Interests shall be effective upon timely
receipt by the Managing Owner in writing.
SECTION 15.5 Counterparts. This Trust Agreement may
be executed in several counterparts, and all so executed
shall constitute one agreement, binding on all of the
parties hereto, notwithstanding that all the parties are
not signatory to the original or the same counterpart.
SECTION 15.6 Binding Nature of Trust Agreement. The
terms and provisions of this Trust Agreement shall be
binding upon and inure to the benefit of the heirs,
custodians, executors, estates, administrators, personal
representatives, successors and permitted assigns of the
respective Interestholders. For purposes of determining
the rights of any Interestholder or
A-57
assignee hereunder, the
Trust and the Managing Owner may rely upon the Trust
records as to who are Interestholders and permitted
assignees, and all Interestholders and assignees agree that
the Trust and the Managing Owner, in determining such
rights, shall rely on such records and that Limited Owners
and assignees shall be bound by such determination.
SECTION 15.7 No Legal Title to Trust Estate. The
Interestholders shall not have legal title to any part of
the Trust Estate.
SECTION 15.8 Creditors. No creditors of any
Interestholders shall have any right to obtain possession
of, or otherwise exercise legal or equitable remedies with
respect to the Trust Estate.
SECTION 15.9 Integration. This Trust Agreement
constitutes the entire agreement among the parties hereto
pertaining to the subject matter hereof and supersedes all
prior agreements and understandings pertaining thereto.
A-58
IN WITNESS WHEREOF, the undersigned have duly executed
this Declaration of Trust and Trust Agreement as of the day
and year first above written.
WILMINGTON TRUST COMPANY,
as Trustee
By:___________________________
Name:
Title:
PRUDENTIAL SECURITIES FUTURES
MANAGEMENT INC.,
as Managing Owner
By:________________________
Name: Eleanor L. Thomas
Title: Executive Vice President
All Limited Owners now and
hereafter admitted as Limited
Owners of the Trust, pursuant
to powers of attorney now and
hereafter executed in favor
of, and granted and delivered
to, the Managing Owner
By: PRUDENTIAL SECURITIES FUTURES
MANAGEMENT INC.,
as Managing Owner
By:________________________
Name: Eleanor L. Thomas
Title: Executive Vice President
A-59
EXHIBIT A
RESTATED CERTIFICATE OF TRUST
OF
WORLD MONITOR TRUST II
This Restated Certificate of Trust of World Monitor Trust
II (the "Trust") is being duly executed and filed on behalf of the Trust
by the undersigned, as trustee, to amend and restate the original
Certificate of Trust of the Trust which was filed on April 22, 1999
under the Delaware Business Trust Act (12 Del. C.
Section 3801 et seq.) (the "Act").
The Certificate of Trust is hereby amended and restated in its
entirety to read as follows:
1. Name. The name of the trust formed hereby is World
Monitor Trust II.
2. Delaware Trustee. The name and the business address of the
trustee of the Trust in the State of Delaware is Wilmington
Trust Company, Rodney Square North, 1100 North Market
Street, Wilmington, Delaware 19890-0001, Attention: Corporate
Trust Administration.
3. Series. Pursuant to Section 3806(b)(2) of the Act,
the Trust shall issue one or more series of beneficial
interests having the rights, powers and duties
as set forth in the governing instrument of the Trust,
as the same may be amended from time to time (each a "Series").
4. Notice of Limitation of Liability of each
Series. Pursuant to Section 3804 of the Act,
there shall be a limitation on liability of each
particular Series such that the debts, liabilities, claims,
obligations and expenses incurred, contracted for or otherwise
existing with respect to , in connection with or arising under
a particular Series shall be enforceable against the assets of
that Series only, and not against the assets of the Trust
generally or the assets of any other Series.
5. Effective Date. This Restated Certificate of Trust
shall be effective upon filing.
WILMINGTON TRUST COMPANY, as Trustee
By_______________________________
Name:
Title:
A-60
EXHIBIT B
WORLD MONITOR TRUST II
REDEMPTION REQUEST
(Please date)
PRUDENTIAL SECURITIES FUTURES MANAGEMENT INC.
c/o Prudential Securities Incorporated
One New York Plaza, 12th Floor
Specialty Finance Operations
New York, New York 10292
Dear Sirs:
I hereby request redemption of the number of limited
liability beneficial interests ("Interests") specified below,
in the Series of the Trust indicated below, subject to all of
the conditions set forth in the Trust Agreement, as described
in the Prospectus:
Series D:
Series E:
Series F:
(specify number of Interests to be redeemed in each
Series)
Redemption will be effective as of the dealing day (Monday
of each week) at the Series, Net Asset Value (as such term is
defined in Section 1.1 of the Trust Agreement) on the Friday
immediately preceding the dealing day, assuming that this
Redemption Request is received by the managing owner on at
least two (2) business days' prior written notice
("Redemption Date"). The first permissible Redemption Date
shall be the end of the first full week of trading activity by
the Series in which the Interests are owned. I
understand that Interests in each Series redeemed on or prior
to the end of the first and second successive six-month
periods after the effective date of purchase will pay a redemption
charge of 4% and 3%, respectively of the Series' Net Asset Value
at which they are redeemed. I understand that the effective date of purchase
means the date on which the applicable Series broke escrow if
subscription was made during the initial offering period and
means the applicable dealing date for
subscriptions made during the continuous offering period.
I (either in my individual capacity
or as an authorized representative of an entity, if
applicable) hereby represent and warrant that I am the true,
lawful and beneficial owner of the Interests to which this
Redemption Request relates, with full power and authority
to request redemption of such Interests. Such Interests are
not subject to any pledge or otherwise encumbered in any
fashion. My signature has been guaranteed by a commercial
bank with a correspondent in New York or by a member of a
registered national securities exchange.
United States Taxable Limited Owners Only
Under the penalties of perjury, I hereby certify that the
Social Security Number or Taxpayer ID Number indicated on this
Redemption Request is my true, correct and complete Social
Security Number or Taxpayer ID Number and that I am not
subject to backup withholding under the provisions of Section
3406(a)(1)(C) of the Internal Revenue Code.
Non-United States Limited Owners Only
Under penalties of perjury, I hereby certify that (a) I am
not a citizen or resident of the United States and have not
been present in the United States for 183 days or more during
any calendar year, or (b) I am a non-United States corporation,
partnership, estate or trust.
SIGNATURES ON REVERSE SIDE MUST BE IDENTICAL TO NAME(S)
IN WHICH INTERESTS OF TRUST ARE REGISTERED
INTERESTS REGISTERED IN THE NAME(S) OF:
- --------------------------------------------------------------------------
Type or Print Name Social Security Number or Taxpayer ID Number
- --------------------------------------------------------------------------
Street
- --------------------------------------------------------------------------
City State Zip Code
- --------------------------------------------------------------------------
Account # Type FA
B-1
SIGNATURE(S)
Individual Owner(s) or Assignee(s)
----------------------------------------
----------------------------------------
----------------------------------------
Signature(s) Guaranteed by:
- -------------------------- ----------------------------------------
Signature(s) of Owner(s) or Assignee(s)
Entity Owner (or Assignee)
-------------------------------------------
Signature(s) Guaranteed by: ____________________________________________
- -------------------------- By:_________________________________________
(Trustee, partner, or authorized officer.
If a corporation, include certified copy
of authorizing resolution.)
NOTE: If the entity owner is a trustee, custodian, or
fiduciary of an Individual Retirement Account, Keogh
Plan without common law employees or employee benefit
plan under which a plan participant may exercise
control over assets in his account, the signature of
the plan participant must also be supplied.
Plan Participant
Signature(s) Guaranteed by: __________________________________________
Type or Print Name
- -------------------------- ------------------------------------------
(Signature)
THIS REDEMPTION REQUEST MUST BE RECEIVED BY THE MANAGING
OWNER AT LEAST TWO (2) BUSINESS DAYS PRIOR TO THE DEALING
DAY ON WHICH YOUR REDEMPTION IS TO BECOME EFFECTIVE.
B-2
EXHIBIT C
EXCHANGE REQUEST
To: WORLD MONITOR TRUST II
Prudential Securities Futures Management Inc.
One New York Plaza, 12th Floor
Specialty Finance Operations
New York, New York 10292
I hereby request the following exchange of Interests as of the
Dealing Date which first occurs two (2) business days after
your receipt of this Exchange Request, upon the terms and
conditions described in the Prospectus for the World Monitor
Trust II dated April 3, 2001. I certify that all of the
statements, including all representations and warranties, made
in my original Subscription Agreement remain accurate. I
(either in my individual capacity or as an authorized
representative of an entity, if applicable) hereby represent
and warrant that I am the true, lawful, and beneficial owner
of the Interests to which this Exchange Request relates, with
full power and authority to request an Exchange of such
Interests. Such Interests are not subject to any pledge or
otherwise encumbered in any fashion. My signature has been
guaranteed by a commercial bank with a correspondent in New
York or by a member of a registered national securities
exchange.
Amount to be Redeemed Upon Exchange
Totals in each column must be equal.
Series D $____________ or All Interests
Series E $____________ or All Interests
Series F $____________ or All Interests
C-1
Amount to be Purchased Upon Exchange
Series D $____________
Series E $____________
Series F $____________
Total $_______________ Total $_______________
SIGNATURES ON REVERSE SIDE MUST BE IDENTICAL TO NAME(S)
IN WHICH INTERESTS OF TRUST ARE REGISTERED
INTERESTS REGISTERED IN THE NAME(S) OF:
Type or Print Name Social Security Number or Taxpayer ID Number
Street
City State Zip Code
Account # Type FA
This Exchange Request is intended to be used for an even-value
exchange of Interests from one or more Series into one or more
different Series. This Exchange Request is not to be used to
redeem Interests or to purchase additional Interests of a
Series in which you are currently a Limited Owner.
C-2
SIGNATURE(S)
Individual Owner(s) or Assignee(s)
Signature(s) Guaranteed by:
Signature(s) of Owner(s) or Assignee(s)
Entity Owner (or Assignee)
Signature(s) Guaranteed by:
By:
(Trustee, partner, or
authorized officer.
If a corporation, include
certified copy
of authorizing resolution.)
NOTE: If the entity owner is a trustee, custodian, or
fiduciary of an Individual Retirement Account, Keogh
Plan without common law employees or employee benefit
plan under which a plan participant may exercise
control over assets in his account, the signature of
the plan participant must also be supplied.
Plan Participant
Signature(s) Guaranteed by:
Type or Print Name
(Signature)
IF SUBMITTED IN ACCORDANCE WITH REQUIRED PROCEDURES, THE
EXCHANGE REQUESTED HEREIN WILL BE EFFECTIVE AS OF THE DEALING
DAY (USUALLY MONDAY) OF THE WEEK FOLLOWING A WEEK AFTER WHICH
THIS EXCHANGE REQUEST WAS RECEIVED.
FOR USE BY PSI-FA ONLY
C-3
Ledger Code Account Number FA# Phone Order
- -
Client Account Number at PSI
FA Name FA Telephone No. Branch Name and Wire Code of Branch
Signature of FA and Date Signature of Branch Manager and Date
FOR USE BY TRUST ONLY
Interests to be Redeemed:
Series D Interests: Amount $
Series E Interests: Amount $
Series F Interests: Amount $
Total $
Interests to be Purchased:
Series D Interests: Amount $
Series E Interests: Amount $
Series F Interests: Amount $
Total $
C-4
EXHIBIT D
WORLD MONITOR TRUST II
SUBSCRIPTION AGREEMENTS FOR
LIMITED LIABILITY BENEFICIAL INTERESTS
INSTRUCTIONS (Please read carefully)
A. Using a typewriter or printing in ink, check the appropriate box or
fill in the blanks on Pages D-3 through D-4 as directed herein:
CHECK THE APPROPRIATE BOX
Boxes (i) NEW SUBSCRIBER(S)
(ii) EXISTING OWNER(S) OF SERIES D, SERIES E AND/OR
SERIES F INTERESTS ADDING LIMITED INTERESTS
a) INFORMATION IS THE SAME AS IN THE ORIGINAL
SUBSCRIPTION AGREEMENT AND POWER OF ATTORNEY.
b) INFORMATION HAS CHANGED FROM THE ORIGINAL
SUBSCRIPTION AGREEMENT AND POWER OF ATTORNEY;
CONSEQUENTLY, FOLLOW INSTRUCTIONS FOR NEW SUBSCRIBERS
(i).
Number 1 TOTAL DOLLAR AMOUNT OF SUBSCRIPTION AND SERIES. MINIMUM
SUBSCRIPTION FOR ALL SERIES IN THE AGGREGATE IS $5,000 FOR
INDIVIDUALS, INSTITUTIONS OR ERISA PLANS (EXCEPT IRAs),
$2,000 FOR IRAs AND OTHER QUALIFIED ACCOUNTS. THE MINIMUM
INITIAL SUBSCRIPTION PER SERIES IS $1,000. ONCE THE MINIMUM
IS MET, ADDITIONAL PURCHASES MAY BE MADE IN $100 INCREMENTS.
EXISTING INVESTORS (EXCEPT IN CERTAIN STATES) MAY SUBSCRIBE FOR
ADDITIONAL INTERESTS IN $100 INCREMENTS. (NEW SUBSCRIPTION
AGREEMENTS ARE REQUIRED WITH EACH ADDITIONAL PURCHASE.) SEE
"STATE SUITABILITY REQUIREMENTS" ON D-13.
Number 2 SOCIAL SECURITY NUMBER AND/OR TAXPAYER I.D. NUMBER.
BACK UP WITHHOLDING BOX CHECKED (IF APPLICABLE).
Number 3 PRUDENTIAL SECURITIES ACCOUNT NUMBER.
Number 3a CHECK ONE OF THE BOXES TO INDICATE WHETHER YOU ARE A
PRUDENTIAL SECURITIES EMPLOYEE.
Number 4 CHECK BOX TO INDICATE ACCOUNT TYPE (CHECK ONLY ONE BOX).
D-1
Number 5 CLIENT NAME, ADDRESS AND BUSINESS PHONE NUMBER. FOR IRA OR
TRUST ACCOUNT INCLUDE: "FOR THE BENEFIT OF _____________."
INSERT NET WORTH AND ANNUAL GROSS INCOME.
Number 6 ADDRESS REQUIRED IF #5 IS A P.O. BOX OR IS NOT THE INVESTOR'S
RESIDENCE ADDRESS OR THE ENTITY'S PLACE OF FORMATION.
Number 7 TO BE COMPLETED AND SIGNED BY THE FINANCIAL ADVISOR
(SOMETIMES REFERRED TO AS THE "FA"). ALL
SIGNATURE PAGES MUST BE COUNTERSIGNED BY THE BRANCH MANAGER.
Number 8 CLIENT(S) SIGNATURE(S) IF ACCOUNT TYPE IS INDIVIDUAL OR JOINT.
Number 9 CLIENT'S SIGNATURE IF ACCOUNT TYPE IS AN INDIVIDUAL RETIREMENT
ACCOUNT OR KEOGH PLAN WITHOUT ANY COMMON LAW EMPLOYEES.
Number 10 SIGNATURE OF AUTHORIZED CORPORATE OFFICER, PARTNER,
TRUSTEE CUSTODIAN OR FIDUCIARY IF ACCOUNT TYPE IS A
CORPORATION, PARTNERSHIP, TRUST, KEOGH PLAN WITH EMPLOYEES OR
OTHER EMPLOYEE BENEFIT PLAN (E.G., PENSION OR PROFIT
SHARING PLAN).
Number 11 SUBSCRIBER(S) MUST INITIAL EACH APPLICABLE REPRESENTATION
AND WARRANTY IN THE SPACE PROVIDED IN THE LEFT MARGIN.
Number 12 SUBSCRIBER(S) MUST INITIAL THE SUBORDINATION AGREEMENT IN
THE SPACE PROVIDED IN THE LEFT MARGIN.
B. Subscriber's admission as a limited owner of a Series will be
determined based on the date on which a fully completed, dated, and
signed Subscription Agreement is delivered to Prudential Securities
or an additional seller during the initial and continuous offering
period. A subscriber may not deliver his Subscription Agreement to
the Trust's offices. If such delivery is made, the Subscription
Agreement will be returned to the subscriber to be forwarded to his
Prudential Securities branch office or to an additional seller.
C. U.S. subscribers must have W-9s on file with Prudential Securities
and non-U.S. subscribers must have W-8s on file with
Prudential Securities.
WORLD MONITOR TRUST II
SUBSCRIPTION AGREEMENT and POWER OF ATTORNEY
SUBSCRIBER(S) (check status)
(i) // New Subscriber(s) Complete Items 1 through 6, plus Items
8, 9 or 10 (as applicable) plus Item
11, and have FA and Branch Manager
fill out Item 7
(ii) // Existing Owner(s) (a) If information previously provided
remains accurate: Complete Item 1,
plus Items 8, 9 or 10 (as applicable)
plus Item 11, and have FA and Branch
Manager fill out Item 7 or (b) if
information has changed, follow
instructions for new subscriber(s).
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1. Total Dollar Amount of Subscription:
Series D Interests.....................$
Series E Interests.....................$
Series F Interests.....................$
2. Social Security Number 3. Prudential Securities Account
Number of Subscriber
---------------------------- ---------------------------------
or
Taxpayer I.D. Number 3a. Is the Subscriber a Prudential
Securities Employee
-------------------------- / / Yes / / No
or
I (we) have checked the following box because I (we) am (are) subject to
backup withholding under the provisions of Section 3406(a)(1)(C) of the
Internal Revenue Code: / /
4. Check Account Type
// Individual Ownership // Corporation
// Joint Tenants with Right of Survivorship // Keogh Plan (no
(all tenants' signatures required) common law employees)
// Tenants in Common (all tenants'
signatures required)
// Community Property (both signatures // Other Employee Benefit
required) Plan (e.g., Custodian,
// Custodian Partnership Pension, Profit Sharing,
Keogh plan
with employees)
// Trust // Individual Retirement
Account (Non-PSI employees)
// UGMA or UTMA // Individual Retirement
Account (PSI employees)
5. Full Name of Account, Joint Owners, Trustee, if trust account,
Custodian, if custodian account or other Authorized Person, if
Partnership, Corporation or Institutional Trustee or Plan fiduciary
(no initials).
__________________________________________________________________
Mailing Address. If trust or custodian account, address of
Trustee, Custodian or Plan Fiduciary.
__________________________________________________________________
City State Zip Code Country Business Telephone No.
or if none, Home No.
New Worth of Subscriber (exclusive of home, home furnishings and
automobiles): $______________
Annual Gross Income of Subscriber: $_______________
6. The following information must be provided if the above address is
a P.O. Box or is not the investor's residence address or the
entity's place of formation.
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Residence Address (P.O. Box alone not acceptable).
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City State Zip Code Country
D-3
7. FINANCIAL ADVISOR USE ONLY (MUST BE COMPLETED IN FULL, AND EXCEPT
FOR SIGNATURE, MUST BE TYPED OR LEGIBLY PRINTED IN INK BY FINANCIAL
ADVISOR; ILLEGIBLE OR INCOMPLETE DOCUMENTS WILL BE REJECTED).
The undersigned FA hereby certifies that: (1) the FA has informed
the person(s) named above of all pertinent facts relating to the
liquidity and marketability of the limited interests as set forth
in the prospectus; and (2) the FA has reasonable grounds to
believe (on the basis of information obtained from the person(s)
named above concerning such person(s') age, investment objectives,
investment experience, income, net worth, financial situation and
needs, other investments, and any other information known by the
FA) that (a) the purchase of the Interests is a suitable and
appropriate investment for such person(s); (b) such person(s)
meet(s) the minimum income and net worth standards; (c) such
person(s) can benefit from the investment based on such person(s)
overall investment objectives and overall portfolio structure; (d) such
person(s) can bear the economic risk of the investment; and (e)
such person(s) has (have) an understanding of the fundamental risks
of the investment, the risk that an investor may lose its entire
investment, the restriction on the liquidity of the limited
interests, the restrictions on the transferability of the Interests
and the background and qualifications of the FA.
Does the undersigned FA have discretionary authority for the
account of the person(s) named above? Yes No
The FA must insure that a current Prospectus, together with the
most recent monthly report for the applicable Series, once it
commences trading, has been furnished to the person(s) named above.
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PRINT FULL NAME OF FA FA# WIRE CODE OF BRANCH
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FA'S SIGNATURE FA'S TELEPHONE NUMBER
I have received all documents required to accept this
subscription and I acknowledge the suitability of the subscriber and
the amount of the subscription for each Series. If the subscriber is
other than an individual subscriber, I acknowledge that my review of
the subscriber's governing documents indicates that such documents
permit investment in commodities funds whose principal business is
speculative futures trading.
( )
------------------------ ----------------------------
BRANCH MANAGER'S SIGNATURE BRANCH MANAGER'S TELEPHONE NUMBER
FOR ALL ACCOUNTS
D-4
SUBSCRIBERS -- DO NOT SIGN WITHOUT READING THE "REPRESENTATIONS AND
WARRANTIES" AT PARAGRAPH 11, THE "SUBSCRIBER(S)
CONSENT AND SUBORDINATION AGREEMENT AT PARAGRAPH 12
AND THE "RISKS" AT PARAGRAPH 13 OR WITHOUT
FAMILIARIZING YOURSELF WITH THE PROSPECTUS INCLUDING,
(I) THE FUNDAMENTAL RISKS AND POSSIBLE FINANCIAL
HAZARDS OF THIS INVESTMENT, INCLUDING THE RISK OF
LOSING YOUR ENTIRE INVESTMENT; (II) THE LACK OF
LIQUIDITY OF THIS INVESTMENT; (III) THE FACT THAT LIMITED
OWNERS MAY NOT TAKE PART IN THE MANAGEMENT OF A
SERIES; (IV) THE EXISTENCE OF ACTUAL AND POTENTIAL
CONFLICTS OF INTEREST IN THE STRUCTURE AND OPERATION
OF A SERIES; (V) THE SERIES' FEE STRUCTURE; (VI) THE
FACT THAT ANY PERFORMANCE AND PROFORMA TABLES, IF
ANY, INCLUDED IN THE PROSPECTUS
MUST BE READ ONLY IN CONJUNCTION WITH THE
NOTES THERETO, IF ANY, (VII) THE TAX CONSEQUENCES OF AN
INVESTMENT IN THE TRUST; (VIII) THE LIMITATIONS ON
LIMITED LIABILITY; (IX) THE FACT THAT THERE ARE SUBSTANTIAL
RESTRICTIONS ON THE TRANSFERABILITY OF INTERESTS; AND
(X) THE SERIES' STRUCTURE AND PROPOSED HIGHLY
LEVERAGED TRADING ACTIVITIES.
Payment of the above subscription will be made by charging the
subscriber's account with Prudential Securities Incorporated or any
additional seller. In the event that the subscriber does not have a
customer account with Prudential Securities Incorporated or any
additional seller or does not have sufficient funds in its existing
account, the subscriber should make appropriate arrangements with its
financial advisors, if any, and if none, should contact its local
Prudential Securities Incorporated branch office or the branch office
of any additional seller.
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SIGN BELOW UNDER CORRESPONDING ACCOUNT TYPE
8. INDIVIDUAL OR JOINT SUBSCRIPTION
If this subscription is for a joint account, the statements,
representations, warranties, and undertakings set forth in this
subscription agreement will be deemed to have been made by each
owner of the account
---------------------- ----------------------------------------------
(Signature of Subscriber) (Signature of Joint Owner, if any) Date
---------------------- ----------------------------------------------
(Print or Type Name (Print or Type Name of Signatory) Date
of Signatory)
9. IRA AND KEOGH PLAN (WITHOUT COMMON LAW EMPLOYEES) SUBSCRIPTION
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(Signature of IRA beneficiary or plan participants) Date
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(Print or Type Name of Signatory)
10. ENTITY (CUSTODIAN, CORPORATION, PARTNERSHIP, TRUST OR EMPLOYEE
BENEFIT PLAN) SUBSCRIPTION
The undersigned corporate officer, partner or trustee custodian or
fiduciary hereby certifies and warrants that he or she has full power and
authority from and on behalf of the entity named below and (as
applicable) from its shareholders, partners, or beneficiaries or plan
participants to complete, execute and deliver this Subscription
Agreement on their behalf including on behalf of the plan
participant and trust or custodial account beneficiaries and that
investment in the Trust has been affirmatively authorized by the
governing board or body, if any, of the entity (if a corporation or
partnership) and is not prohibited by law or the governing documents
of the entity.
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(Type or Print Name of Entity, Trust or Custodial Account)
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(Signature of Authorized Corporate Date
Officer, Partner, Trustee
Custodian or Fiduciary)
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(Print or Type Name of Signatory)
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11. REPRESENTATIONS AND WARRANTIES
I(we) hereby represent and warrant to Prudential Securities Futures
Management Inc. (sometimes referred to as the managing owner) and the
Trust as follows (please initial each applicable representation and
warranty):
____ (1) I (we) satisfy one or more of the following financial standards
outlined below for subscription in the Trust (initial in the
space provided only those requirements that apply):
____ (A) I (we) am (are) not acting on behalf of an Employee Benefit
Plan and I (we) have either
____ (i) a net worth (exclusive of home, home furnishings, and
automobiles) of at least $150,000 or
____ (ii) a net worth (similarly calculated) of at least $45,000 and
an annual gross income of at least $45,000 and not more than
10% of my net worth is invested in the Trust or
____ (iii) if I (we) am (are) a resident(s) of one of those states
listed under "State Suitability Requirements on page D-13, I
(we) meet the more restrictive suitability requirements
imposed by the State in which I (we) reside and not more than
10% of my net worth is invested in the Trust.
____ (B) If I (we) am (are) acting on behalf of an IRA or a Keogh
Plan which covers no common law employees, each participant
meets and the IRA or Keogh Plan meets the net worth
and gross income requirement in (i), (ii) or (iii)
above and its investment in the Trust does not exceed 10% of
the assets of the IRA or Keogh Plan at the time of investment.
____ (C) If I (we) am (are) acting on behalf of an Employee Benefit
Plan (other than an IRA or a Keogh Plan which covers no
common law employees), the Plan meets the net worth and
suitability requirements in (i) or (iii) above,
and its investment in the Trust does not exceed 10%
of the assets of the Plan at the time of investment.
____ (2) The address set forth above in Items 5 and 6
is my (our) true and correct address and I (we) have no
present intention of becoming a resident of any other state or
country. The information provided in those Items is true,
correct, and complete as of the date of this Subscription
Agreement and if there should be any material change in such
information prior to my (our) admission to the Trust as a
limited owner, I (we) will immediately furnish such revised or
corrected information to the managing owner. I (we) will
furnish the managing owner with such other documents as it may
request to evaluate this subscription.
____ (3) I (we) am (are) over 21 years old and am (are) legally
competent and I (we) am (are) permitted by applicable law to execute
and deliver this Subscription Agreement.
____ (4) If the subscriber is a trust under an Employee Benefit
Plan, none of the Trustee, managing owner, Prudential
Securities, the trading advisors, any other selling agent or
any of their affiliates either: (A) has investment discretion
with respect to the investment of the assets of such trust
being used to purchase limited interests; (B) has authority or
responsibility to give or regularly gives investment advice
with respect to such trust assets for a fee and pursuant to an
agreement or understanding that such advice will serve as a
primary basis for investment decisions with respect to such
trust assets and that such advice will be based on the
particular investment needs of the trust; or (C) is an
employer maintaining or contributing to the trust.
D-7
____ (5) I (we) have received a prospectus of each Series which
constitutes its Commodity Futures Trading Commission
Disclosure Document.
____ (6) I (we) am (are) purchasing the limited interests for our
own account.
____ (7) I (we) acknowledge that as a holder or holders of any
interests in, or claims of any kind against, any Series, I
(we) will seek to recover any debts, liabilities, obligations
and expenses incurred or otherwise existing with respect to
that Series solely from, or to assert such claims solely
against, (i) the assets of that Series (and not the assets of
any other Series or the Trust generally) or (ii) the managing
owner.
By making these representations and warranties, subscribers are not
waiving any rights of action which they may have under applicable
federal or state securities laws. Federal securities law provides that
any such waiver would be unenforceable. Subscribers should be aware,
however, that the representations and warranties set forth herein may
be asserted in the defense of the Trust or others in any subsequent
litigation or other proceeding.
12. SUBSCRIBERS CONSENT AND SUBORDINATION AGREEMENT
____ I(we), a Subscriber(s) who is(are) purchasing Interests in the
Series that is the subject of this agreement (Series ___) (the
"Contracting Series"), agrees and consents (the "Consent") to look
solely to the assets (the "Contracting Series Assets") of the
Contracting Series and to the Managing Owner and its assets for payment.
The Contracting Series Assets include only those funds and other assets
that are paid, held or distributed to the Trust on account of and for
the benefit of the Contracting Series, including, without limitation,
funds delivered to the Trust for the purchase of Interests in a Series.
In furtherance of the Consent, I (we) agree that (i) any
debts, liabilities, obligations, indebtedness, expenses and claims of
any nature and of all kinds and descriptions (collectively, "Claims")
incurred, contracted for or otherwise existing and (ii) any
Limited Interests, and any other interests, beneficial
interests or equity ownership of any kind (collectively, "Equity
Ownership"), arising from, related to or in connection with the Trust
and its assets and the Contracting Series and the Contracting Series
Assets, shall be subject to the following limitations:
(a) subordination of certain claims and rights. (i) except as set
forth below, the Claims and Equity Ownership, if any, of the subscriber
(collectively, the "Subordinated Claims and Equity Ownership") shall be
expressly subordinate and junior in right of payment to any and all
other Claims against and Equity Ownership in the Trust
and any Series thereof, and any of their respective assets,
which may arise as a matter of law or pursuant to any contract;
provided, however, that the subscriber's Claims (if any)
against and Equity Ownership (if any) in the Contracting Series
shall not be considered Subordinated Claims and Equity
Ownership with respect to enforcement against and
distribution and repayment from the Contracting Series,
the Contracting Series Assets and the Managing Owner
and its assets; and provided further that (1) the subscriber's
valid Claims, if any, against the Contracting Series shall be pari passu
and equal in right of repayment and distribution with all other valid
Claims against the Contracting Series and (2) the subscriber's
Equity Ownership, if any, in the Contracting Series shall
be pari passu and equal in right of repayment and distribution
with all other Equity Ownership in the Contracting Series;
and (ii) the subscriber will not take, demand or
receive from any Series or the Trust or any of their respective
assets (other than the Contracting Series, the Contracting Series Assets
and the Managing Owner and its assets) any payment for the Subordinated
Claims and Equity Ownership;
(b) the Claims and Equity Ownership of the subscriber with respect to the
Contracting Series shall only be asserted and enforceable against the
Contracting Series, the Contracting Series Assets and the Managing Owner
and its assets; and such Claims and Equity Ownership shall not be
asserted or enforceable for any reason whatsoever against
any other Series, the Trust generally or any of their respective assets;
D-8
(c) if the Claims of the subscriber against the Contracting Series or
the Trust are secured in whole or in part, the subscriber hereby waives
(under section 1111(b) of the U.S. Bankruptcy Code (11 U.S.C. S 1111(b))) any
right to have any deficiency Claims (which deficiency Claims may arise
in the event such security is inadequate to satisfy such Claims) treated
as unsecured Claims against the Trust or any Series (other than the
Contracting Series), as the case may be;
(d) in furtherance of the foregoing, if and to the extent that the
subscriber receives monies in connection with the Subordinated Claims
and Equity Ownership from a Series or the Trust (or
their respective assets), other than the Contracting
Series, the Contracting Series Assets and the Managing
Owner and its assets, the subscriber shall be deemed to hold
such monies in trust and shall promptly remit such monies to the Series
or the Trust that paid such amounts for distribution by the Series or
the Trust in accordance with the terms hereof; and
(e) the foregoing Consent shall apply at all times notwithstanding that
the Claims are satisfied or that the Equity Ownership is
sold, transferred, redeemed or in any way disposed of and
notwithstanding that the agreements in respect of such Claims
and Interests are terminated, rescinded or canceled.
NOTICES TO SUBSCRIBERS
13. RISKS
These securities are speculative and their purchase involves a high
degree of risk. Risk Factors relating to the Interests in each Series
which are more fully described in the prospectus include the following:
(i) futures, forward and options trading is speculative, volatile and
highly leveraged; (ii) each Series is largely reliant on the trading
advisor for success; (iii) past performance of the trading advisor for
each Series is not necessarily indicative of future results; (iv) a
limited owner's tax liability is likely to exceed his or its cash
distributions; (v) substantial charges will be imposed on each Series
and each Series' break-even point is described in the Prospectus;
(vi) limited owners will have limited voting rights and no
control over the Trust's business or the business of each
Series; (vii) a limited owner could lose a substantial portion, or even
all, of his investment; (viii) limited owners will have a limited
ability to liquidate their interests in a Series because transferability
is restricted, interests are not listed on an exchange and no trading
market exists; (ix) actual and potential conflicts of interests
exist. See the section entitled "Risk Factors" in the prospectus.
D-9
14. SUBSCRIPTIONS
The minimum subscription amount is $5,000 or ($2,000 for IRAs),
except in the case of certain states (see State Suitability
Requirements on page D-13). The purchase price per limited
interest is $100 during the initial offering period
and is Series net asset value during the continuous offering period.
Incremental subscriptions in excess of the above minimums are permitted
in multiples of $100. Existing limited owners in the subscribed Series
(except in certain states) may subscribe for additional limited
interests in that Series in $100 increments. Fractional limited
interests will be issued to three decimal places. The terms of the
offering of the limited interests are described in the
prospectus. I acknowledge that I must have my subscription payment in
such account on but not before the settlement date for my purchase of
limited interests. My financial advisor shall inform me of such
settlement date, on which date my account will be debited and the
amounts so debited will be transmitted as set forth in the prospectus.
The managing owner may, in its sole and absolute discretion,
accept or reject this subscription in whole or in part.
THE SALE OF LIMITED INTERESTS WILL NOT BE FINAL AND BINDING
ON ANY SUBSCRIBER UNTIL AT LEAST FIVE (5) BUSINESS DAYS
AFTER SUCH SUBSCRIBER SUBMITS SUBSCRIPTION DOCUMENTS TO
PRUDENTIAL SECURITIES OR AN ADDITIONAL SELLER. Thereafter, all
subscriptions are irrevocable. Due to the above rescission right,
subscribers will not be admitted as limited owners until the Monday
first following five business days after the subscription documents have
been submitted to Prudential Securities or an additional seller.
15. SUITABILITY
If the subscriber is an employee benefit plan, the investment in the
limited interests by such employee benefit plan is in compliance with
all federal laws relating to such plans. If the subscriber is a trust
under an employee benefit plan, none of the Trustee, the managing owner,
any selling agent or additional selling agent, any of their respective
affiliates or any of their respective agents or employees: (i) has
investment discretion with respect to the investment of the assets of
such trust being used to purchase limited interests; (ii) has authority
or responsibility to give or regularly gives investment advice with
respect to such trust assets for a fee and pursuant to an agreement or
understanding that such advice will serve as the primary basis for
investment decisions with respect to such Plan or trust assets and that
such advice will be based on the particular investment needs of the
trust; or (iii) is an employer maintaining or contributing to the trust.
D-10
THE EXECUTION COPY OF THE SUBSCRIPTION AGREEMENT AND POWER
OF ATTORNEY ACCOMPANIES THIS PROSPECTUS AS A SEPARATE DOCUMENT
WORLD MONITOR TRUST II
UNITS OF BENEFICIAL INTEREST BY SERIES
BY EXECUTING THIS SUBSCRIPTION AGREEMENT AND POWER OF ATTORNEY
SUBSCRIBERS ARE NOT WAIVING ANY RIGHTS UNDER THE
SECURITIES ACT OF 1933 OR THE SECURITIES
EXCHANGE ACT OF 1934
SUBSCRIPTION AGREEMENT AND
POWER OF ATTORNEY
World Monitor Trust II
Prudential Securities Futures
Management Inc.
One New York Plaza, 12th Floor
Specialty Finance Operations
New York, New York 10292
Dear Sirs:
1. Subscription for Limited Interests. I hereby subscribe for the
dollar amount of units of beneficial interest ("Limited Interests") in
Series D, Series E and/or Series F of World Monitor Trust II
(the "Trust") as set forth in the Subscription Agreement
and Power of Attorney signature page attached hereto. I
have authorized my selling agent to debit my
customer securities account in the amount of my subscription.
2. Representations and Warranties of Subscriber. I have received
the prospectus together with the most recent monthly report of the
Trust, if trading has commenced for the Series in which I am investing.
I acknowledge that I satisfy the applicable requirements relating to net
worth and annual income as set forth in "State Suitability Requirements"
attached hereto. If subscriber is not an individual, the person
signing the Subscription Agreement and Power of Attorney signature page
on behalf of the subscriber is duly authorized to execute such signature
page.
3. Power of Attorney. In connection with my purchase of Limited
Interests, I do hereby irrevocably constitute and appoint
Prudential Securities Futures Management Inc. (the "Managing
Owner") and its successors and assigns, as my true and lawful attorney-in-
fact, with full power of substitution, in my name, place and stead, (i) to
file, prosecute, defend, settle or compromise litigation, claims or
arbitrations on behalf of the Trust and Series and (ii) to make, execute,
sign, acknowledge, swear to, deliver, record and file any documents or
instruments which may be considered necessary or desirable by the
Managing Owner to carry out fully the provisions of the
First Amended and Restated Declaration of Trust and
Trust Agreement of the Trust, including, without limitation,
the execution of the said Agreement itself, and the execution of all
amendments permitted by the terms thereof. The Power of Attorney
granted hereby shall be deemed to be coupled with an interest, shall be
irrevocable and shall survive and shall not be affected by, my subsequent
death, incapacity,
D-11
disability, insolvency or dissolution or any delivery
by me of an assignment of the whole or any portion of my Limited
Interests.
4. Governing Law. I hereby acknowledge and agree that
this Subscription Agreement and Power of Attorney shall be governed by
and shall be interpreted in accordance with the laws of the State of
Delaware, without regard to principles of conflicts of laws.
PLEASE CAREFULLY COMPLETE THE SUBSCRIPTION AGREEMENT AND
POWER OF ATTORNEY SIGNATURE PAGE WHICH ACCOMPANIES THIS
PROSPECTUS.
D-12
STATE SUITABILITY REQUIREMENTS
All states except as listed below.
The general suitability requirement for subscribers to the
Series of the Trust is that subscribers have a net worth
(exclusive of home, home furnishings and automobiles)
of at least $150,000 or, failing that standard, have a net
worth (similarly calculated) of at least $45,000 and an
annual gross income of at least $45,000. In addition, the
minimum aggregate purchase is $5,000 ($2,000 for IRAs).
Higher Suitability Requirement.
The states listed below have more restrictive suitability requirements.
Please read the following list to make sure that you meet the
suitability and/or investment requirements for the state in which
you reside. (As used below, "NW" means net worth
exclusive of home, home furnishings and automobiles; "AI" means
annual gross income; and "TI" means annual taxable income for U.S.
federal income tax purposes).
Alaska . . . . . . (a) $225,000 NW, or (b) $60,000 NW and $60,000 AI.
Arizona. . . . . . (a) $225,000 NW, or (b) $60,000 NW and $60,000 AI.
California . . . . (a) $250,000 NW, or (b) $100,000 NW and $65,000 AI.
Iowa . . . . . . . (a) $225,000 NW, or (b) $60,000 NW and $60,000 TI.
Minimum subscription for IRAs is $3,000.
Maine. . . . . . . (a) $225,000 NW, or (b) $100,000 NW and $100,000 AI.
Massachusetts. . . (a) $225,000 NW, or (b) $60,000 NW and $60,000 TI.
Michigan . . . . . (a) $225,000 NW, or (b) $60,000 NW and $60,000 TI.
Minnesota. . . . . (a) $225,000 NW, or (b) $60,000 NW and $60,000
AI.
Mississippi. . . . (a) $225,000 NW, or (b) $60,000 NW and $60,000 AI.
Missouri . . . . . (a) $225,000 NW, or (b) $60,000 NW and $60,000 TI.
Nebraska . . . . . (a) $225,000 NW, or (b) $60,000 NW and $60,000 TI.
New Hampshire. . . (a) $250,000 NW, or (b) $125,000 NW and
$50,000 TI.
North Carolina . . (a) $225,000 NW, or (b) $60,000 NW and $60,000 TI.
Oklahoma . . . . . (a) $225,000 NW, or (b) $60,000 NW and $60,000 AI.
Oregon . . . . . . (a) $225,000 NW, or (b) $60,000 NW and $60,000 AI.
Pennsylvania . . . (a) $175,000 NW, or (b) $100,000 NW and $50,000 TI.
South Dakota . . . (a) $225,000 NW, or (b) $60,000 NW and $60,000 AI.
Tennessee. . . . . (a) $250,000 NW, or (b) $60,000 NW and $60,000 TI.
Texas. . . . . . . (a) $225,000 NW, or (b) $60,000 NW and $60,000 TI.
AN INVESTMENT IN THE TRUST MAY NOT EXCEED 10% OF NW
D-13
WORLD MONITOR TRUST II
The date of this prospectus is April 3, 2001.
The Trust files annual, quarterly and current reports
and other information with the SEC concerning each
series. You may read and copy any reports, statements
or other information we file at the SEC's public
reference room in Washington, D.C. You can request
copies of these documents, upon payment of a
duplicating fee, by writing the SEC. Please call the
SEC at 1-800-SEC-0330 for further information on the
operation of the public reference rooms. Our SEC
filings are also available to the public on the SEC's
internet site at www.sec.gov.
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