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WORLD MONITOR TRUST II
Series D ($50 million), Series E ($50 million) and Series F ($50 million)
Minimum Initial Purchase $5,000 or $2,000 (for IRAs only)
in one or more series
Minimum Per Series $1,000
Minimum Additional Purchases $100 per series
Each series 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 (Above $5 million)
Portfolio
(BUL) 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:
(BUL) Futures, forward and options trading is speculative,
volatile and highly leveraged.
(BUL) You could lose a substantial portion, or even all, of your
investment.
(BUL) Past performance is not necessarily indicative of future
results.
(BUL) Each series relies on its trading advisor for success.
(BUL) Your annual tax liability for taxable income from a series
will exceed distributions to you.
(BUL) 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.
(BUL) The fixed expenses of each series requires estimated gains
of 7.45% per annum (Series D), 7.41% per annum (Series E)
and 7.19% per annum (Series F) to break even. These break
even amounts increase if you have to pay redemption fees.
(BUL) Transfers are restricted, the interests are not exchange
listed and no other secondary market exists for the
interests.
(BUL) 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.
(BUL) Your liability for any series will not exceed your investment
in that series.
(BUL) 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 PRUDENTIAL SECURITIES
INCORPORATED FUTURES MANAGEMENT INC.
Selling Agent and Managing Owner and Sponsor
Clearing Broker
The date of this prospectus is May 1, 2002
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COMMODITY FUTURES TRADING COMMISSION
RISK DISCLOSURE STATEMENT
YOU SHOULD CAREFULLY CONSIDER WHETHER YOUR FINANCIAL
CONDITION PERMITS YOU TO PARTICIPATE IN A COMMODITY POOL. IN SO
DOING, YOU SHOULD BE AWARE THAT FUTURES AND OPTIONS TRADING CAN
QUICKLY LEAD TO LARGE LOSSES AS WELL AS GAINS. SUCH TRADING
LOSSES CAN SHARPLY REDUCE THE NET ASSET VALUE OF THE POOL AND
CONSEQUENTLY THE VALUE OF YOUR INTEREST IN THE POOL. IN
ADDITION, RESTRICTIONS ON REDEMPTIONS MAY AFFECT YOUR ABILITY TO
WITHDRAW YOUR PARTICIPATION IN THE POOL.
FURTHER, COMMODITY POOLS MAY BE SUBJECT TO SUBSTANTIAL
CHARGES FOR MANAGEMENT AND ADVISORY AND BROKERAGE FEES. IT MAY
BE NECESSARY FOR THOSE POOLS THAT ARE SUBJECT TO THESE CHARGES TO
MAKE SUBSTANTIAL TRADING PROFITS TO AVOID DEPLETION OR EXHAUSTION
OF THEIR ASSETS. THIS DISCLOSURE DOCUMENT CONTAINS A COMPLETE
DESCRIPTION OF EACH EXPENSE TO BE CHARGED THIS POOL AT PAGES 101
TO 106 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 PRINCIAL 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.
(BUL) 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.
(BUL) There is no guarantee that
information in this
prospectus is correct as of
any time after the date
appearing on the cover.
(BUL) This prospectus must be
accompanied by a recent
monthly report of the Trust.
(BUL) Prudential Securities
Incorporated (referred to
as Prudential Securities)
and any additional sellers
must deliver any supplemented
or amended prospectus issued by
the Trust.
(BUL) 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.
(BUL) 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.
(BUL) 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.
(BUL) 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
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TABLE OF CONTENTS
PART ONE: CFTC DISCLOSURE DOCUMENT
CFTC RISK DISCLOSURE STATEMENT 2
SUMMARY OF THE PROSPECTUS 5
Selected 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 22
Regulatory Risks 23
ACTUAL AND POTENTIAL CONFLICTS OF INTEREST 24
STRUCTURE OF THE TRUST 26
PERFORMANCE OF EACH SERIES 27
SERIES D 43
Bridgewater Associates And Its Principals 43
Bridgewater Associates' Trading Strategy 44
Bridgewater Associates' Past Performance For All Of Its Clients 46
SERIES E 57
Graham Capital And Its Principals 57
Graham Capital's Trading Strategy 59
Graham Capital's Past Performance For All Of Its Clients 62
SERIES F 67
Campbell & Company And Its Principals 67
Campbell & Company's Trading Strategy 68
Campbell & Company's Past Performance For All of Its Clients 71
TRADING LIMITATIONS AND POLICIES 78
DESCRIPTION OF THE TRUST, TRUSTEE, MANAGING OWNER AND AFFILIATES 80
DUTIES AND COMMITMENTS OF THE MANAGING OWNER 88
FIDUCIARY RESPONSIBILITIES 90
THE OFFERING 91
WHO MAY SUBSCRIBE 95
HOW TO SUBSCRIBE FOR, EXCHANGE AND REDEEM INTERESTS 98
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FEES AND EXPENSES 101
Charges To Be Paid By The Trust 101
Charges To Be Paid By Prudential Securities Or Its Affiliates 105
Charges To Be Paid By Limited Owners 105
Projected Twelve-Month Break-Even Analysis 106
SUMMARY OF AGREEMENTS 107
Advisory Agreements 107
Brokerage Agreement 108
Trust Agreement 109
U.S. FEDERAL INCOME TAX CONSEQUENCES 118
LEGAL MATTERS 121
ADDITIONAL INFORMATION 121
EXPERTS 121
PART TWO: CFTC STATEMENT OF ADDITIONAL INFORMATION
THE FUTURES MARKETS 122
HOW MANAGED FUTURES FIT INTO A PORTFOLIO 127
GLOSSARY OF TERMS 129
INDEX TO CERTAIN FINANCIAL INFORMATION 134
FINANCIAL STATEMENTS
World Monitor Trust II -- Series D 135
World Monitor Trust II -- Series E 145
World Monitor Trust II -- Series F 155
Managing Owner 165
EXHIBIT A -- FORM OF TRUST AGREEMENT A-1
EXHIBIT B -- FORM OF REDEMPTION REQUEST B-1
EXHIBIT C -- FORM OF EXCHANGE REQUEST C-1
EXHIBIT D -- FORM OF SUBSCRIPTION AGREEMENT D-1
State Suitability Requirements D-13
4
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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 129 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:
(BUL) 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.
(BUL) 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.
(BUL) Trades and accounts for its assets
separately from the other series and
the other Trust assets.
(BUL) Segregates its assets from the other
series and maintains separate and
distinct records.
(BUL) Calculates the net asset value
(sometimes referred to as the NAV) of
its interests separately from the net
asset value of the other series.
(BUL) Has an investment objective of
increasing the value of your interests
over the long term (capital
appreciation), while controlling risk
and volatility.
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Performance of Each Series
Series D Series E Series F
Date trading started (3/13/00) (4/6/00) (3/1/00)
NAV on start date $5,279,158 $5,147,459 $5,185,772
NAV on 12/31/01 $4,295,922 $8,893,810 $12,202,983
NAV on 3/31/02 $4,497,490 $10,131,286 $12,220,941
NAV per interest
on start date $100 $100 $100
NAV per interest
on 12/31/01 $81.84 $129.29 $106.40
NAV per interest
on 3/31/02 $81.61 $121.78 $100.67
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,
2002, Bridgewater Associates had an
estimated $13.9 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, 2002, Graham Capital had
approximately $1 billion 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, 2002,
Campbell & Company had approximately $2.7
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 (Above $5
million) Portfolio (referred to as its the
FME Small (Above $5 million) 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.
(BUL) 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.
(BUL) 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
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Risk Factors To Consider
(continued)
(BUL) 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.
(BUL) Your annual tax liability for any
taxable income from a series will
exceed cash distributions to you from
the Trust.
(BUL) 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.
(BUL) Each series has large fixed expenses.
Assuming interest income equal to 1.80%
annually and March 31, 2002 net asset
values, we estimate that the series'
gains from trading must be 7.45% per
annum (Series D), 7.41% per annum
(Series E) and 7.19% per annum
(Series F) in order to break even.
These break even amounts increase if
you have to pay redemption fees.
(BUL) 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.
(BUL) 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.
(BUL) You will have limited voting rights and
no control over the Trust's business.
(BUL) 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:
(BUL) Administers the business and affairs of
each series (excluding commodity
trading decisions, except in certain
limited, and essentially emergency,
situations).
(BUL) 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.
(BUL) Accepts responsibility for the
obligations of any series whose
liabilities exceed its assets.
7
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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,
which has been merged into counsel to the
Trust, Katten Muchin Zavis Rosenman, 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:
(BUL) 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."
(BUL) You may not invest more than 10% of
your liquid net worth in any series or
combination of series.
(BUL) IRAs, 401(k) accounts and other
employee benefit plans are subject to
special suitability requirements.
(BUL) If your aggregate interests in all
series, when added to your aggregate
interests in the various series of
World Monitor Trust, a futures fund sponsored
by the managing owner that was publicly offered,
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:
(BUL) The fundamental risks and possible
financial hazards of this investment.
(BUL) The trading strategy or strategies to
be followed in the series
you invest in.
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What You Must Understand Before You Subscribe
(continued)
(BUL) The tax consequences of your investment
in the series.
(BUL) 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.
(BUL) The fees and expenses to which you will
be subject.
(BUL) Your rights and obligations as a
limited owner.
Your Minimum Subscription And Interest Pricing
Minimum required subscriptions and
interest prices are as follows:
(BUL) Your minimum initial purchase is
$5,000, unless you are investing in an
IRA in which case your minimum initial
investment is $2,000.
(BUL) 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.
(BUL) 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.
(BUL) 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:
(BUL) You must complete and sign a
subscription agreement (Exhibit D).
(BUL) 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.
(BUL) You must subscribe in cash.
(BUL) 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:
(BUL) "Dealing day" means the first business
day of each week.
(BUL) "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.
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How The Offering Works
(continued)
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 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.
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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 from 4% of redemption price
the effective date of
purchase
after the sixth month 3% of redemption price
and through the 12th
month from the
effective date of
purchase
Redemption fees may be waived if:
(BUL) 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 that was publicly offered, total
at least $5 million.
Redemption fees will be waived if:
(BUL) The redemption proceeds are used to
effect an exchange for interests in
another series.
(BUL) The redemption proceeds are used to
purchase interests in another fund
sponsored by the managing owner.
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Distributions
The managing owner does not intend to make
ongoing distributions.
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, which has
been merged into tax counsel to the Trust,
Katten Muchin Zavis Rosenman, 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."
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Selected Financial Information
As of December 31, 2001 and for
the year ended December 31, 2001
---------------------------------
Series D Series E Series F
Total Assets $4,412,721 $9,099,268 $12,410,300
Total Liabilities $116,799 $205,458 $207,317
Total Trust's Capital $4,295,922 $8,893,810 $12,202,983
Total Income (Loss) $(60,689) $1,536,002 $1,019,955
Net Income (Loss) $(463,991) $540,554 $(35,150)
Net Asset Value Per Interest $81.84 $129.29 $106.40
Net Income (Loss) Per
Weighted Average Interest $(8.54) $9.39 $(0.36)
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 4/6/00 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
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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". For
the year ended December 31,
2001, this fee, plus trading
transaction costs, equated to
an amount per round-turn
transaction of:
Series D: $57
Series E: $54
Series F: $65
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 $100,000 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.
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Projected Twelve-Month Break-Even Analyses
The following is the projected twelve-month break-even analysis
for each series at the March 31, 2002 net asset values. 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) $25.00 0.50% $19.50 0.39% $17.00 0.34%
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% $41.00 0.82% $32.50 0.65%
Total $462.50 9.25% $460.50 9.21% $449.50 8.99%
Less Estimated
Interest Income (4) $(90.00) (1.80)% $(90.00) (1.80)% $(90.00) (1.80)%
------- ------- -------
Estimated 12-Month
Break-Even Level
Without Redemption
Charges (5)(7)(8) $372.50 7.45%(9) $370.50 7.41%(10) $359.50 7.19%(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) $522.50 10.45% $520.50 10.41%(10) $509.50 10.19%(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, based on current experience, are
approximately $110,000 to $120,000 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 $4.1 million during a year that series will not pay more
than $61,500 for that year, 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)
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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 futures fund sponsored by the managing owner
that was publicly offered, 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 6.41%
without redemption charges and 9.41% 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 7.05%
without redemption charges and 10.05% 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 7.00%
without redemption charges and 10.00% with the 3% redemption
charge.
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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
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Likewise, you and other investors will invest in different
series managed by different trading advisors. Each series'
assets are:
(BUL) Segregated from every other series' assets.
(BUL) Traded separately from every other series.
(BUL) 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'
18
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trading advisor, or otherwise altering historical trading patterns or
affecting the execution of trades, all to the significant detriment
of a series.
Discretionary Decision-Making May Result In Missed Opportunities
Or Losses
Each of the trading advisors' strategies involves some
discretionary aspects in addition to their technical factors.
For example, the trading advisors often use discretion in
selecting contracts and markets to be followed. 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.
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 currently includes
Series E and Series F (and might in the future include Series D),
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. The series may 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. At present, all of the regulations contemplated by
this legislation have not been fully implemented and there has
been limited activity under this new legislative scheme. As a
result, all of the potential risks that the series may be subject
to under this new legislative scheme are not yet clear.
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.
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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
was completed at the end of February 2002, although additional
European Union member countries may join the single currency in
the future. The conversion to a single euro-currency was a very
significant and novel political and economic event, and it is not
clear what, if any, future effects this may have on the European
currency markets and, in turn, the series.
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.
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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 7.45% per annum (Series D), 7.41% per annum
(Series E) and 7.19% 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.
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.
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Tax Risks
Your Tax Liability Is Anticipated To Exceed Distributions To You
For U.S. federal income tax purposes, the amount of your
taxable income or loss for each taxable year of the Trust will be
determined on the basis of your allocable share of ordinary
income and loss generated from the series in which you have
purchased interests, as well as capital gains and losses
recognized by the series during each year. If the series in
which you own interests has taxable income for a year, that
income will be taxable to you in accordance with your allocable
share of Trust income from that series, whether or not any
amounts have been or will be distributed to you. If you are an
employee benefit plan or an individual retirement account or
other tax-exempt limited owner, under certain circumstances, all
or part of such income may be taxable to you. Also, the series
in which you have an interest might sustain losses after the end
of a profitable year, so that if you did not redeem your
interests as of such year-end, you might never receive the
profits on which you have been taxed. The managing owner, in its
discretion, will determine whether, and in what amount, the Trust
will make distributions. There is no present intention to make
distributions. Accordingly, it is anticipated that you will
incur tax liabilities as a result of being allocated taxable
income from a series even though you will not receive current
cash distributions with which to pay such taxes.
Deductions May be Limited
Your ability to claim current deductions for certain
expenses and losses, including capital losses of the series in
which you have interests, is subject to various limitations.
Taxes And Economics May Not Match During A Calendar Year
The income tax effects of a series' transactions to you may
differ from the economic consequences of those transactions to
you during a calendar year.
Partnership Treatment Is Not Assured
The Trust has received an opinion of counsel from Rosenman &
Colin LLP, which has been merged into tax counsel to the Trust,
Katten Muchin Zavis Rosenman, 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.
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Regulatory Risks
Government Regulations May Change
Commodity pool regulations are constantly changing and there
is no way to predict the impact of future changes on the Trust.
In addition, future tax law revisions could have a materially
adverse effect on the Trust. Concern has also been expressed
about speculative pools of capital trading in the currency
markets, because these pools have the potential to disrupt
central banks' attempts to influence exchange rates. In the
current environment, you must recognize the possibility that
future regulatory changes may alter, perhaps to a material
extent, the nature of an investment in any series of the Trust.
CFTC Registrations Could Be Terminated
If the Commodity Exchange Act registrations or National
Futures Association memberships of the managing owner, any of the
trading advisors or Prudential Securities are no longer
effective, these entities would not be able to act for the Trust.
The foregoing risk factors are not a complete explanation of
all the risks involved in purchasing interests in a fund that
invests in the highly speculative, highly leveraged trading of
futures, forwards and options. You should read this entire
prospectus before determining to subscribe for interests.
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ACTUAL AND POTENTIAL CONFLICTS OF INTEREST
While the managing owner, Prudential Securities and its
affiliates and the trading advisors 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.
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Other Activities Of Prudential Securities And The Managing Owner
The officers, directors, and employees of the managing owner
and of Prudential Securities and the agents and correspondents of
Prudential Securities from time to time may trade in commodities
for their own accounts and for the account of Prudential
Securities itself. In addition, Prudential Securities is a
futures commission merchant, handling customer business in
commodities. Thus, Prudential Securities may effect transactions
for itself, its officers, directors, employees or customers,
agents or correspondents (or employees of such agents or
correspondents) or the managing owner. These transactions might
be effected when similar series trades are not executed or are
executed at less favorable prices, or these persons or entities
might compete with a series in bidding or offering on purchases
or sales of contracts without knowing that series also is so
bidding or offering. In very illiquid markets, such activities
could adversely affect series transactions. Although you will
not be permitted to inspect such persons' trading records in
light of their confidential nature, the managing owner 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.
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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 corporations. 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.
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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, 2002.
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 42
PAST PERFORMANCE IS NOT NECESSARILY INDICATIVE OF FUTURE RESULTS
27
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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 2002 2001 2000
- ----------------------------------------------------------------
January (7.31)% (2.78)%
February 2.02% (3.54)%
March 5.45% (5.72)% (2.07)%
April 3.66% (1.59)%
May (8.48)% 9.10%
June 4.07% (2.07)%
July 1.45% (1.80)%
August 4.22% (8.01)%
September (2.80)% (6.36)%
October 8.39% (7.84)%
November (0.89)% 3.81%
December (2.95)% 5.00%
- -----------------------------------------------------------------
Annual (0.28)% (6.46)% (12.51)%
Name of Pool: World Monitor Trust II -- Series D
Type of Pool: Publicly-Offered
Start Date: March 13, 2000
Aggregate subscriptions: $9,684,140 (as of March 31, 2002)
Current net asset value
per interest: $81.61 (as of March 31, 2002)
"Draw-down" means losses experienced by
World Monitor Trust II -- Series D over a
specified period.
Largest monthly draw-down: (8.48)% May 2001
"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: (30.20)% June 2000 to May 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
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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 year ended December 31, 2001 and for the period from
March 13, 2000 (commencement of operations) to December 31, 2001
resulted in additional gross proceeds to Series D of $1,007,395
and $3,957,889, respectively. Additional 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.
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 effected date of purchase. Redemptions of limited interests
and general interests for the year ended December 31, 2001 were
$2,281,677 and $18,432, respectively and for the period from
March 13, 2000 (commencement of operations) to December 31, 2001
were $3,588,587 and $54,024, respectively. Additionally,
interests owned in any series of the Trust (Series D, E or F) may
be exchanged, without any charge, for interests of one or more
other series of the Trust on a weekly basis for as long as
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, 2001, 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, a comparative analysis of the 2001 full year results
versus the 2000 partial year results is not meaningful. However,
Series D's average net asset
29
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levels have continually decreased throughout 2001, primarily from poor
trading performance and redemptions. These decreased average net asset
levels have led to proportionate decreases in the amount of interest
earned by Series D, as well as the commissions and management fees paid
by Series D.
The net asset value per interests as of December 31, 2001
was $81.84, a decrease of 6.46% from the December 31, 2000 net
asset value per Interest of $87.49, which was a decrease of
12.51% from the March 13, 2000 initial net asset value per
Interest of $100.00. The Zurich Fund/Pool Qualified Universe
Index (formerly known as the MAR Fund/Pool Index), which tracked
the performance of 272 futures funds at December 31, 2001,
returned 7.52% and 9.33% for the year ended December 31, 2001 and
for the period from March through December 2000, respectively.
Past performance is not necessarily indicative of future results.
Series D had gross trading losses of $221,000 and $657,000
for the year ended December 31, 2001 and for the period from
March 13, 2000 (commencement of operations) to December 31, 2000,
respectively. Due to the nature of Series D's, trading
activities a period to period comparison of its trading results
is not meaningful. However, a detailed discussion of Series D's
2001 trading results is presented below.
Net losses for Series D were experienced in the currency and
index sectors. Profits were the result of gains in the interest
rate and metals sectors.
In foreign exchange markets, the U.S. dollar rose slightly
against many foreign currencies during the first half of the
year, reflecting expectations that some of those economies might
be adversely affected by slower economic growth in the United
States. Additionally, the U.S. dollar strengthened as investors
around the globe felt that it was the safest currency in this
time of economic uncertainty. Losses were incurred in long
Australian dollar and Canadian dollar positions as these
currencies fell against the U.S. dollar during the first half of
the year. The U.S. dollar fell against most major currencies
during the third quarter, particularly the Japanese yen, the euro
and the Swiss franc. The U.S. dollar's downward trend against
many currencies accelerated after September 11th. As a result of
the attacks, many investors switched exposure from the U.S.
dollar to other currencies which rose against the U.S. dollar
resulting in losses for short euro, Canadian dollar and
Australian dollar positions. The U.S. dollar strengthened
slightly towards year-end amid hopes of an economic recovery in
the U.S.
Equity markets performed poorly across the board during the
first half of the year as foreign stock markets generally
followed the downtrend of the U.S. markets. Technology stocks
led this market downturn and the NASDAQ fell to its lowest level
in nearly two years. Losses in the Dow Jones and NASDAQ brought
these indices under the key 10,000 and 2,000 levels,
respectively, with the DAX, FTSE, CAC-40 and Nikkei experiencing
similar losses. Short positions in the DAX, MATIF CAC-40 and S&P
500 resulted in gains. The terrorist attacks of September 11th
further weakened sluggish U.S. and global economies plunging
equity markets downward throughout the world in the week
following the attacks. The Dow Jones industrial average suffered
its worst percentage loss since the Great Depression due to
uncertainty about how the economy would perform as a result of
these attacks and other threats of terrorism. U.S. equity
indices recovered somewhat at the end of September as interest
rate cuts by the U.S. Federal Reserve and fiscal stimuli by
Congress combined to help stimulate an economic rebound. Global
equity markets followed suit rebounding from earlier lows as
well. U.S. and global equity markets rallied in November amid
positive developments in the war in Afghanistan and sentiment
that the U.S. economy might be emerging from its recession.
Equity markets reversed in December providing a negative return
for the second consecutive year. Gains in short equity index
positions during the first half of the year were not sufficient
to offset losses incurred during the last two quarters and the
index sector produced net losses for the year.
In light of the rapid weakening in economic expansion and
deterioration in business and consumer confidence, the U.S.
Federal Reserve followed a relatively aggressive policy, lowering
interest rates three times during the first quarter of 2001.
Other central banks followed the U.S. Federal Reserve's lead
lowering interest rates as well. Interest rate instruments
trended upward throughout most of the second and third quarters
as major central banks cut short-term interest rates in an
attempt to bolster slowing economies. The bond market rally
continued in the wake of September 11th as the U.S. Federal
Reserve moved to inject liquidity into the economy, cutting
interest rates 50 basis points on September 17th to 3%. This
move was soon followed by the Central Bank of Canada, the
European Central Bank and Swiss National Central Bank who also
lowered their rates 50 basis points. U.S. and European interest
rate instruments began the fourth quarter up as data indicated
persistent weakness in the U.S.
30
<Page>
economy. In an effort to stimulate the economy, the U.S. Federal Reserve
lowered interest rates by 50 basis points in October and again in early
November. The European Central Bank and the Bank of England each cut
rates by 50 basis points in November. In mid-November, some positive
economic news, the fall of Kabul, Afghanistan and an announcement
by the U.S. Treasury regarding the cessation of sales of 30-year
bonds, resulted in one of the greatest reversals the U.S. bond
market has seen in recent times. Interest rates climbed sharply
in the U.S. and Europe causing bond prices to fall. In December,
the U.S. Federal Reserve lowered rates by another 25 basis points
and bond prices climbed slightly. Gains in long euro bond
positions during the third quarter offset losses incurred during
the rest of the year resulting in net gains for the interest rate
sector.
Rate cuts by U.S. and European central banks during the
first half of the year stirred fears of inflation driving metal
prices higher. Long copper positions resulted in gains during
the second quarter. In the third quarter, short copper positions
resulted in gains as fears of a global economic recession and
decreasing industrial production lowered prices of industrial
commodities.
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 was $160,000 and $282,000 for
the year ended December 31, 2001 and for the period from March
13, 2000 (commencement of operations) to December 31, 2000,
respectively. The decrease in interest income during 2001 versus
2000 was due to the decrease in net asset levels as discussed
above, as well as declining interest rates in 2001.
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
Bridgewater Associates executes, as well as which exchange,
clearing firm or bank on, or through, which the contract is
traded. Commissions and other transaction fees were $283,000 and
$304,000 for the year ended December 31, 2001 and for the period
from March 13, 2000 (commencement of operations) to December 31,
2000, respectively, due to the declining average net asset
levels, as discussed above.
All trading decisions for Series D are made by the
Bridgewater Associates. 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 were $55,000 and $58,000 for the
year ended December 31, 2001 and for the period from March 13,
2000 (commencement of operations) to December 31, 2000,
respectively, due to the declining average net asset levels, as
discussed above.
Incentive fees are based on the "New High Net Trading
Profits" generated by the Bridgewater Associates, as defined in
the advisory agreement among Series D, the managing owner and
Bridgewater Associates. Series D did not pay an incentive during
2001. 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 year ended
December 31, 2001 and for the period from March 13, 2000
(commencement of operations) to December 31, 2000 were $120,000
and $119,000, respectively. These expenses are before
reimbursement 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. To the extent that general and
administrative expenses exceed 1.5% of Series D's net asset value
during the year (with a minimum of 1.25% attributable to other
than legal and audit expenses) such amounts are borne by the
managing owner and its affiliates. Because applicable expenses
exceeded these limits, a portion of the expenses have been borne
by the managing owner and its affiliates, resulting in a net cost
to Series D of $66,000 and $70,000, respectively.
Financial Reporting by Commodity Pools
During March 2001, the Accounting Standards Executive
Committee issued Statement of Position 01-1, Amendment to Scope
of Statement of Position 95-2, Financial Reporting by Nonpublic
Investment Partnerships, to Include Commodity Pools, which is
effective for financial statements issued for periods ending
after December 15, 2001. This Statement of Position amends
Statement of Position 95-2, Financial Reporting by Nonpublic
Investment
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Partnerships, to include within its scope commodity pools such
as Series D. Under the new requirements, Series D is
required to present a condensed schedule of investments and
certain other information in accordance with the American
Institute of Certified Public Accountants' Audit and Accounting
Guide "Audits of Investment Companies." The adoption of the
requirements of Statement of Position 01-1 has not had a material
effect on Series D's financial position or results of operations.
Inflation
Inflation has had no material impact on operations or on the
financial condition of Series D from inception through December
31, 2001.
PLEASE TURN TO PAGES 43 TO 45 FOR A DESCRIPTION OF BRIDGEWATER
ASSOCIATES AND ITS PRINCIPALS AND TRADING PROGRAMS AND TO
PAGES 46 TO 56 FOR ITS PERFORMANCE RECORD FOR ALL
ACCOUNTS UNDER ITS MANAGEMENT FOR THE PAST FIVE YEARS
32
<Page>
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 2002 2001 2000
- -----------------------------------------------------------------------
January 2.14% (2.12)%
February (3.88)% 2.51%
March (4.07)% 10.56%
April (12.05)% (0.80)%
May 1.17% (4.54)%
June (0.33)% (5.59)%
July (2.03)% (0.63)%
August 6.76% 4.94%
September 11.30% (0.77)%
October 8.45% 2.39%
November (13.65)% 12.57%
December 0.17% 12.87%
- -----------------------------------------------------------------------
Annual (5.82)% 7.42% 20.36%
Name of Pool: World Monitor Trust II -- Series E
Type of Pool: Publicly-Offered
Start Date: April 6, 2000
Aggregate subscriptions: $12,777,282 (as of March 31, 2002)
Current net asset value
per interest: $121.78 (as of March 31, 2002)
"Draw-down" means losses experienced by
World Monitor Trust II -- Series E over a
specified period.
Largest monthly draw-down: (13.65)% November 2001
"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: (18.53)% November 2001 to March 2002
"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
33
<Page>
Management's Discussion And Analysis Of Financial Condition And
Results Of Operations -- Series E
Liquidity and Capital Resources
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 year ended December 31, 2001 and for the period from
April 6, 2000 (commencement of operations) to December 31, 2001
resulted in additional gross proceeds to Series E of $4,884,134
and $5,599,632, respectively. Additional 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.
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 of interests for the
year ended December 31, 2001 were $2,617,616 and $19,576,
respectively, and for the period from April 6, 2000 (commencement
of operations) to December 31, 2001 were $3,420,027 and $19,576,
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 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, 2001, 100% 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, a comparative analysis of the 2001 full year results
versus the 2000 partial year results is not meaningful. However,
Series E's asset levels have
34
<Page>
increased since the commencement of operations primarily from additional
contributions and favorable trading performance offset, in part, by
redemptions. The rising asset levels have led to increases in the amount
of interest earned by Series E as well as commissions and other transaction
fees and management fees incurred.
The net asset value per Interest as of December 31, 2001 was
$129.29, an increase of 7.42% from the December 31, 2000 net
asset value per Interest of $120.36 which was an increase of
20.36% from the April 6, 2000 initial net asset value per
Interest of $100.00. These returns compare favorably to the
Zurich Fund/Pool Qualified Universe Index (formerly the MAR
Fund/Pool Index), which tracked the performance of 272 futures
funds at December 31, 2001, and returned 7.52% and 10.44% for the
year ended December 31, 2001 and for the April through December
2000 period, respectively. Past performance is not necessarily
indicative of future results.
Series E's gross trading gains for the year ended December
31, 2001 and the period from April 6, 2000 (commencement of
operations) to December 31, 2000 were $1,295,000 and $1,430,000,
respectively. Due to the nature of Series E's trading
activities, a period to period comparison of its trading results
is not meaningful. However, a detailed discussion of the
trading results for the year ended December 31, 2001 is presented
below.
Series E's favorable performance in 2001 was the result of
net gains in the interest rate, index and metals sectors. Losses
were experienced in the energy and currency sectors.
In light of the rapid weakening in economic expansion and
deterioration in business and consumer confidence, the U.S.
Federal Reserve followed a relatively aggressive policy, lowering
interest rates three times during the first quarter of 2001.
Other central banks followed the U.S. Federal Reserve's lead
lowering interest rates as well. Interest rate instruments
trended upward throughout most of the second and third quarters
as major central banks cut short-term interest rates in an
attempt to bolster slowing economies. The bond market rally
continued in the wake of the September 11th as the U.S. Federal
Reserve moved to inject liquidity into the economy, cutting
interest rates 50 basis points on September 17th to 3%. This
move was soon followed by the Central Bank of Canada, the
European Central Bank and Swiss National Central Bank who also
lowered their rates 50 basis points. U.S. and European interest
rate instruments began the fourth quarter up as data indicated
persistent weakness in the U.S. economy. In an effort to
stimulate the economy, the U.S. Federal Reserve lowered interest
rates by 50 basis points in October and again in early November.
The European Central Bank and the Bank of England each cut rates
by 50 basis points in November. In mid-November, some positive
economic news, the fall of Kabul, Afghanistan and an announcement
by the U.S. Treasury regarding the cessation of sales of 30-year
bonds, resulted in one of the greatest reversals the U.S. bond
market has seen in recent times. Interest rates climbed sharply
in the U.S. and Europe causing bond prices to fall. In December,
the U.S. Federal Reserve lowered rates by another 25 basis points
and bond prices climbed slightly. Gains in long euro, Australian
and Japanese bond positions during the first and third quarters
offset losses incurred during the second and fourth quarters of
the year resulting in net gains for the interest rate sector.
Equity markets performed poorly across the board during the
first half of the year as foreign stock markets generally
followed the downtrend of the U.S. markets. Technology stocks
led this market downturn and the NASDAQ fell to its lowest level
in nearly two years. Losses in the Dow Jones and NASDAQ brought
these indices under the key 10,000 and 2,000 levels,
respectively, with the DAX, FTSE, CAC-40 and Nikkei experiencing
similar losses. Short positions in the Hong Kong Hang Seng
Index, MATIF CAC-40 and TOPIX resulted in gains during the first
quarter. The terrorist attacks of September 11th further
weakened the sluggish U.S. and global economies plunging equity
markets downward throughout the world in the week following the
attacks. The Dow Jones industrial average suffered its worst
percentage loss since the Great Depression due to uncertainty
about how the economy would perform as a result of these attacks
and other threats of terrorism. U.S. equity indices recovered
somewhat at the end of September as interest rate cuts by the
U.S. Federal Reserve and fiscal stimuli by Congress combined to
stimulate an economic rebound. Global equity markets followed
suit rebounding from earlier lows as well. U.S. and global
equity markets rallied in November amid positive developments in
the war in Afghanistan and sentiment that the U.S. economy might
be emerging from its recession. Equity markets reversed in
December providing a negative return for the second consecutive
year. Gains in short equity index positions during the first and
third quarters of the year offset losses incurred during the
second and fourth quarters producing net gains for the index
sector.
35
<Page>
Signs of a global economic slowdown, which could lead to a
decline in demand, pushed gold prices lower resulting in gains
for short positions during the first quarter. Short copper, zinc
and aluminum positions resulted in gains during the third quarter
as fears of a global economic recession and decreasing industrial
production lowered prices of industrial commodities.
Energy prices generally remained high throughout most of the
first quarter of 2001. Crude oil prices increased in January as
OPEC announced a likely 5% cut in production. During the second
quarter, energy prices fell in response to growing inventory
levels of crude oil and related products. Energy prices peaked
sharply immediately after the September 11th attacks amid worries
of a potential interruption in supplies. Prices soon reversed
course as concerns of decreased demand caused by a global
economic recession outweighed fears of scarcity. Two weeks after
the attacks, oil prices plunged more than 12% to a 22-month low
of $23 a barrel. OPEC leaders announced that with prices within
their $22 to $28 a barrel target, they saw no need to alter
output and assured that there will be no disruption in supplies.
Fear of continued terrorist attacks, sluggish economies and mild
winter weather continued to limit growth in global demand for oil
during the fourth quarter. A coordinated cut in oil output by
OPEC and non-OPEC producers was agreed upon as OPEC tried to
regain control of crude oil prices. Crude oil positions incurred
losses during the first and third quarters of the year resulting
in net losses for Series E in this sector.
In foreign exchange markets, the U.S. dollar rose slightly
against many foreign currencies during the first half of the
year, reflecting expectations that some of those economies might
be adversely affected by slower economic growth in the United
States. Additionally, the U.S. dollar strengthened as investors
around the globe felt that it was the safest currency in this
time of economic uncertainty. In the second quarter, the
Canadian dollar rose slightly against the U.S. dollar due to an
increase of Canadian exports to the U.S. resulting in losses for
short Canadian dollar positions. Short Australian dollar
positions resulted in losses during April as prices rallied
following a 50 basis point interest rate cut by the Reserve Bank
of Australia. The U.S. dollar fell against most major currencies
during the third quarter, particularly the Japanese yen, the euro
and the Swiss franc. The U.S. dollar's downward trend against
many currencies accelerated after September 11th. As a result of
the attacks, many investors switched exposure from the U.S.
dollar to other currencies which rose against the U.S. dollar
resulting in losses for short euro, Canadian dollar and
Australian dollar positions. The U.S. dollar strengthened
slightly towards year-end amid hopes of an economic recovery in
the U.S.
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 year ended December 31,
2001 and the period from April 6, 2000 (commencement of
operations) to December 31, 2000 was $241,000 and $230,000,
respectively. As discussed above, the increase in interest
income during 2001 versus 2000 was due primarily to the
difference in the length of the 2001 and 2000 periods covered as
well as higher overall net asset levels. However, lower overall
interest rates in 2001 as compared with interest rates in 2000
offset most of the increase.
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 Graham
Capital 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 year ended December 31, 2001
and the period from April 6, 2000 (commencement of operations) to
December 31, 2000 were $470,000 and $250,000, respectively.
All trading decisions for Series E are made by Graham
Capital. 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 year ended December 31, 2001 and the
period from April 6, 2000 (commencement of operations) to
December 31, 2000 were $145,000 and $77,000, respectively.
Incentive fees are based on the "New High Net Trading
Profits" generated by Graham Capital, as defined in the Advisory
Agreement among Series E, the managing owner and Graham Capital.
Incentive fees generated for the year ended December 31, 2001 and
the period from April 6, 2000 (commencement of operations) to
December 31, 2000 were $303,000 and $239,000, respectively.
36
<Page>
General and administrative expenses for the year ended
December 31, 2001 and the period from April 6, 2000 (commencement
of operations) to December 31, 2000 were $111,000 and $123,000,
respectively. These expenses are before reimbursement of costs
incurred by the managing owner on behalf of Series E, in addition
to accounting, audit, tax and legal fees as well as printing and
postage costs related to reports sent to limited owners. To the
extent that general and administrative expenses exceed 1.5% of
Series E's net asset value during the year (with a maximum of
0.5% attributable to other than legal and audit expenses) such
amounts are borne by the managing owner and its affiliates.
Because applicable expenses exceeded these limits, a portion of
these expenses have been borne by the managing owner and its
affiliates, resulting in a net cost to Series E of $77,000 and
$58,000, respectively.
Financial Reporting by Commodity Pools
During March 2001, the Accounting Standards Executive
Committee issued Statement of Position 01-1, Amendment to Scope
of Statement of Position 95-2, Financial Reporting by Nonpublic
Investment Partnerships, to Include Commodity Pools, which is
effective for financial statements issued for periods ending
after December 15, 2001. This Statement of Position amends
Statement of Position 95-2, Financial Reporting by Nonpublic
Investment Partnerships, to include within its scope commodity
pools such as Series E. Under the new requirements, Series E is
required to present a condensed schedule of investments and
certain other information in accordance with the American
Institute of Certified Public Accountants' Audit and Accounting
Guide "Audits of Investment Companies." The adoption of the
requirements of Statement of Position 01-1 has not had a material
effect on Series E's financial position or results of operations.
Inflation
Inflation has had no material impact on operations or on the
financial condition of Series E from inception through December
31, 2001.
PLEASE TURN TO PAGES 57 TO 61 FOR A DESCRIPTION OF GRAHAM CAPITAL
AND ITS PRINICPALS AND TRADING PROGRAMS AND TO PAGES 62 TO 66 FOR
ITS PERFORMANCE RECORD FOR ALL ACCOUNTS UNDER ITS MANAGEMENT FOR
THE PAST FIVE YEARS
37
<Page>
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 2002 2001 2000
- -------------------------------------------------------------------------
January (0.96)% (1.87)%
February (2.52)% 0.93%
March (2.01)% 6.26% (0.80)%
April (8.77)% (2.13)%
May 0.69% 1.86%
June (2.39)% 0.87%
July 1.24% (3.01)%
August 1.27% 2.80%
September 6.82% (3.35)%
October 4.48% 2.67%
November (10.36)% 7.04%
December 2.83% 1.17%
- ---------------------------------------------------------------------------
Annual (5.39)% (0.47)% 6.90%
Name of Pool: World Monitor Trust II -- Series F
Type of Pool: Publicly-Offered
Start Date: March 1, 2000
Aggregate subscriptions: $15,955,270 (as of March 31, 2002)
Current net asset value
per interest: $100.67 (as of March 31, 2002)
"Draw-down" means losses experienced by
World Monitor Trust II -- Series F over a
specified period.
Largest monthly draw-down: (10.36)% November 2001
"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: (12.80)% November 2001 to March 2002
"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
38
<Page>
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 year ended December 31, 2001 and for the period from
March 1, 2000 (commencement of operations) to December 31, 2001
resulted in additional gross proceeds to Series F of $6,358,524
and $9,361,342, respectively. Additional 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.
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 of Limited interests
and general interests for the year ended December 31, 2001 were
$2,036,399 and $9,324, respectively, and for the period from
March 1, 2000 (commencement of operations) to December 31, 2001
were $2,855,190 and $9,324, 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 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, 2001, 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, a comparative analysis of the 2001 full year results
versus the 2000 partial year results is not meaningful. However,
Series F's asset levels have
39
<Page>
increased since the commencement of operations primarily from
additional contributions and favorable trading performance offset,
in part, by redemptions. The rising asset levels have led to
increases in the amount of interest earned by Series F as well
as commissions and other transaction fees and management fees
incurred.
The net asset value per Interest as of December 31, 2001,
was $106.40, a decrease of .47% from the December 31, 2000 net
asset value per Interest of $106.90 which was an increase of
6.90% from the March 1, 2000 initial net asset value per Interest
of $100.00. The Zurich Fund/Pool Qualified Universe Index
(formerly the MAR Fund/Pool Index), which tracked the
performance of 272 futures funds at December 31, 2001, and
returned 7.52% and 9.33% for the year ended December 31, 2001 and
for the March through December 2000 period, respectively. Past
performance is not necessarily indicative of future results.
Series F's gross trading gains for the year ended December
31, 2001 and for the period from March 1, 2000 (commencement of
operations) to December 31, 2000, were $679,000 and $839,000,
respectively. Due to the nature of Series F's trading
activities, a period to period comparison of its trading results
is not meaningful. However, a detailed discussion of the trading
results for the year ended December 31, 2001 is presented below.
Net gains for Series F were experienced in the currency,
interest rate and index sectors. Losses were experienced in the
energy and metal sectors.
In foreign exchange markets, the U.S. dollar rose slightly
against many foreign currencies during the first half of the
year, reflecting expectations that some of those economies might
be adversely affected by slower economic growth in the United
States. Additionally, the U.S. dollar strengthened as investors
around the globe felt that it was the safest currency in this
time of economic uncertainty. Gains resulted from short
Australian dollar, British pound and Swiss franc positions as
these currencies fell against the U.S. dollar. Short Japanese
yen positions also resulted in gains during the first quarter as
the yen fell due to continued signs of weakness in the Japanese
economy and expectations that the Bank of Japan would reinstate
its zero-interest rate policy. The U.S. dollar fell against most
major currencies during the third quarter, particularly the
Japanese yen, the euro and the Swiss franc. The U.S. dollar's
downward trend against many currencies accelerated after the
September 11th attacks. As a result of the attacks, many
investors switched exposure from the U.S. dollar to other
currencies which rose against the U.S. dollar resulting in gains
for long Swiss franc and Australian dollar positions. The U.S.
dollar strengthened slightly towards year-end amid hopes of a
recovery in the U.S. economy.
In light of the rapid weakening in economic expansion and
deterioration in business and consumer confidence, the U.S.
Federal Reserve followed a relatively aggressive policy, lowering
interest rates three times during the first quarter of 2001.
Other central banks followed the U.S. Federal Reserve's lead
lowering interest rates as well. Interest rate instruments
trended upward throughout most of the second and third quarters
as major central banks cut short-term interest rates in an
attempt to bolster slowing economies. The bond market rally
continued in the wake of September 11th as the U.S. Federal
Reserve moved to inject liquidity into the economy, cutting
interest rates 50 basis points on September 17th to 3%. This
move was soon followed by the Central Bank of Canada, the
European Central Bank and Swiss National Central Bank who also
lowered their rates 50 basis points. U.S. and European interest
rate instruments began the fourth quarter up as data indicated
persistent weakness in the U.S. economy. In an effort to
stimulate the economy, the U.S. Federal Reserve lowered interest
rates by 50 basis points in October and again in early November.
The European Central Bank and the Bank of England each cut rates
by 50 basis points in November. In mid-November, some positive
economic news, the fall of Kabul, Afghanistan and an announcement
by the U.S. Treasury regarding the cessation of sales of 30-year
bonds, resulted in one of the greatest reversals the U.S. bond
market has seen in recent times. Interest rates climbed sharply
in the U.S. and Europe causing bond prices to fall. In December,
the U.S. Federal Reserve lowered rates by another 25 basis points
and bond prices climbed slightly. Gains in long euro and
Japanese bond positions during the first and third quarters
offset losses incurred during the second and fourth quarters of
the year resulting in net gains for the interest rate sector.
Equity markets performed poorly across the board during the
first half of the year as foreign stock markets generally
followed the downtrend of the U.S. markets. Technology stocks
led this market downturn and the NASDAQ fell to its lowest level
in nearly two years. Losses in the Dow Jones and NASDAQ brought
these indices under the key 10,000 and 2,000 levels,
respectively, with the DAX, FTSE, CAC-40 and Nikkei experiencing
similar losses. Short positions in the Nikkei Dow and NASDAQ
resulted in gains during the first quarter. The terrorist
40
<Page>
attacks of September 11th further weakened sluggish U.S. and
global economies plunging equity markets downward throughout the
world in the week following the attacks. The Dow Jones
industrial average suffered its worst percentage loss since the
Great Depression due to uncertainty about how the economy would
perform as a result of these attacks and other threats of
terrorism. U.S. equity indices recovered somewhat at the end of
September as interest rate cuts by the U.S. Federal Reserve and
fiscal stimuli by Congress combined to help stimulate an economic
rebound. Global equity markets followed suit rebounding from
earlier lows as well. U.S. and global equity markets rallied in
November amid positive developments in the war in Afghanistan and
sentiment that the U.S. economy might be emerging from its
recession. Equity markets reversed in December providing a
negative return for the second consecutive year. Gains in short
equity index positions during the first and third quarters of the
year offset losses incurred during the second and fourth quarters
producing net gains for the index sector.
Energy prices generally remained high throughout most of the
first quarter of 2001. Crude oil prices increased in January as
OPEC announced a likely 5% cut in production. During the second
quarter, energy prices fell in response to growing inventory
levels of crude oil and related products. Energy prices peaked
sharply immediately after the September 11th attacks amid worries
of a potential interruption in supplies. Prices soon reversed
course as concerns of decreased demand caused by a global
economic recession outweighed fears of scarcity. Two weeks after
the attacks, oil prices plunged more than 12% to a 22-month low
of $23 a barrel. OPEC leaders announced that with prices within
their $22 to $28 a barrel target, they saw no need to alter
output and assured that there will be no disruption in supplies.
Fear of continued terrorist attacks, sluggish economies and mild
winter weather continued to limit growth in global demand for oil
during the fourth quarter. A coordinated cut in oil output by
OPEC and non-OPEC producers was agreed upon as OPEC tried to
regain control of crude oil prices. Heating and crude oil
positions incurred losses during the first three quarters of the
year resulting in net losses for the fund in this sector.
Gold prices rallied to a ten-month high in May before
reversing course amid rumors that Russia would sell a portion of
its gold reserve. Long gold positions incurred losses for Series
F. During the fourth quarter metal prices fell amid decreased
demand due to weak global economic conditions. Long aluminum and
nickel positions incurred losses.
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 year ended December 31,
2001 and the period from March 1, 2000 (commencement of
operations) to December 31, 2000 was $341,000 and $334,000,
respectively. As discussed above, the increase in interest
income during 2001 versus 2000 was due primarily to the
difference in the length of the 2001 and 2000 periods covered as
well as higher overall net asset levels. However, lower overall
interest rates in 2001 as compared with interest rates in 2000
offset most of the increase.
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 Campbell
& Company 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 year ended December 31, 2001
and the period from March 1, 2000 (commencement of operations) to
December 31, 2000 were $656,000 and $351,000, respectively.
All trading decisions for Series F are made by Campbell &
Company. 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 year ended December 31, 2001 and the
period from March 1, 2000 (commencement of operations) to
December 31, 2000 were $205,000 and $111,000, respectively.
Incentive fees are based on the "New High Net Trading
Profits" generated by Campbell & Company, as in the Advisory
Agreement among Series F, the managing owner and Campbell &
Company. Incentive fees generated for the year ended December
31, 2001 and the period from March 1, 2000 (commencement of
operations) to December 31, 2000 were $114,000 and $70,000,
respectively.
41
<Page>
General and administrative expenses for the year ended
December 31, 2001 and the period from March 1, 2000 (commencement
of operations) to December 31, 2000 were $111,000 and $132,000,
respectively. These expenses are before 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. To the
extent that general and administrative expenses exceed 1.5% of
Series F's net asset value during the year (with a maximum of
0.5% attributable to other than legal and audit expenses) such
amounts are borne by the managing owner and its affiliates.
Because applicable expenses exceeded these limits, a portion of
these expenses have been borne by the managing owner and its
affiliates, resulting in a net cost to Series F of $80,000 and
$84,000, respectively.
Financial Reporting by Commodity Pools
During March 2001, the Accounting Standards Executive
Committee issued Statement of Position 01-1, Amendment to Scope
of Statement of Position 95-2, Financial Reporting by Nonpublic
Investment Partnerships, to Include Commodity Pools, which is
effective for financial statements issued for periods ending
after December 15, 2001. This Statement of Position amends
Statement of Position 95-2, Financial Reporting by Nonpublic
Investment Partnerships, to include within its scope commodity
pools such as Series F. Under the new requirements, Series F is
required to present a condensed schedule of investments and
certain other information in accordance with the American
Institute of Certified Public Accountants' Audit and Accounting
Guide "Audits of Investment Companies." The adoption of the
requirements of Statement of Position 01-1 has not had a material
effect on Series F's financial position or results of operations.
Inflation
Inflation has had no material impact on operations or on the
financial condition of Series F from inception through December
31, 2001.
PLEASE TURN TO PAGES 67 TO 70 FOR A DESCRIPTION OF CAMPBELL & COMPANY
AND ITS PRINICPALS AND TRADING PROGRAMS AND TO PAGES 71 TO 77 FOR
ITS PERFORMANCE RECORD FOR ALL ACCOUNTS UNDER ITS MANAGEMENT FOR
THE PAST FIVE YEARS
42
<Page>
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.
43
<Page>
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."
44
<Page>
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,
2002. 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)
45
<Page>
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, as of February 28, 2002, of
the performance for the past five calendar years of the Aggressive
Pure Alpha Futures Only System, 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 $$ In All Programs: $ 12,601,000,000 (All Programs excluding
Notional)
$ 13,875,000,000 (All Programs including
Notional)
$$ In This Program: $ 17,000,000 (Aggressive Pure Alpha
Futures Only System excluding Notional)
$ 17,000,000 (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: (32.97)% August 1999 to May 2001
"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 2002 2001 2000 1999 1998
January (6.97)% (2.47)% (1.30)% 0.69%
February 2.28 (3.43) 4.30 3.79
March (5.47) (4.71) (1.91)
April 3.98 (1.44) (0.66)
May (7.44) 10.06 2.13
June 4.42 (1.87) 0.57
July 2.26 (1.78) 0.75
August 4.32 (8.27) (1.50) (0.56)%
September (2.40) (6.00) (1.38) 2.78
October 9.07 (7.95) (2.16) 10.18
November (0.57) 3.88 (3.03) 2.19
December (2.76) 5.17 (0.47) 5.83
Annual/YTD (4.85)% (1.76)% (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
46
<Page>
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
<Table>
<Caption>
Aggregate Dollars
Date In All Programs Dollars In This Program
Name of Date CTA (in thousands) (in thousands) Largest
Commodity CTA Began Number ------------------------ ------------------------ Monthly
Trading Began Trading of (Excluding (Including (Excluding (Including Draw-
Advisor Program* Trading Program Accounts Notional) Notional) Notional) Notional) Down(1)
- ------------- ----------------- ------- ------- -------- ----------- ----------- ----------- ----------- --------------
$ $ $ $ %
Bridgewater
Associates Pure Alpha+ 6/85 12/91 1 12,601,000 13,875,000 75,000 75,000 (6.05) 10/00
Bridgewater Aggressive Pure
Associates Alpha-A(3) 6/85 12/99 1 12,601,000 13,875,000 (3,000) 95,000 (7.11) 10/00
Bridgewater Aggressive Pure
Associates(8) Alpha-B(3) 6/85 7/97 0 12,601,000 13,875,000 -- -- (15.02) 8/98
Bridgewater Constrained
Associates Pure Alpha(3) 6/85 8/00 0 12,601,000 13,875,000 -- -- (4.74) 10/00
Pure Alpha
Bridgewater Futures
Associates Only-A(3),(6)+ 6/85 1/98 1 12,601,000 13,875,000 (90) 2,000 (7.96) 10/00
Bridgewater Pure Alpha
Associates Futures Only-B(3) 6/85 5/99 0 12,601,000 13,875,000 -- -- (5.40) 8/00
Bridgewater Pure Alpha
Associates Futures Only-C(3)+ 6/85 1/99 3 12,601,000 13,875,000 18,000 35,000 (5.53) 8/00
Aggressive Pure
Alpha Futures
Bridgewater Only-B,
Associates No Benchmark(3) 6/85 9/99 1 12,601,000 13,875,000 47,000 47,000 (6.82) 8/00
Aggressive Pure
Alpha Futures
Bridgewater Only-C,
Associates No Benchmark(3) 6/85 12/99 0 12,601,000 13,875,000 -- -- (9.49) 8/00
Aggressive Pure
Alpha Futures
Bridgewater Only-D,
Associates No Benchmark(3) 6/85 6/00 0 12,601,000 13,875,000 -- -- (8.93) 8/00
Aggressive Pure
Alpha Futures
Bridgewater Only-E,
Associates No Benchmark(3)+ 6/85 4/01 3 12,601,000 13,875,000 8,000 13,000 (7.07) 1/02
Pure Alpha
Bridgewater Futures Only-A
Associates Conservative(3)+ 6/85 1/89 1 12,601,000 13,875,000 11,000 51,000 (1.69) 1/02
Name of
Commodity Largest Peak- Closed Accounts
Trading to-Valley ------------------------
Advisor Program* Draw-Down(2) Profitable Unprofitable
- ------------- ----------------- -------------------- ---------- ------------
%
Bridgewater
Associates Pure Alpha+ (14.10) 7/00-10/00 4 0
Bridgewater Aggressive Pure
Associates Alpha-A(3) (19.28) 7/00-5/01 0 0
Bridgewater Aggressive Pure
Associates(8) Alpha-B(3) (29.86) 7/00-5/01 0 1
Bridgewater Constrained
Associates Pure Alpha(3) (7.70) 8/00-10/00 0 1
Pure Alpha
Bridgewater Futures
Associates Only-A(3),(6)+ (23.09) 8/99-3/01 3 6
Bridgewater Pure Alpha
Associates Futures Only-B(3) (16.32) 8/99-10/00 0 2
Bridgewater Pure Alpha
Associates Futures Only-C(3)+ (16.46) 6/00-5/01 2 7
Aggressive Pure
Alpha Futures
Bridgewater Only-B,
Associates No Benchmark(3) (19.47) 6/00-5/01 0 0
Aggressive Pure
Alpha Futures
Bridgewater Only-C,
Associates No Benchmark(3) (28.49) 6/00-3/01 0 3
Aggressive Pure
Alpha Futures
Bridgewater Only-D,
Associates No Benchmark(3) (24.70) 6/00-10/00 0 2
Aggressive Pure
Alpha Futures
Bridgewater Only-E,
Associates No Benchmark(3)+ (10.39) 11/01-1/02 0 0
Pure Alpha
Bridgewater Futures Only-A
Associates Conservative(3)+ (3.90) 8/00-10/00 5 0
ANNUAL RATES OF RETURN**
Name of ----------------------------------------------------
Commodity 2002
Trading (through
Advisor Program* 2/28) 2001 2000 1999 1998 1997
- ------------- ----------------- -------- -------- -------- -------- -------- --------
% % % % % %
(4)
Bridgewater
Associates Pure Alpha+ (3.49) 5.79 0.04 5.64 26.74 15.07
Bridgewater Aggressive Pure
Associates Alpha-A(3) (3.60) 5.55 (4.47) 0.05 -- --
1 mo
Bridgewater Aggressive Pure
Associates(8) Alpha-B(3) -- (2.42) (11.64) 2.16 66.67 14.58
6 mos
Bridgewater Constrained
Associates Pure Alpha(3) -- (4.69) 2.61 -- -- --
4 mos 5 mos
Pure Alpha
Bridgewater Futures
Associates Only-A(3),(6)+ (2.32) (3.72) (9.80) (2.51) 19.71 --
Bridgewater Pure Alpha
Associates Futures Only-B(3) -- (4.00) (6.96) (1.79) -- --
2 mos 8 mos
Bridgewater Pure Alpha
Associates Futures Only-C(3)+ (3.32) 0.50 (3.40) 0.84 -- --
Aggressive Pure
Alpha Futures
Bridgewater Only-B,
Associates No Benchmark(3) (3.88) 2.67 (3.71) (1.46) -- --
4 mos
Aggressive Pure
Alpha Futures
Bridgewater Only-C,
Associates No Benchmark(3) -- (10.92) (14.01) 0.44 -- --
4 mos 1 mo
Aggressive Pure
Alpha Futures
Bridgewater Only-D,
Associates No Benchmark(3) -- (6.84) (17.36) -- -- --
2 mos 7 mos
Aggressive Pure
Alpha Futures
Bridgewater Only-E,
Associates No Benchmark(3)+ (4.70) 11.77 -- -- -- --
9 mos
Pure Alpha
Bridgewater Futures Only-A
Associates Conservative(3)+ (1.09) 2.53 4.57 5.15 8.80 5.41
</Table>
47
<Page>
<Table>
<Caption>
Aggregate Dollars
Date In All Programs Dollars In This Program
Name of Date CTA (in thousands) (in thousands) Largest
Commodity CTA Began Number ------------------------ ------------------------ Monthly
Trading Began Trading of (Excluding (Including (Excluding (Including Draw-
Advisor Program* Trading Program Accounts Notional) Notional) Notional) Notional) Down(1)
- ------------- ----------------- ------- ------- -------- ----------- ----------- ----------- ----------- --------------
$ $ $ $ %
Pure Alpha
Futures Only,
No Emerging
Market Debt,
Bridgewater Benchmark,
Associates(8) Constrained(3) 6/85 1/89 1 12,601,000 13,875,000 2,000 2,000 (4.18)
5/01
Pure Alpha Bond
Bridgewater and Currency
Associates Only(3)+ 6/85 7/97 0 12,601,000 13,875,000 -- -- (0.89)
10/00
Pure Alpha Long
Emerging Market
Bridgewater Debt Only,
Associates No Benchmark(3) 6/85 2/00 2 12,601,000 13,875,000 272,000 272,000 (5.32)
10/00
Pure Alpha,
Long Emerging
Market Debt Only,
with Lehman G-4
Bridgewater ex-collateral
Associates Benchmark(3) 6/85 7/01 1 12,601,000 13,875,000 55,000 55,000 (3.66)
1/02
Pure Alpha,
Long Emerging
Market Debt Only
Bridgewater with a Canadian
Associates Bond Benchmark(3) 6/85 11/99 1 12,601,000 13,875,000 25,000 25,000 (5.77)
10/00
Pure Alpha, Long
Emerging Market
Debt Only, with
Bridgewater a Passive U.S.
Associates Bond Benchmark(3) 6/85 2/00 1 12,601,000 13,875,000 5,000 5,000 (11.49)
11/01
Pure Alpha, Long
Emerging Market
Debt Only, with
Bridgewater Customized UK
Associates Bond Benchmark(3) 6/85 5/00 1 12,601,000 13,875,000 44,000 44,000 (11.47)
12/01
Name of
Commodity Largest Peak- Closed Accounts
Trading to-Valley ------------------------
Advisor Program* Draw-Down(2) Profitable Unprofitable
- ------------- ----------------- -------------------- ---------- ------------
%
Pure Alpha
Futures Only,
No Emerging
Market Debt,
Bridgewater Benchmark,
Associates(8) Constrained(3) (10.46) 2 1
6/00-5/01
Pure Alpha Bond
Bridgewater and Currency
Associates Only(3) (2.42) 2 0
Pure Alpha Long
Emerging Market
Bridgewater Debt Only,
Associates No Benchmark(3) (13.33) 0 0
Pure Alpha,
Long Emerging
Market Debt Only,
with Lehman G-4
Bridgewater ex-collateral
Associates Benchmark(3) (8.01) 0 0
11/01-1/02
Pure Alpha,
Long Emerging
Market Debt Only
Bridgewater with a Canadian
Associates Bond Benchmark(3) (14.25) 0 0
7/00-10/00
Pure Alpha, Long
Emerging Market
Debt Only, with
Bridgewater a Passive U.S.
Associates Bond Benchmark(3) (17.34) 0 0
11/01-1/02
Pure Alpha, Long
Emerging Market
Debt Only, with
Bridgewater Customized UK
Associates Bond Benchmark(3) (19.91) 0 0
7/00-5/01
ANNUAL RATES OF RETURN**
Name of ----------------------------------------------------
Commodity 2002
Trading (through
Advisor Program* 2/28) 2001 2000 1999 1998 1997
- ------------- ----------------- -------- -------- -------- -------- ------- -------
% % % % % %
(4)
Pure Alpha
Futures Only,
No Emerging
Market Debt,
Bridgewater Benchmark,
Associates(8) Constrained(3) (1.46) 7.61 0.84 4.25 19.04 10.99
Pure Alpha Bond
Bridgewater and Currency
Associates Only(3) -- (1.43) 4.57 3.48 9.04 1.94
4 mos 6 mos
Pure Alpha Long
Emerging Market
Bridgewater Debt Only,
Associates No Benchmark(3) (2.66) 7.00 (0.93) -- -- --
11 mos
Pure Alpha,
Long Emerging
Market Debt Only,
with Lehman G-4
Bridgewater ex-collateral
Associates Benchmark(3) (1.50) 10.90 -- -- -- --
6 mos
Pure Alpha,
Long Emerging
Market Debt Only
Bridgewater with a Canadian
Associates Bond Benchmark(3) (2.16) 8.16 0.57 (1.19) -- --
2 mos
Pure Alpha, Long
Emerging Market
Debt Only, with
Bridgewater a Passive U.S.
Associates Bond Benchmark(3) (2.60) 2.80 31.28 -- -- --
11 mos
Pure Alpha, Long
Emerging Market
Debt Only, with
Bridgewater Customized UK
Associates Bond Benchmark(3) 2.62 (7.58) 0.91 -- -- --
8 mos
</Table>
48
<Page>
<Table>
<Caption>
Aggregate Dollars
Date In All Programs Dollars In This Program
Name of Date CTA (in thousands) (in thousands) Largest
Commodity CTA Began Number ------------------------ ------------------------ Monthly
Trading Began Trading of (Excluding (Including (Excluding (Including Draw-
Advisor Program* Trading Program Accounts Notional) Notional) Notional) Notional) Down(2)
- ------------- ----------------- ------- ------- -------- ----------- ----------- ----------- ----------- --------------
$ $ $ $ %
Pure Alpha, Long
Emerging Market
Debt Only,
Institutional
Account with
Global Bond and
Bridgewater Equity Benchmark,
Associates Aggressive(3) 6/85 3/94 1 12,601,000 13,875,000 357,000 357,000 (9.65)
10/00
Pure Alpha, Long
Emerging Market
Debt Only with No
Bridgewater Benchmark-A,
Associates Conservative(3) 6/85 4/01 1 12,601,000 13,875,000 98,000 98,000 (3.72)
5/01
Pure Alpha, Long
Emerging Market
Debt Only with No
Bridgewater Benchmark-B, Very
Associates Conservative(3) 6/85 4/01 3 12,601,000 13,875,000 556,000 556,000 (1.46)
1/02
Pure Alpha, Long
Emerging Market
Debt Only with
Lehman Aggregate
Bridgewater Benchmark,
Associates Conservative(3) 6/85 4/01 1 12,601,000 13,875,000 324,000 324,000 (1.41)
5/01
Bridgewater
Associates Pure Alpha, No
Emerging Market
Debt, No
Benchmark(3) 6/85 4/01 0 12,601,000 13,875,000 -- -- (5.18)
1/02
Bridgewater
Associates Pure Alpha, No
Emerging Market
Debt, Customized
Equity Benchmark 6/85 12/01 1 12,601,000 13,875,000 61,000 61,000 (3.38)
1/02
Name of
Commodity Largest Peak- Closed Accounts
Trading to-Valley ------------------------
Advisor Program* Draw-Down(2) Profitable Unprofitable
- ------------- ----------------- -------------------- ---------- ------------
%
Pure Alpha, Long
Emerging Market
Debt Only,
Institutional
Account with
Global Bond and
Bridgewater Equity Benchmark,
Associates Aggressive(3) (33.79) 0 0
7/00-6/01
Pure Alpha, Long
Emerging Market
Debt Only with No
Bridgewater Benchmark-A,
Associates Conservative(3) (3.72) 0 0
5/01
Pure Alpha, Long
Emerging Market
Debt Only with No
Bridgewater Benchmark-B, Very
Associates Conservative(3) (1.69) 0 0
12/01-1/02
Pure Alpha, Long
Emerging Market
Debt Only with
Lehman Aggregate
Bridgewater Benchmark,
Associates Conservative(3) (3.01) 0 0
11/01-1/02
Pure Alpha, No
Emerging Market
Bridgewater Debt, No
Associates Benchmark(3) (7.73) 1 0
11/01-1/02
Pure Alpha, No
Emerging Market
Bridgewater Debt, Customized
Associates Equity Benchmark (3.98) 0 0
1/02-2/02
ANNUAL RATES OF RETURN**
Name of -----------------------------------------------------
Commodity 2002
Trading (through
Advisor Program* 2/28) 2001 2000 1999 1998 1997
- ------------- ----------------- -------- -------- -------- -------- -------- --------
% % % % % %
(4)
Pure Alpha, Long
Emerging Market
Debt Only,
Institutional
Account with
Global Bond and
Bridgewater Equity Benchmark,
Associates Aggressive(3) (3.99) (14.00) (18.26) 9.52 54.74 32.43
Pure Alpha, Long
Emerging Market
Debt Only with No
Bridgewater Benchmark-A,
Associates Conservative(3) (1.20) 8.09 -- -- -- --
9 mos
Pure Alpha, Long
Emerging Market
Debt Only with No
Bridgewater Benchmark-B, Very
Associates Conservative(3) (0.59) 6.31 -- -- -- --
9 mos
Pure Alpha, Long
Emerging Market
Debt Only with
Lehman Aggregate
Bridgewater Benchmark,
Associates Conservative(3) 0.52 7.51 -- -- -- --
11 mos
Pure Alpha, No
Emerging Market
Bridgewater Debt, No
Associates Benchmark3 (4.70) 6.90 -- -- -- --
9 mos
Pure Alpha, No
Emerging Market
Bridgewater Debt, Customized
Associates Equity Benchmark (3.98) 2.05 -- -- -- --
1 mo
</Table>
49
<Page>
<Table>
<Caption>
Aggregate Dollars
Date In All Programs Dollars In This Program
Name of Date CTA (in thousands) (in thousands) Largest
Commodity CTA Began Number ------------------------ ------------------------ Monthly
Trading Began Trading of (Excluding (Including (Excluding (Including Draw-
Advisor Program* Trading Program Accounts Notional) Notional) Notional) Notional) Down(2)
- ------------- ----------------- ------- ------- -------- ----------- ----------- ----------- ----------- --------------
$ $ $ $ %
Pure Alpha
Overlay with
Inflation Linked
Bridgewater Bond
Associates Benchmark 6/85 2/02 1 12,601,000 13,875,000 35,000 35,000 --
Bridgewater Global Bond and
S.A., Inc.(8) Currency 6/85 7/97 0 12,601,000 13,875,000 -- -- (0.76)
2/99
Global Bond and
Bridgewater Currency-A
Associates (Unhedged)++ 6/85 2/90 4 12,601,000 13,875,000 290,000 290,000 (3.75)
3/01
Global Bond and
Currency-B, No
Bridgewater Emerging Market
Associates Debt (Unhedged) 6/85 4/01 1 12,601,000 13,875,000 53,000 53,000 (1.24)
12/01
Bridgewater Global Bond and
Associates Currency (Hedged) 6/85 3/93 1 12,601,000 13,875,000 159,000 159,000 (1.57)
10/00
Global Bond and
Bridgewater Currency (25%
Associates Hedged) 6/85 5/00 1 12,601,000 13,875,000 192,000 192,000 (2.77)
3/01
Global Bond, No
Emerging Market
Bridgewater Debt, No FX
Associates (Non US Hedged) 6/85 4/01 1 12,601,000 13,875,000 206,000 206,000 (1.48)
4/01
Global Bond
and Currency
Bridgewater (Non-U.S.
Associates Hedged) 6/85 7/94 1 12,601,000 13,875,000 171,000 171,000 (1.52)
8/00
Global Bond
and Currency,
Bridgewater No SR (Non-
Associates U.S. Hedged) 6/85 4/01 1 12,601,000 13,875,000 107,000 107,000 (1.16)
9/01
Global Bond
and Currency
Bridgewater (Non-U.S.
Associates Unhedged) 6/85 8/99 2 12,601,000 13,875,000 333,000 333,000 (5.09)
3/01
Name of
Commodity Largest Peak- Closed Accounts
Trading to-Valley ------------------------
Advisor Program* Draw-Down(2) Profitable Unprofitable
- ------------- ----------------- -------------------- ---------- ------------
%
Pure Alpha
Overlay with
Inflation Linked
Bridgewater Bond
Associates Benchmark -- 0 0
Bridgewater Global Bond and
S.A., Inc.(8) Currency (0.76) 1 0
2/99
Global Bond and
Bridgewater Currency-A
Associates (Unhedged)++ (8.42) 11 4
10/99-10/00
Global Bond and
Currency-B, No
Bridgewater Emerging Market
Associates Debt (Unhedged) (3.34) 0 0
11/01-1/02
Bridgewater Global Bond and
Associates Currency (Hedged) (3.95) 0 1
8/00-10/00
Global Bond and
Bridgewater Currency (25%
Associates Hedged) (6.13) 0 0
7/00-10/00
Global Bond, No
Emerging Market
Bridgewater Debt, No FX
Associates (Non US Hedged) (2.68) 0 0
11/01-1/02
Global Bond
and Currency
Bridgewater (Non-U.S.
Associates Hedged) (3.42) 1 0
8/00-10/00
Global Bond
and Currency,
Bridgewater No SR (Non-
Associates U.S. Hedged) (1.74) 0 0
11/01-1/02
Global Bond
and Currency
Bridgewater (Non-U.S.
Associates Unhedged) (14.04) 0 2
10/99-6/01
ANNUAL RATES OF RETURN**
Name of ----------------------------------------------------
Commodity 2002
Trading (through
Advisor Program* 2/28) 2001 2000 1999 1998 1997
- ------------- ----------------- -------- -------- -------- -------- ------- -------
% % % % % %
(4)
Pure Alpha
Overlay with
Inflation Linked
Bridgewater Bond
Associates Benchmark 0.42 -- -- -- -- --
1 mo
Bridgewater Global Bond and
S.A., Inc.(8) Currency -- -- -- 1.51 18.84 7.11
4 mos 6 mos
Global Bond and
Bridgewater Currency-A
Associates (Unhedged) (1.70) (0.22) 2.95 (2.72) 16.98 6.47
Global Bond and
Currency-B, No
Bridgewater Emerging Market
Associates Debt (Unhedged) (0.43) 3.07 -- -- -- --
9 mos
Bridgewater Global Bond and
Associates Currency (Hedged) (0.50) 3.38 6.33 (0.04) 16.93 13.16
Global Bond and
Bridgewater Currency (25%
Associates Hedged) (1.33) 0.70 4.58 -- -- --
8 mos
Global Bond, No
Emerging Market
Bridgewater Debt, No FX
Associates (Non US Hedged) 0.88 2.73 -- -- -- --
9 mos
Global Bond
and Currency
Bridgewater (Non-U.S.
Associates Hedged) (0.79) 6.39 7.03 3.08 17.88 14.75
Global Bond
and Currency,
Bridgewater No SR (Non-
Associates U.S. Hedged) (0.35) 2.48 -- -- -- --
9 mos
Global Bond
and Currency
Bridgewater (Non-U.S.
Associates Unhedged) (2.97) (1.21) (2.52) (0.29) -- --
5 mos
</Table>
50
<Page>
Aggregate Dollars
Date In All Programs Dollars In This Program
Name of Date CTA (in thousands) (in thousands) Largest
Commodity CTA Began Number ------------------------ ------------------------ Monthly
Trading Began Trading of (Excluding (Including (Excluding (Including Draw-
Advisor Program* Trading Program Accounts Notional) Notional) Notional) Notional) Down(1)
- ------------- ----------------- ------- ------- -------- ----------- ----------- ----------- ----------- --------------
$ $ $ $ %
Global Bond
and Currency,
Leveraged
Constrained,
No Emerging
Market Debt
Bridgewater (Non-U.S.
Associates Unhedged) 6/85 4/01 1 12,601,000 13,875,000 658,000 658,000 (3.57)
12/01
Global Bond
and Currency
Bridgewater (Non-U.S. 50%
Associates Hedged) 6/85 4/99 0 12,601,000 13,875,000 -- -- (2.54)
4/00
Global Bond and
Currency
(Excluding
Bridgewater Japanese Yen,
Associates Unhedged) 6/85 8/92 1 12,601,000 13,875,000 130,000 130,000 (3.75)
5/01
Global Bond and
Currency
(Excluding Yen
Bridgewater and U.S. Dollar,
Associates Hedged) 6/85 4/00 1 12,601,000 13,875,000 33,000 33,000 (1.60)
12/00
Global Bond and
Currency
(Hedged to
Bridgewater Australian
Associates Dollar) 6/85 5/98 0 12,601,000 13,875,000 -- -- (1.48)
6/99
Global Bond and
Currency (50%
Hedged to
Bridgewater Canadian
Associates Dollar) 6/85 3/97 1 12,601,000 13,875,000 34,000 34,000 (1.97)
1/02
Global Bond and
Currency
(U.S. Lehman
Bridgewater Aggregate
Associates Benchmark) 6/85 1/99 1 12,601,000 13,875,000 339,000 339,000 (1.40)
2/99
Global Bond and
Currency (Long
Bridgewater Duration 50%
Associates Hedged) 6/85 10/92 0 12,601,000 13,875,000 -- -- (2.59)
2/96
Bridgewater Diversified
Associates Global Bond 6/85 3/96 2 12,601,000 13,875,000 549,000 549,000 (4.03)
3/97
Name of
Commodity Largest Peak- Closed Accounts
Trading to-Valley ------------------------
Advisor Program* Draw-Down(2) Profitable Unprofitable
- ------------- ----------------- -------------------- ---------- ------------
%
Global Bond
and Currency,
Leveraged
Constrained,
No Emerging
Market Debt
Bridgewater (Non-U.S.
Associates Unhedged) (6.84) 0 0
11/01-1/02
Global Bond
and Currency
Bridgewater (Non-U.S. 50%
Associates Hedged) (5.25) 1 1
7/00-10/00
Global Bond and
Currency
(Excluding
Bridgewater Japanese Yen,
Associates Unhedged) (14.32) 0 0
1/99-10/00
Global Bond and
Currency
(Excluding Yen
Bridgewater and U.S. Dollar,
Associates Hedged) (3.09) 0 0
8/00-10/00
Global Bond and
Currency
(Hedged to
Bridgewater Australian
Associates Dollar) (3.24) 1 0
5/99-1/00
Global Bond and
Currency (50%
Hedged to
Bridgewater Canadian
Associates Dollar) (5.62) 0 0
1/99-1/00
Global Bond and
Currency
(U.S. Lehman
Bridgewater Aggregate
Associates Benchmark) (2.79) 0 0
2/99-1/00
Global Bond and
Currency (Long
Bridgewater Duration 50%
Associates Hedged) (4.85) 1 0
2/01-5/01
Bridgewater Diversified
Associates Global Bond (4.03) 0 0
3/97
ANNUAL RATES OF RETURN**
Name of -----------------------------------------------------
Commodity 2002
Trading (through
Advisor Program* 2/28) 2001 2000 1999 1998 1997
- ------------- ----------------- -------- -------- -------- -------- -------- --------
% % % % % %
(4)
Global Bond
and Currency,
Leveraged
Constrained,
No Emerging
Market Debt
Bridgewater (Non-U.S.
Associates Unhedged) (1.83) 0.41 -- -- -- --
9 mos
Global Bond
and Currency
Bridgewater (Non-U.S. 50%
Associates Hedged) -- (2.67) 2.66 (0.88) -- --
6 mos 9 mos
Global Bond and
Currency
(Excluding
Bridgewater Japanese Yen,
Associates Unhedged) (1.53) 0.84 5.13 (9.64) 24.85 5.84
Global Bond and
Currency
(Excluding Yen
Bridgewater and U.S. Dollar,
Associates Hedged) (0.08) 4.72 5.17 -- -- --
9 mos
Global Bond and
Currency
(Hedged to
Bridgewater Australian
Associates Dollar) -- 3.13 10.94 (1.20) 9.22 --
3 mos 8 mos
Global Bond and
Currency (50%
Hedged to
Bridgewater Canadian
Associates Dollar) (0.67) 6.44 6.46 (4.50) 23.17 11.16
10 mos 10 mos
Global Bond and
Currency
(U.S. Lehman
Bridgewater Aggregate
Associates Benchmark) 1.31 7.22 11.14 (1.79) -- --
Global Bond and
Currency (Long
Bridgewater Duration 50%
Associates Hedged) -- (4.21) 7.20 (1.73) 20.71 11.07
6 mos
Bridgewater Diversified
Associates Global Bond 1.51 8.22 12.01 (3.48) 10.68 14.77
51
<Page>
Aggregate Dollars
Date In All Programs Dollars In This Program
Name of Date CTA (in thousands) (in thousands) Largest
Commodity CTA Began Number ------------------------ ------------------------ Monthly
Trading Began Trading of (Excluding (Including (Excluding (Including Draw-
Advisor Program* Trading Program Accounts Notional) Notional) Notional) Notional) Down(1)
- ------------- ----------------- ------- ------- -------- ----------- ----------- ----------- ----------- --------------
$ $ $ $ %
Long Duration
Bridgewater Global
Associates Bond 6/85 8/95 0 12,601,000 13,875,000 -- -- (16.11)
2/96
Bridgewater Global Bond
Associates Overlay 6/85 5/95 0 12,601,000 13,875,000 -- -- (1.56)
3/97
Global Bond with
Custom Weighted
Bridgewater Unhedged
Associates Benchmark 6/85 4/01 2 12,601,000 13,875,000 1,402,000 1,402,000 (2.64)
12/01
Global Bond with
Bridgewater 50% Hedged
Associates Benchmark 6/85 4/01 1 12,601,000 13,875,000 104,000 104,000 (2.02)
12/01
Global Bond With
Bridgewater 65% Hedged
Associates Benchmark 6/85 4/01 1 12,601,000 13,875,000 142,000 682,000 (2.08)
11/01
Global Bond
Leveraged
Bridgewater Constrained-
Associates Unhedged 6/85 4/01 2 12,601,000 13,875,000 2,205,000 2,205,000 (3.35)
12/01
Global Bond
with Lehman
Global
Bridgewater Aggregate
Associates Benchmark 6/85 4/01 1 12,601,000 13,875,000 223,000 223,000 (0.98)
12/01
Global Bond
with Lehman
Bridgewater G-4 Index
Associates Benchmark 6/85 4/01 1 12,601,000 13,875,000 438,000 438,000 (2.59)
12/01
Global Bond
Leveraged
Constrained with
SWGBI
Bridgewater Unhedged
Associates Benchmark 6/85 4/01 2 12,601,000 13,875,000 162,000 162,000 (2.85)
12/01
Global Bond, No
Emerging
Market Debt,
Leveraged
Constrained with
SWGBI
Bridgewater Unhedged
Associates Benchmark 6/85 4/01 1 12,601,000 13,875,000 116,000 116,000 (3.32)
12/01
Name of
Commodity Largest Peak- Closed Accounts
Trading to-Valley ------------------------
Advisor Program* Draw-Down(2) Profitable Unprofitable
- ------------- ----------------- -------------------- ---------- ------------
%
Long Duration
Bridgewater Global
Associates Bond (27.48) 2 0
12/98-12/99
Bridgewater Global Bond
Associates Overlay (2.25) 1 0
2/96-3/96
Global Bond with
Custom Weighted
Bridgewater Unhedged
Associates Benchmark (6.68) 0 0
11/01-1/02
Global Bond with
Bridgewater 50% Hedged
Associates Benchmark (4.81) 0 0
11/01-1/02
Global Bond With
Bridgewater 65% Hedged
Associates Benchmark (4.63) 0 0
11/01-1/02
Global Bond
Leveraged
Bridgewater Constrained-
Associates Unhedged (7.2) 0 0
11/01-1/02
Global Bond
with Lehman
Global
Bridgewater Aggregate
Associates Benchmark (1.90) 0 0
11/01-1/02
Global Bond
with Lehman
Bridgewater G-4 Index
Associates Benchmark (5.40) 0 0
11/01-1/02
Global Bond
Leveraged
Constrained with
SWGBI
Bridgewater Unhedged
Associates Benchmark (5.88) 0 0
11/01-1/02
Global Bond, No
Emerging
Market Debt,
Leveraged
Constrained with
SWGBI
Bridgewater Unhedged
Associates Benchmark (7.69) 0 0
11/01-1/02
ANNUAL RATES OF RETURN**
Name of ----------------------------------------------------
Commodity 2002
Trading (through
Advisor Program* 2/28) 2001 2000 1999 1998 1997
- ------------- ----------------- -------- -------- -------- -------- -------- --------
% % % % % %
(4)
Long Duration
Bridgewater Global
Associates Bond -- -- 9.51 (25.39) 50.31 34.74
2 mos
Bridgewater Global Bond
Associates Overlay -- -- -- -- 0.52 1.12
1 mo
Global Bond with
Custom Weighted
Bridgewater Unhedged
Associates Benchmark (1.48) 4.28 -- -- -- --
9 mos
Global Bond with
Bridgewater 50% Hedged
Associates Benchmark (0.52) 4.75 -- -- -- --
9 mos
Global Bond With
Bridgewater 65% Hedged
Associates Benchmark (0.03) 1.78 -- -- -- --
9 mos
Global Bond
Leveraged
Bridgewater Constrained-
Associates Unhedged (1.32) 2.45 -- -- -- --
9 mos
Global Bond
with Lehman
Global
Bridgewater Aggregate
Associates Benchmark 0.32 3.81 -- -- -- --
9 mos
Global Bond
with Lehman
Bridgewater G-4 Index
Associates Benchmark (0.83) 3.04 -- -- -- --
9 mos
Global Bond
Leveraged
Constrained with
SWGBI
Bridgewater Unhedged
Associates Benchmark (1.35) (1.16) -- -- -- --
9 mos
Global Bond, No
Emerging
Market Debt,
Leveraged
Constrained with
SWGBI
Bridgewater Unhedged
Associates Benchmark (2.10) 2.28 -- -- -- --
9 mos
52
<Page>
Aggregate Dollars
Date In All Programs Dollars In This Program
Name of Date CTA (in thousands) (in thousands) Largest
Commodity CTA Began Number ------------------------ ------------------------ Monthly
Trading Began Trading of (Excluding (Including (Excluding (Including Draw-
Advisor Program* Trading Program Accounts Notional) Notional) Notional) Notional) Down(1)
- ------------- ----------------- ------- ------- -------- ----------- ----------- ----------- ----------- --------------
$ $ $ $ %
Bridgewater Inflation Linked
Associates Bonds 6/85 1/01 2 12,601,000 13,875,000 145,000 145,000 (5.13)
11/01
Inflation Indexed
Bridgewater Bond-Leverage-
Associates Constrained 6/85 4/01 1 12,601,000 13,875,000 56,000 56,000 (1.64)
12/01
Inflation Indexed
Bridgewater Bond-Currency
Associates Constrained 6/85 6/00 1 12,601,000 13,875,000 65,000 65,000 (5.10)
11/01
Inflation Indexed
Bond-Barclays
IL Benchmark-
Bridgewater Currency
Associates Constrained 6/85 4/01 1 12,601,000 13,875,000 54,000 54,000 (2.58)
11/01
Inflation Linked
Bonds-Normal
Bridgewater 100% Hedged to
Associates Swiss Franc 6/85 10/00 1 12,601,000 13,875,000 55,000 55,000 (1.53)
12/01
Inflation Indexed
Bridgewater Bonds-
Associates Leveraged 6/85 4/94 0 12,601,000 13,875,000 -- -- (7.15)
2/96
Inflation Indexed
Bond (#3) with
Customized
Barclays
Bridgewater Inflation Linked
Associates Bond Index 6/85 6/00 0 12,601,000 13,875,000 -- -- (0.64)
3/01
Inflation Indexed
Bonds-
Aggressive
Bridgewater Futures
Associates Constrained 6/85 4/01 1 12,601,000 13,875,000 311,000 311,000 (1.62)
12/01
Inflation Indexed
Bonds-
Aggressive
Bridgewater Currency
Associates Constrained 6/85 3/01 1 12,601,000 13,875,000 107,000 107,000 (5.48)
11/01
Inflation Indexed
Bonds and
Bridgewater Nominal Bonds-
Associates Unleveraged A 6/85 8/97 3 12,601,000 13,875,000 222,000 222,000 (2.75)
4/99
Name of
Commodity Largest Peak- Closed Accounts
Trading to-Valley ------------------------
Advisor Program* Draw-Down(2) Profitable Unprofitable
- ------------- ----------------- -------------------- ---------- ------------
%
Bridgewater Inflation Linked
Associates Bonds (7.95) 2 0
11/01-12/01
Inflation Indexed
Bridgewater Bond-Leverage-
Associates Constrained (3.12) 0 0
11/01-12/01
Inflation Indexed
Bridgewater Bond-Currency
Associates Constrained (7.45) 0 0
11/01-12/01
Inflation Indexed
Bond-Barclays
IL Benchmark-
Bridgewater Currency
Associates Constrained (3.74) 0 0
11/01-12/01
Inflation Linked
Bonds-Normal
Bridgewater 100% Hedged to
Associates Swiss Franc (2.64) 0 0
11/01-12/01
Inflation Indexed
Bridgewater Bonds-
Associates Leveraged (9.25) 2 0
1/96-2/96
Inflation Indexed
Bond (#3) with
Customized
Barclays
Bridgewater Inflation Linked
Associates Bond Index (0.64) 2 0
3/01
Inflation Indexed
Bonds-
Aggressive
Bridgewater Futures
Associates Constrained (3.14) 0 0
11/01-1/02
Inflation Indexed
Bonds-
Aggressive
Bridgewater Currency
Associates Constrained (7.46) 0 0
11/01-12/01
Inflation Indexed
Bonds and
Bridgewater Nominal Bonds-
Associates Unleveraged A (8.44) 11 0
1/99-6/99
ANNUAL RATES OF RETURN**
Name of -----------------------------------------------------
Commodity 2002
Trading (through
Advisor Program* 2/28) 2001 2000 1999 1998 1997
- ------------- ----------------- -------- -------- -------- -------- -------- --------
% % % % % %
(4)
Bridgewater Inflation Linked
Associates Bonds 4.07 3.53 -- -- 8.80 8.25
9 mos 11 mos
Inflation Indexed
Bridgewater Bond-Leverage-
Associates Constrained 1.05 2.30 -- -- -- --
9 mos
Inflation Indexed
Bridgewater Bond-Currency
Associates Constrained 4.00 13.85 10.46 -- -- --
7 mos
Inflation Indexed
Bond-Barclays
IL Benchmark-
Bridgewater Currency
Associates Constrained 1.64 2.89 -- -- -- --
9 mos
Inflation Linked
Bonds-Normal
Bridgewater 100% Hedged to
Associates Swiss Franc 0.48 0.28 3.09 -- -- --
3 mos-
Inflation Indexed
Bridgewater Bonds-
Associates Leveraged -- -- -- -- 3.99 11.84
3 mos
Inflation Indexed
Bond (#3) with
Customized
Barclays
Bridgewater Inflation Linked
Associates Bond Index -- 2.33 6.76 -- -- --
3 mos 7 mos
Inflation Indexed
Bonds-
Aggressive
Bridgewater Futures
Associates Constrained 1.01 2.87 -- -- -- --
9 mos
Inflation Indexed
Bonds-
Aggressive
Bridgewater Currency
Associates Constrained 3.06 3.49 -- -- -- --
10 mos
Inflation Indexed
Bonds and
Bridgewater Nominal Bonds-
Associates Unleveraged A 0.52 5.09 11.76 (2.30) 14.36 9.23
5 mos
53
<Page>
Aggregate Dollars
Date In All Programs Dollars In This Program
Name of Date CTA (in thousands) (in thousands) Largest
Commodity CTA Began Number ------------------------ ------------------------ Monthly
Trading Began Trading of (Excluding (Including (Excluding (Including Draw-
Advisor Program* Trading Program Accounts Notional) Notional) Notional) Notional) Down(1)
- ------------- ----------------- ------- ------- -------- ----------- ----------- ----------- ----------- --------------
$ $ $ $ %
Inflation Indexed
Bonds and
Bridgewater Nominal Bonds-
Associates Unleveraged B 6/85 4/01 1 12,601,000 13,875,000 103,000 103,000 (1.42)
Inflation Indexed
Bond and
Bridgewater Nominal Bonds-
Associates Unleveraged C 6/85 4/01 1 12,601,000 13,875,000 52,000 52,000 (2.53)
4/01
Inflation Indexed
Bridgewater Bonds and Nominal
Associates Bonds-Unleveraged D 6/85 4/01 1 12,601,000 13,875,000 36,000 36,000 (2.52)
4/01
Inflation Indexed
Bridgewater Bonds and Nominal
Associates Bonds-Unleveraged E 6/85 4/01 1 12,601,000 13,875,000 71,000 71,000 (1.23)
12/01
Inflation Indexed
Bridgewater Bonds and Nominal
Associates Bonds-Unleveraged F 6/85 4/01 1 12,601,000 13,875,000 54,000 54,000 (1.47)
11/01
Inflation Indexed
Bridgewater Bonds and Nominal
Associates Bonds-Unleveraged G 6/85 4/01 1 12,601,000 13,875,000 96,000 96,000 (1.21)
4/01
Inflation Indexed
Bridgewater Bonds and Nominal
Associates Bonds-Unleveraged H 6/85 4/01 1 12,601,000 13,875,000 103,000 103,000 (2.39)
4/01
Inflation Indexed
Bridgewater Bonds and Nominal
Associates Bonds-Unleveraged I 6/85 4/01 1 12,601,000 13,875,000 21,000 21,000 (2.13)
4/01
Inflation Indexed
Bridgewater Bonds and Nominal
Associates Bonds-Unleveraged J 6/85 4/01 2 12,601,000 13,875,000 126,000 126,000 (1.22)
4/01
Bridgewater
Associates Index Overlay(7) 6/85 7/98 1 12,601,000 13,875,000 (15,000) 56,000 (15.03)
8/98
Bridgewater Global Tactical
Associates Asset Allocation 6/85 5/99 1 12,601,000 13,875,000 6,000 106,000 (0.29)
9/99
Name of
Commodity Largest Peak- Closed Accounts
Trading to-Valley ------------------------
Advisor Program* Draw-Down(2) Profitable Unprofitable
- ------------- ----------------- -------------------- ---------- ------------
%
Inflation Indexed
Bonds and
Bridgewater Nominal Bonds-
Associates Unleveraged B (2.79) 0 0
11/01-1/02
Inflation Indexed
Bond and
Bridgewater Nominal Bonds-
Associates Unleveraged C (3.03) 0 0
4/01-5/01
Inflation Indexed
Bridgewater Bonds and Nominal
Associates Bonds-Unleveraged D (3.78) 0 0
4/01-5/01
Inflation Indexed
Bridgewater Bonds and Nominal
Associates Bonds-Unleveraged E (2.47) 0 0
11/01-1/02
Inflation Indexed
Bridgewater Bonds and Nominal
Associates Bonds-Unleveraged F (3.05) 0 0
11/01-1/02
Inflation Indexed
Bridgewater Bonds and Nominal
Associates Bonds-Unleveraged G (2.63) 0 0
11/01-1/02
Inflation Indexed
Bridgewater Bonds and Nominal
Associates Bonds-Unleveraged H (3.97) 0 0
11/01-1/02
Inflation Indexed
Bridgewater Bonds and Nominal
Associates Bonds-Unleveraged I (2.76) 0 0
4/01-5/01
Inflation Indexed
Bridgewater Bonds and Nominal
Associates Bonds-Unleveraged J (2.39) 0 0
11/01-1/02
Bridgewater
Associates Index Overlay(7) (46.10) 0 0
3/00-9/01
Bridgewater Global Tactical
Associates Asset Allocation (0.70) 0 0
7/99-12/99
ANNUAL RATES OF RETURN**
Name of -------------------------------------------
Commodity 2002
Trading (through
Advisor Program* 2/28) 2001 2000 1999 1998 1997
- ------------- ----------------- -------- -------- -------- -------- -------- --------
% % % % % %
(4)
Inflation Indexed
Bonds and
Bridgewater Nominal Bonds-
Associates Unleveraged B 0.25 1.51 -- -- -- --
9 mos
Inflation Indexed
Bond and
Bridgewater Nominal Bonds-
Associates Unleveraged C 0.78 1.84 -- -- -- --
9 mos
Inflation Indexed
Bridgewater Bonds and Nominal
Associates Bonds-Unleveraged D 0.46 (0.19) -- -- -- --
9 mos
Inflation Indexed
Bridgewater Bonds and Nominal
Associates Bonds-Unleveraged E 0.61 2.77 -- -- -- --
9 mos
Inflation Indexed
Bridgewater Bonds and Nominal
Associates Bonds-Unleveraged F 0.51 2.10 -- -- -- --
9 mos
Inflation Indexed
Bridgewater Bonds and Nominal
Associates Bonds-Unleveraged G 0.60 2.21 -- -- -- --
9 mos
Inflation Indexed
Bridgewater Bonds and Nominal
Associates Bonds-Unleveraged H 0.06 0.52 -- -- -- --
9 mos
Inflation Indexed
Bridgewater Bonds and Nominal
Associates Bonds-Unleveraged I 0.59 1.06 -- -- -- --
9 mos
Inflation Indexed
Bridgewater Bonds and Nominal
Associates Bonds-Unleveraged J 0.77 2.42 -- -- -- --
9 mos
Bridgewater
Associates Index Overlay(7) (5.25) (25.83) (15.53) 16.37 (5.96) --
6 mos
Bridgewater Global Tactical
Associates Asset Allocation (0.15) 0.28 0.75 (0.64) -- --
8 mos
</Table>
54
<Page>
Aggregate Dollars
Date In All Programs Dollars In This Program
Name of Date CTA (in thousands) (in thousands) Largest
Commodity CTA Began Number ------------------------ ------------------------ Monthly
Trading Began Trading of (Excluding (Including (Excluding (Including Draw-
Advisor Program* Trading Program Accounts Notional) Notional) Notional) Notional) Down(1)
- ------------- ----------------- ------- ------- -------- ----------- ----------- ----------- ----------- --------------
$ $ $ $ %
Bridgewater
Associates Passive U.S. Bond 6/85 2/00 1 12,601,000 13,875,000 465,000 465,000 (10.13)
11/01
Bridgewater Long-Term
Associates Emerging Markets 6/85 5/96 3 12,601,000 13,875,000 331,000 331,000 (25.55)
8/98
Bridgewater Short-Term
Associates Emerging Markets 6/85 4/97 0 12,601,000 13,875,000 -- -- (4.30)
8/97
Passive
Bridgewater International
Associates(8) Bonds 6/85 11/99 0 12,601,000 13,875,000 -- -- (4.33)
4/00
Active
International
Bridgewater Bonds Alpha
Associates Only 6/85 2/98 1 12,601,000 13,875,000 30,000 430,000 (3.53)
3/01
Bridgewater Passive UK
Associates Fixed Income 6/85 1/02 1 12,601,000 13,875,000 57,000 57,000 (1.62)
2/02
Name of
Commodity Largest Peak- Closed Accounts
Trading to-Valley ------------------------
Advisor Program* Draw-Down(2) Profitable Unprofitable
- ------------- ----------------- -------------------- ---------- ------------
%
Bridgewater
Associates Passive U.S. Bond (14.17) 0 0
11/01-12/01
Bridgewater Long-Term
Associates Emerging Markets (28.49) 0 0
5/98-8/98
Bridgewater Short-Term
Associates Emerging Markets (17.58) 0 1
7/97-1/98
Passive
Bridgewater International
Associates(8) Bonds (13.40)
11/99-10/00 0 1
Active
International
Bridgewater Bonds Alpha
Associates Only (7.28) 0 0
8/00-6/01
Bridgewater Passive UK
Associates Fixed Income (1.62) 0 0
2/02
ANNUAL RATES OF RETURN**
Name of -----------------------------------------------------
Commodity 2002
Trading (through
Advisor Program* 2/28) 2001 2000 1999 1998 1997
- ------------- ----------------- -------- -------- -------- -------- -------- --------
% % % % % %
(4)
Bridgewater
Associates Passive U.S. Bond 5.72 1.92 34.35 -- -- --
11 mos
Bridgewater Long-Term
Associates Emerging Markets 5.26 17.26 16.46 18.62 (0.13) 17.41
Bridgewater Short-Term
Associates Emerging Markets -- -- -- -- 4.61 (11.55)
7 mos 9 mos
Passive
Bridgewater International
Associates(8) Bonds -- (0.61) (6.89) (2.18) -- --
2 mos 2 mos
Active
International
Bridgewater Bonds Alpha
Associates Only (2.09) (3.31) 2.35 (0.51) 6.61 --
11 mos
Bridgewater Passive UK
Associates Fixed Income 1.75 -- -- -- -- --
__________________
* Certain accounts that were previously consolidated for performance
reporting have been separated into separate rows. Therefore, certain
information in this chart does not correspond to information in the chart
in the prospectus.
** 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 were
offered by both Bridgewater Associates and its affiliate Bridgewater
Associates, S.A. (see note 8)
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.
+ See next page for rate of return information of this program at various
funding levels.
++ See next page for rate of return information of this program at various
funding levels.
PAST PERFORMANCE IS NOT NECESSARILY INDICATIVE OF FUTURE RESULTS
55
<Page>
The programs listed in Capsule D(2) and noted with + and ++
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 charts are provided so that you can determine the
rate of return which was received at different funding levels.
This charts do not apply to Series D and the Aggressive Pure
Alpha Futures System.
Programs noted with +
ACTUAL RATE RATES OF RETURN BASED ON VARIOUS FUNDING LEVELS (3)
OF RETURN (1)
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)
Programs noted with ++
ACTUAL RATE RATES OF RETURN BASED ON VARIOUS FUNDING LEVELS (3)
OF RETURN (1)
45.00% 60.00% 90.00% 180.00%
30.00 40.00 60.00 120.00
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
(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 Charts:
(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.
56
<Page>
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 chairman, the founder and a
principal of Graham Capital. As chairman 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.
Michael S. Rulle Jr. is the president and a principal of
Graham Capital. As president of Graham Capital, Mr. Rulle is
responsible for the management of Graham Capital in its day-to-
day course of business. Prior to joining Graham Capital in
February 2002, Mr. Rulle was President of Hamilton Partners
Limited, a private investment company that deployed its capital
in a variety of internally managed equity and fixed income
alternative investment strategies on behalf of its sole
shareholder, Stockton Reinsurance Limited, a Bermuda based
insurance company. From 1994 to 1999, Mr. Rulle was Chairman and
CEO of CIBC World Markets Corp., the US broker-dealer formerly
known as CIBC Oppenheimer Corp. Mr. Rulle served as a member of
its Management Committee, Executive Board and Credit Committee
and was Co-Chair of its Risk Committee. Business
responsibilities included Global Financial Products, Asset
Management, Structured Credit and Loan Portfolio Management.
Prior to joining CIBC World Markets Corp., Mr. Rulle was a
Managing Director of Lehman Brothers and a member of its
Executive Committee and held positions of increasing
responsibility since 1979. At Lehman, Mr. Rulle founded and
headed the firm's Derivative Division, which grew to a $600
million enterprise by 1994. Mr. Rulle received his M.B.A. from
Columbia University in 1979, where he graduated first in his
class, and he received his bachelor's degree from Hobart College
in 1972 with a concentration in political science.
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
57
<Page>
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.
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 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.
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
58
<Page>
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.
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.
59
<Page>
Portfolios may be rebalanced with respect to the
weighting of existing markets at any time without notice.
Additions, deletions and rebalancing decisions with respect to
each program are made based on a variety of factors, including
performance, risk, volatility, correlation, liquidity and price
action, each of which factors may change at any time.
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 trades 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, 2002, 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.
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
60
<Page>
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, 2002, 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.
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, 2002. 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 25%
Interest Rates 26
Stock Indices 17
Agricultural Products/Softs 15
Energy Products 9
Metals 8
-----------
Total 100%
(GRAPH)
61
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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, as of February 28, 2002,
of the performance for the past five calendar years for Graham
Capital's Global Diversified Program, the trading strategy
currently 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: 6
Aggregate $$ In All Programs: $1,028,298,000 (All Programs including
Notional)
$$ in this Program: $201,654,000 (Global Diversified
Program including Notional)
Largest monthly draw-down: (10.12%) November 2001
"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
62
<Page>
CAPSULE E(1) -- GRAHAM CAPITAL GLOBAL DIVERSIFIED PROGRAM
MONTHLY/ANNUAL RATES OF RETURN*
<Table>
<Caption>
MONTH 2002 2001 2000 1999 1998 1997
January 1.63% (1.40)% 1.17% (0.08)% 1.65% 4.19%
February (2.39)% 1.56 (1.08) 0.95 1.41 (1.53)
March 7.98 0.51 (5.09) 4.56 0.90
April (8.53) (2.91) 2.63 (3.02) (4.71)
May 0.76 (2.52) (4.14) (0.82) (1.35)
June (0.08) (3.33) 5.65 (5.95) (0.84)
July (1.28) (0.63) (1.86) (3.49) 3.72
August 4.68 4.29 3.37 11.01 (2.64)
September 8.05 (1.16) 1.07 6.93 2.11
October 6.63 2.21 (3.61) 3.24 4.14
November (9.68) 10.06 1.66 (2.80) 0.50
December (0.06) 9.23 5.14 0.09 1.85
Annual (0.80)% 7.02% 15.83% 5.12% 12.20% 6.04%
</Table>
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.
63
<Page>
The following is a capsule summary, as of February 28, 2002,
of the performance for the past five calendar years for Graham
Capital's Global Diversified Program Traded at 150% Leverage, the
trading strategy currently 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: 9
Aggregate $$ In All Programs: $ 1,028,298,000 (All Programs including
Notional)
$$ in this Program: $ 120,292,000 (Global Diversified
Program at 150% leverage including
Notional)
Largest monthly draw-down: (15.77) November 2001
"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 = 14
Unprofitable = 2
RATE OF RETURN INFORMATION IS ON FOLLOWING PAGE
64
<Page>
CAPSULE E(2) -- GRAHAM CAPITAL GLOBAL DIVERSIFIED PROGRAM
TRADED AT 150% LEVERAGE
MONTHLY/ANNUAL RATES OF RETURN*
<Table>
<Caption>
MONTH 2002 2001 2000 1999 1998 1997
January 2.44% (1.93)% 2.38% (0.62)% 2.14%
February (3.33) 2.91 (1.83) 1.35 1.71
March 11.12 0.46 (7.79) 6.52
April (11.73) (3.58) 4.02 (4.42)
May 1.42 (3.81) (6.25) (1.08) (1.62)%
June 0.03 (5.35) 8.05 (9.21) (1.12)
July (1.60) (1.05) (2.59) (5.22) 5.04
August 6.87 6.18 5.00 17.07 (3.79)
September 11.99 (0.97) 2.03 9.34 2.93
October 9.26 3.22 (5.46) 4.97 5.72
November (13.45) 14.80 2.26 (3.40) 1.30
December 0.28 13.77 7.52 0.12 2.94
Annual (0.97)% 12.16% 24.33% 6.17% 17.00% 11.56%
</Table>
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.
65
<Page>
CAPSULE E(3)
PAST PERFORMANCE OF OTHER PROGRAMS OFFERED BY GRAHAM CAPITAL
THAT WILL NOT INITIALLY BE USED TO TRADE SERIES E ASSETS
_________________
Name of Date Date CTA Largest Largest Peak-
Commodity CTA Began Aggregate Dollars Dollars In This Monthly to-Valley
Trading Began Trading Number In All Programs Program Draw- Draw-
Advisor Program Trading Program Accounts (including Notional) (Including Notional) Down(1) Down(2)
- ------------ --------------- ------- --------- -------- -------------------- -------------------- ------- -------------
% %
Selective
Graham Trading 15.60 18.70
Capital Program 2/2/95 1/7/98 2 $1,028,298,000 $84,404,000 11/01 11/01-2/02
Graham Non-Trend 5.01 9.54
Capital Based Program 2/2/95 1/4/99 0 $1,028,298,000 -- 10/99 1/01-6/01
Non-Trend
Based Program
Graham at 150% 8.42 14.33
Capital Leverage 2/2/95 6/1/99 0 $1,028,298,000 -- 10/99 6/99-10/99
Discretionary
Graham Trading 2.22 4.18
Capital Program 2/2/95 1/4/99 1 $1,028,298,000 $13,799,000 8/99 6/99-8/99
Graham 7.16 9.98
Capital K4 Program 2/2/95 1/4/99 3 $1,028,298,000 $224,689,000 4/01 4/01-7/01
Graham K4 Program at 10.15 13.41
Capital 150% Leverage 2/2/95 6/1/99 5 $1,028,298,000 $67,091,000 4/01 4/01-7/01
International
Graham Financial 8.41 18.07
Capital Program 2/2/95 1/2/96 0 $1,028,298,000 -- 6/98 4/98-6/98
Natural
Graham Resource 6.68 19.22
Capital Program 2/2/95 9/27/96 0 $1,028,298,000 -- 10/97 2/97-11/97
Graham Federal Policy 3.41 3.41
Capital Program 2/2/95 8/1/00 8 $1,028,298,000 $228,475,000 1/02 1/02
Proprietary
Graham Matrix 11.16 12.07
Capital Program 2/2/95 6/1/99 1 $1,028,298,000 $172,033,000 11/01 11/01-2/02
ANNUAL RATES OF RETURN*
Name of ----------------------------------------------------------
Commodity Closed Accounts 2002
Trading --------------------------- (through
Advisor Program Profitable Unprofitable 2/28) 2001 2000 1999 1998 1997
- ------------ --------------- ---------- ------------ -------- -------- -------- -------- -------- --------
% % % % % %
Selective
Graham Trading
Capital Program 0 0 (0.96) 0.55 7.07 0.91 25.86 --
Graham Non-Trend
Capital Based Program -- -- -- (9.54) 11.86 0.46 -- --
(6 mos)
Non-Trend
Based Program
Graham at 150%
Capital Leverage -- -- -- (12.95) 21.01 (9.67) -- --
(6 mos) (7 mos)
Discretionary
Graham Trading
Capital Program 0 0 (1.16) 15.55 8.20 (1.03) -- --
Graham
Capital K4 Program 1 0 (0.38) 29.56 16.39 7.25 -- --
Graham K4 Program at
Capital 150% Leverage 1 1 (0.16) 43.14 (10.05) 8.96 -- --
(6 mos) (7 mos)
International
Graham Financial
Capital Program -- -- -- -- -- -- 8.15 5.14
Natural
Graham Resource
Capital Program -- -- -- -- -- -- 4.71 (15.22)
Graham Federal Policy
Capital Program 2 0 (2.00) 16.77 2.51 -- -- --
(5 mos)
Proprietary
Graham Matrix
Capital Program 1 1 (1.21) 6.77 15.94 2.90 -- --
(7 mos)
* 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. Graham Capital also advises
accounts that do not trade commodity futures (such as accounts
trading securities, non-exchange traded derivatives, etc.) 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
66
<Page>
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 (Above $5 million) 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 presently serves as President, Chief Executive
Officer and a Director. Mr. Cleland has worked in the
international derivatives industry since 1973, and has owned and
managed firms engaged in global clearing, floor brokerage,
trading, and portfolio management. Mr. Cleland is currently a
member of the Board of Directors of the Managed Funds
Association, and he has previously served as a member of the
Board of Governors of the Comex, in New York. Mr. Cleland is a
graduate of Victoria University in Wellington, New Zealand where
he earned 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.
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.
67
<Page>
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.
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 and for
certain principals. Campbell & Company and its principals
reserve the right to trade for their own accounts. There are
written procedures that govern proprietary trading by principals.
Trading records for all proprietary trading are available for
review by the Trust upon reasonable notice.
Campbell & Company's Trading Strategy
Campbell & Company makes trading decisions 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 eight portfolios:
(i) the Financial, Metal & Energy Large Portfolio (sometimes
referred to as the FME Large Portfolio); (ii) the Financial,
Metal & Energy Small (Above $5 million) Portfolio (sometimes
referred to as the FME Small (Above $5 million) Portfolio); (iii)
the Financial, Metal & Energy Small (Below $5 million) Portfolio
(sometimes referred to as the FME Small (Below $5 million)
Portfolio); (iv) the Foreign Exchange Portfolio; (v) the Global
Diversified Large Portfolio; (vi) the Global Diversified Small
Portfolio; (vii) the Interest Rates, Stock Indices and
Commodities Portfolio and (viii) 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 (Above $5 million) 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. No one market exceeds 10% of a total portfolio
allocation.
Campbell & Company believes that utilizing multiple trading
models provides an important level of diversification, and is
most beneficial when multiple contracts of each market are
traded. Every trading model may not trade every market. It is
possible that one trading model may signal a long position while
another trading model signals a short position in the same
market. It is Campbell & Company's intention to offset those
signals to reduce unnecessary trading, but if signals are not
simultaneous, both trades will be taken, and 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 the other models.
Over the course of a medium-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
that may result.
68
<Page>
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 as when market
conditions dictate otherwise. While such action may be taken for
any reason at any time at Campbell & Company's discretion, it
will normally only be taken to reduce risk in the portfolio, and
may or may not enhance the results that would otherwise be
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 this reduction or
increase in position size may not enhance the results achieved
over time.
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 5% and 30% of the account's net
assets. From time to time, margin commitments may be above or
below this range.
The number of contracts that Campbell & Company believes can
be bought or sold in a particular market without unduly
influencing price adversely may at times be limited. In such
cases, a client's portfolio would be influenced by liquidity
factors because the positions taken in such markets might be
substantially smaller than the positions that would otherwise be
taken. From time to time, Campbell & Company may 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, three versions of the Financial Metal & Energy
Portfolio are traded by Campbell & Company, the FME Small (Below
$5 million) Portfolio, the FME Small (Above $5 million) Portfolio
and the FME Large Portfolio. The FME Small (Below $5 million)
Portfolio and the FME Small (Above $5 million) Portfolio trade in
foreign currencies, precious and base metals, energy products,
stock indices and interest rates. The FME Large Portfolio is the
same as the other FME Portfolios 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. In July
2000 the FME Small Portfolio was further split into the FME Small
(Below $5 million) Portfolio and the FME Small (Above $5 million)
Portfolio, and accounts below $5 million transferred into the FME
Small (Below $5 million) Portfolio. At the same time a new model
was added to FME Small (Above $5 million) Portfolio, and Campbell
& Company increased the minimum required for new accounts to $5
million. Since Series F commenced trading with $5 million,
Campbell & Company initially traded the Series F assets pursuant
to the FME Small Portfolio and since July 2000 has traded the
Series F assets pursuant to the FME Small (Above $5 million)
Portfolio. The FME Large Portfolio or the FME Small (Below $5
million) Portfolio may by utilized to trade Series F assets at a
later date, as appropriate.
69
<Page>
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 (Above $5 million) Portfolio, as
of February 28, 2002. 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 49%
Interest Rates 21
Energy 13
Stock Indices 15
Precious and Base Metals 2
------------
Total 100%
(GRAPH)
70
<Page>
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 (Above $5 million) Portfolio
The following is a capsule summary, as of February 28, 2002,
of the performance for the past five calendar years for Campbell
& Company's FME Small Portfolio, the trading strategy currently
used to trade Series F.
Name of commodity trading advisor: Campbell & Company
Program: FME Small (Above $5 million) Portfolio
Start Date: January 1972 (All trading by Campbell &
Company)
February 1995 (FME Small (Above $5million)
Portfolio)
No. Accounts: 11
Aggregate $$ In All Programs: $2,705,000,000 (All Programs including
Notional)
$$ in this Program: $124,500,000 (FME Small (Above $5
million) Portfolio including Notional)
Largest monthly draw-down: (9.94%) November 2001
"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: (10.04%) October 2001 to February 2002
"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 = 31
Unprofitable = 12
RATE OF RETURN INFORMATION IS ON FOLLOWING PAGE
71
<Page>
CAPSULE F(1) -- COMPOSITE OF ALL THE FME SMALL (ABOVE
$5 MILLION) PORTFOLIO ACCOUNTS
MONTHLY/ANNUAL RATES OF RETURN*
<Table>
<Caption>
MONTH 2002 2001 2000 1999 1998 1997
January (0.84)% (1.49)% 3.23% (4.61)% 2.80% 3.85%
February (2.41) 0.48 (0.52) 1.34 (2.34) 1.63
March 6.15 (2.03) 1.60 5.81 (1.75)
April (7.97) (2.55) 5.20 (5.99) (3.03)
May 0.92 2.47 (3.15) 4.21 (3.01)
June (2.24) 0.77 4.95 1.51 3.62
July 1.11 (2.56) (0.64) (4.04) 8.81
August 1.29 3.04 1.18 9.95 (5.94)
September 6.68 (3.36) 1.55 3.68 4.53
October 4.58 2.75 (3.85) 5.52 2.32
November (9.94) 5.52 0.78 (0.91) 0.59
December 3.24 2.36 2.80 1.10 5.41
Annual (3.23)% 1.35% 9.02% 6.80% 22.16% 17.30%
</Table>
* 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
72
<Page>
FME Small (Below $5 million) Portfolio
The following is a capsule summary of the past performance
for Campbell & Company's FME Small (Below $5 million) Portfolio
as of February 28, 2002. This portfolio was formerly combined
with the FME Small (Above $5 million) Portfolio, and was
separated out as of July of 2000. Although Series F is currently
traded pursuant to the FME Small (Above $5 million) Portfolio
strategy, the FME Small (Below $5 million) Portfolio may be used
in the future to trade Series F assets.
Name of commodity trading advisor: Campbell & Company
Program: FME Small (Below $5 million) Portfolio
Start Date: January 1972 (All trading by Campbell &
Company)
July 2000 (FME Small (Below $5 million)
Portfolio)
No. Accounts: 11
Aggregate $$ In All Programs: $2,705,000,000 (All Programs including
Notional)
$$ in this Program: $19,700,000 (FME Small (Below $5 million)
Portfolio including Notional)
Largest monthly draw-down: (11.84%) November 2001
"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: (12.17%) October 2001 to February 2002
"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 = 16
Unprofitable = 7
RATE OF RETURN INFORMATION IS ON FOLLOWING PAGE
73
<Page>
CAPSULE F(2) -- COMPOSITE OF ALL THE FME SMALL (BELOW
$5 MILLION) PORTFOLIO* ACCOUNTS
MONTHLY/ANNUAL RATES OF RETURN**
MONTH 2002 2001 2000
January 1.49 (0.34)
February (3.35) (0.91)
March 6.81
April (8.92)
May 1.25
June (3.35)
July .08 (4.23)
August 2.27 4.19
September 4.54 (5.22)
October 6.87 3.52
November (11.84) 5.46
December 1.55 9.56
Annual (1.91)% (3.76)% 13.12%
*In July 2000, the FME Small Portfolio program was divided
into 2 separate programs, which are the FME Small (Above $5
million) Portfolio and the FME Small (Below $5 million)
Portfolio. See page 69 for details.
**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. 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
74
<Page>
FME Large Portfolio
The following is a capsule summary, as of February 28, 2002,
of the performance for the past five years for Campbell &
Company's FME Large Portfolio. 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: 15
Aggregate $$ In All Programs: $2,705,000,000 (All Programs including
Notional)
$$ in this Account: $2,430,000,000 (FME Large Portfolio
including Notional)
Largest monthly draw-down: (9.62%) November 2001
"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: (9.62%) October 2001 to November 2001
"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 = 5
Unprofitable = 1
RATE OF RETURN INFORMATION IS ON FOLLOWING PAGE
75
<Page>
CAPSULE F(2) -- COMPOSITE OF ALL THE FME LARGE PORTFOLIO ACCOUNTS
MONTHLY/ANNUAL RATES OF RETURN*
<Table>
<Caption>
MONTH 2002 2001 2000 1999 1998 1997
January (0.71)% (1.09) 3.70% (4.83)% 3.25% 5.26%
February (1.98) 0.71 (0.35) 1.45 (2.38) 2.26
March 6.97 (1.96) 0.87 4.95 (2.08)
April (8.09) (1.86) 5.60 (5.88) (3.84)
May 1.23 2.74 (3.25) 4.34 (1.84)
June (1.71) 1.96 4.63 2.04 2.23
July 1.45 (1.72) (0.15) (3.68) 9.27
August 2.10 3.08 1.22 9.23 (5.14)
September 6.94 (3.23) 1.75 2.97 4.23
October 4.97 3.19 (4.25) 4.41 2.39
November (9.62) 5.98 0.53 (0.50) 0.57
December 3.71 2.38 3.64 0.64 4.95
Annual (2.68) 6.20% 14.32% 6.81% 20.07% 18.75%
</Table>
* 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 method of computation (sometimes
referred to as the OAT method). 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 RESULTS
76
<Page>
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
Aggregate Dollars
Date In All Programs Dollars In This Program
Name of Date CTA (in thousands) (in thousands) Largest
Commodity CTA Began Number ------------------------- ------------------------ Monthly
Trading Began Trading of (Excluding (Including (Excluding (Including Draw-
Advisor Program Trading Program Accounts Notional) Notional) Notional) Notional) Down(1)
- -------------- ---------------- ------- ------- -------- ----------- ------------ ----------- ----------- -------
$ $ $ $ %
Foreign
Campbell Exchange 7.85
& Company Portfolio 4/72 11/90 2 2,604,000 2,705,000 12,342 25,342 2/98
Global
Diversified
Campbell Large 9.95
& Company Portfolio 4/72 2/86 2 2,604,000 2,705,000 94,575 94,575 11/01
Global
Diversified
Campbell Small 12.47
& Company Portfolio 4/72 6/97 1 2,604,000 2,705,000 1,875 1,875 11/01
Campbell ARK 11.86
& Company Portfolio 4/72 9/96 9 2,604,000 2,705,000 2,165 2,415 7/98
Interest
Rates, Stock
Indices &
Campbell Commodities 16.13
& Company Portfolio 4/72 2/96 1 2,604,000 2,705,000 7,420 7,420 11/01
Annual Rates of Return*
Name of Closed -------------------------------------------------------------
Commodity Largest Peak- Accounts 2002
Trading to-Valley Profitable/ (through
Advisor Program Draw-Down(2) Unprofitable 2/28) 2001 2000 1999 1998 1997
- -------------- ---------------- -------------- ------------- ------ ------ ------ ------ ------ ------
% % % % % % %
Foreign
Campbell Exchange 12.39
& Company Portfolio 12/97-2/98 1 1 (2.92) 15.92 11.39 7.19 4.25 18.19
Global
Diversified
Campbell Large 9.95
& Company Portfolio 10/01-11/01 1 0 (2.82) 5.89 11.18 4.57 12.47 14.95
Global
Diversified
Campbell Small 12.47
& Company Portfolio 10/01-11/01 9 0 (1.66) (1.16) 17.59 2.51 17.50 13.85(3)
Campbell ARK 13.44
& Company Portfolio 3/01-6/01 10 2 (2.60) (4.35) 28.86 28.27 2.48 20.49
Interest
Rates, Stock
Indices &
Campbell Commodities 19.24
& Company Portfolio 10/01-12/01 0 0 (2.40) (0.71) 18.12 6.85 27.08 20.15
_________________________________
* 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
PAST PERFORMANCE IS NOT NECESSARILY INDICATIVE OF FUTURE RESULTS
77
<Page>
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:
(BUL) 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).
(BUL) 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:
(BUL) 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.
(BUL) 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).
(BUL) 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.
(BUL) Permit any trading advisor to share in any portion
of the commodity brokerage fees paid by a series.
(BUL) Commingle its assets, except as permitted by law.
(BUL) Permit the churning of its commodity accounts.
78
<Page>
Trading Policies
Subject to the foregoing limitations, each trading advisor
has agreed to abide by the trading policies of the Trust, which
currently are as follows:
(BUL) 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.
(BUL) 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.
(BUL) 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.
(BUL) 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.
(BUL) 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.
(BUL) 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.
(BUL) 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.
79
<Page>
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 Prudential Financial, Inc.
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.
80
<Page>
The Trustee
Wilmington Trust Company, a Delaware banking corporation, is
the sole trustee of the Trust. Its principal offices are located
at Rodney Square North, 1100 North Market Street, Wilmington,
Delaware 19890-0001. Wilmington Trust Company is not affiliated
with Prudential Securities Group Inc., Prudential Securities, the
managing owner, or the trading advisors. It has delegated its
duty and authority for the management of the business and affairs
of the Trust to the managing owner. Wilmington Trust Company
will accept service of legal process upon the Trust in the State
of Delaware. 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
Prudential Financial, Inc., a major financial services 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 Senior Vice President of Futures
Administration in the Global Derivatives division for Prudential
Securities, and he serves in various capacities for other
affiliated companies. Prior to joining the Global Derivatives
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.
81
<Page>
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.
Alex Ladouceur, born 1960, has been Chairman of the Board of
Directors and a Director of the managing owner since November
2001 and also has held such positions with Seaport Futures since
such date. Mr. Ladouceur joined Prudential Securities in August
2001 as Executive Vice President, Head of the Global Derivatives
division. He is responsible for all operating activities of
Prudential Securities' Global Derivatives division including
sales and trading, foreign exchange, base and precious metals,
and the trading floors. In addition, Mr. Ladouceur has
responsibility for Alternative Investment Strategies. Mr.
Ladouceur joined Prudential Securities from Credit Lyonnais Rouse
Ltd. (CLR), where he served as president of their United States
operations since 1992 and as a main board director of CLR in
London since 1994. In 1998, he was appointed managing director
of Global Cash Markets at CLR with responsibility for leading
global market-making and sales for OTC products, including
structured derivative products. Mr. Ladouceur earned his
bachelor's degree in Economics from the University of Calgary in
Alberta, Canada, and his master's degree in European Studies from
the College of Europe in Bruges, Belgium.
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 Senior Vice President of the Global Derivatives
division.
Eleanor L. Thomas, born 1954, has been Director and
President of the managing owner since September 2000 and was a
Director and Executive Vice President from April 1999 to
September 2000. She was a First Vice President of the managing
owner and Seaport Futures from October 1998 to April 1999 and a
Director and the President of Seaport Futures since such date.
Ms. Thomas is a Senior Vice President and the Director of
Alternative Investment Strategies 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 Summa Cum Laude from Long Island University with a B.A.
in English Literature, and graduated 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.
82
<Page>
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, 1997 through March 31, 2002 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) [p]
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
(DEVON) [h, i]
Prudential-Bache International Futures
Fund A, PLC (PBIFA) [h, n]
Prudential-Bache International Futures
Fund B, PLC (PBIFB) [h]
Prudential-Bache International Futures
Fund C, PLC (PBIFC) [h]
Prudential-Bache International Futures
Fund D, PLC (PBIFD) [h]
Prudential-Bache International Futures
Fund E, PLC (PBIFE) [h, o]
Prudential-Bache International Futures
Fund F, PLC (PBIFF) [h]
Global Equilibrium Fund (GEF) [h, o]
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]
83
<Page>
CAPSULE D
PERFORMANCE OF OTHER POOLS OPERATED BY PRUDENTIAL SECURITIES
FUTURES MANAGEMENT INC. AND AFFILIATE [a]
(SEE ACCOMPANYING NOTES ON FOLLOWING TWO PAGES)
IN-
NAME OF POOL CEP- WORST WORST
(See TION MONTHLY PEAK TO
abbreviations OF AGGREGATE CURRENT PERCENT VALLEY
indicated on TRA- SUBSCRIPTIONS TOTAL NAV DRAW-DOWN DRAW-DOWN
prior page) TYPE OF POOL DING ($ x 1,000) ($ x 1,000) [b] [b]
- ------------- ------------ ----- ------------- ----------- --------- -----------
PBDFF 3, 5, 6, 8, 10/88 29,747 6,043 -12.98% -40.96%
10 11/01 7/99-9/00
PBCRFF (l) 1a, 3, 5, 7, 5/89 137,705 --- -10.30% -20.27%
8, 10 11/98 11/98-4/00
PBCRFF2 [p] 1a, 3, 5, 7, 10/89 100,000 9,983 -8.72% -28.43%
8, 9 4/98 1/98-3/02
PBCRFF3 [k] 1a, 3, 5, 7, 5/90 64,863 --- -11.77% -23.66%
8, 10 4/98 12/96-4/98
PBOFF 3, 5, 7, 8, 4/96 69,603 --- -7.82% -27.23%
(OPTIMAX) [m] 10, 11 10/99 5/99-6/00
PBOFF2 3, 5, 7, 8, 4/97 17,416 --- -9.08% -16.58%
(OPTIMAX2) [e] 9, 12 4/98 8/97-5/98
PBOFF2 1,3, 5, 7, 1/92 15,197 --- -4.68% -11.42%
(OPTIMAX2-A) 9, 12 12/96 2/96-7/96
PBOFF2 3, 5, 7, 8, 1/92 2,219 --- -9.27% -20.94%
(OPTIMAX2-B) 9, 12 2/96 6/95-7/96
PSFFF [g] 2, 4, 6, 8, 1/93 4,198 --- -9.96% -23.59%
9 2/99 12/96-5/97
PSAGF [k] 3, 5a, 7, 8/93 20,335 --- -7.65% -20.42%
8, 9 10/97 10/98-10/99
DFT 3, 5a, 6, 1/95 65,908 19,844 -14.35% -36.76%
8, 9 11/01 7/99-9/00
SPLP2 [d] 2, 4, 7, 2/96 1,531 --- -6.37% -8.41%
8, 9 8/97 8/97-1/98
PRUST [f] 3, 5a, 6, 5/96 63,403 9,215 -15.84% -43.34%
8, 9 4/98 3/99-5/01
PBIFA [h, n] 2, 4, 6, 6/96 38,707 --- -21.94% -46.41%
9, 13 2/00 3/99-8/00
PBIFB [h] 2, 4, 6, 7/96 106,519 26,236 -18.13% -46.09%
9, 13 11/01 7/99-9/00
PBIFC [h] 2, 4, 6, 6/96 35,142 6,952 -9.30% -47.07%
9, 13 2/99 1/99-5/01
PBIFD [h] 2, 4, 7, 10/96 31,318 4,857 -10.22% -34.38%
9, 13 2/00 3/99-3/02
PBIFE [h, o] 2, 4, 6, 1/97 21,843 --- -11.39% -39.57%
9, 13 4/01 10/98-5/01
PBIFF [h] 2, 4, 6, 9/97 43,292 14,760 -17.11% -27.51%
9, 13 4/01 10/98-9/00
DFTII 2, 5, 6, 3/97 51,757 7,987 -15.22% -39.93%
8, 9 11/01 7/99-9/00
DEVON [h, i] 2, 4, 8, 2/98 13,552 --- -3.88% -8.55%
9, 14 4/98 4/98-8/98
GEF [h, o] 2, 4, 7, 12/99 29,451 --- -8.29% -8.29%
8, 9, 15 1/00 1/00
WMTA 3, 5a, 6, 6/98 33,979 5,004 -17.46% -38.99%
8, 9 4/01 5/99-9/00
WMTB 3, 4, 6, 6/98 30,093 9,963 -11.46% -27.08%
8, 9 11/01 10/99-10/00
WMTC 3, 4, 6, 6/98 23,734 5,665 -16.40% -40.30%
8, 9 11/01 7/99-6/00
<Caption>
ANNUAL RATE OF RETURN
NAME OF POOL (COMPUTED ON A COMPOUNDED DAILY BASIS) [j]
(See -----------------------------------------------
abbreviations 2002
indicated on through
prior page) TYPE OF POOL 1997 1998 1999 2000 2001 3/31
- ------------- ------------ ------- ------- ------- ------- ------- -------
PBDFF 3, 5, 6, 8, 9.03% 1.96% -18.48% 0.06% -10.16% -10.85%
10
PBCRFF (l) 1a, 3, 5, 7, 7.93% -1.09% -11.13% -6.29% --- ---
8, 10
PBCRFF2 1a, 3, 5, 7, 11.40% -7.44% -5.14% -2.26% -5.71% -11.54%
8, 9
PBCRFF3 [k] 1a, 3, 5, 7, -7.97% -10.29% -1.70% --- --- ---
8, 10
PBOFF 3, 5, 7, 8, 17.49% 17.54% -7.16% -17.91% --- ---
(OPTIMAX) [m] 10, 11
PBOFF2 3, 5, 7, 8, -3.67% -9.97% --- --- --- ---
(OPTIMAX2) [e] 9, 12
PBOFF2 1,3, 5, 7, 0.86% --- --- --- --- ---
(OPTIMAX2-A) 9, 12
PBOFF2 3, 5, 7, 8, 0.68% --- --- --- --- ---
(OPTIMAX2-B) 9, 12
PSFFF [g] 2, 4, 6, 8, -1.35% 36.68% -11.00% --- --- ---
9
PSAGF [k] 3, 5a, 7, -2.31% 13.11% -17.54% --- --- ---
8, 9
DFT 3, 5a, 6, 8.82% 4.80% -13.48% 9.87% -4.57% -10.11%
8, 9
SPLP2 [d] 2, 4, 7, 6.10% -0.70% --- --- --- ---
8, 9
PRUST [f] 3, 5a, 6, -0.49% 20.25% 3.35% -31.01% -6.76% 1.00%
8, 9
PBIFA [h, n] 2, 4, 6, -0.36% 34.14% 3.33% -42.62% --- ---
9, 13
PBIFB [h] 2, 4, 6, 13.77% 3.49% -21.61% 9.95% 5.29% -12.53%
9, 13
PBIFC [h] 2, 4, 6, -3.59% 35.42% -18.91% -22.86% -4.89% -0.63%
9, 13
PBIFD [h] 2, 4, 7, 14.36% 23.87% -2.00% -14.71% -5.89% -10.62%
9, 13
PBIFE [h, o] 2, 4, 6, 2.20% 12.23% -17.26% -10.22% -17.61% ---
9, 13
PBIFF [h] 2, 4, 6, -4.60% 47.90% -6.38% -2.80% 2.49% -2.81%
9, 13
DFTII 2, 5, 6, 6.26% 6.82% -17.76% 5.14% -5.76% -10.85%
8, 9
DEVON [h, i] 2, 4, 8, --- -7.70% -1.19% --- --- ---
9, 14
GEF [h, o] 2, 4, 7, --- --- 3.80% 0.67% -5.65% ---
8, 9, 15
WMTA 3, 5a, 6, --- -1.69% -21.42% -1.93% 3.26% -5.02%
8, 9
WMTB 3, 4, 6, --- 11.98% 8.62% 0.20% -10.91% -2.45%
8, 9
WMTC 3, 4, 6, --- 4.22% -7.91% -2.81% -19.95% 6.47%
8, 9
PAST PERFORMANCE IS NOT NECESSARILY INDICATIVE OF FUTURE RESULTS
84
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 March 31, 2002
[b] "Worst monthly percent draw-down" means greatest percentage
decline in net asset value due since January 1997 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 since January 1997 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. "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.
[o] Liquidated June 2001.
[p] Liquidated April 2002.
NOTES TO PERFORMANCE TABLE CONTINUED ON FOLLOWING PAGE
PAST PERFORMANCE IS NOT NECESSARILY INDICATIVE OF FUTURE RESULTS
85
<Page>
Note To Performance Table Continued:
Management Fees, Incentive Fees and Brokerage Commissions
<Table>
<Caption>
Name of Fund Management Fee Incentive Fee Brokerage Commission
- ------------- -------------- ------------- --------------------
PBDFF 2 (8) 20 (8) 8 (1)
PBCRFF 2 (8) 20 (8) 8
PBCRFF2 2 (2) 20 (2) 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
</Table>
(1) Decreased from 9% to 8% during August 1998.
(2) One of the advisors was terminated at the end of May 2001
and, during July 2001, the assets formerly managed by
such advisor were allocated to two of the other advisors
to PBCRFF2. This resulted in a decrease in management
fees on a portion of the reallocated assets from 4% to 2%
and an increase in incentive fees from 15% to 20%;
however, one of the advisors to whom assets were
reallocated must recoup $964,000 and the other $482,000,
in losses on the reallocated assets before earning
incentive fees. Brokerage commissions 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
July 2000, 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.
86
<Page>
Prudential Securities
Prudential Securities, a Delaware corporation formed in
March 1981, is the selling agent and the commodity broker for the
Trust. Prudential Securities, in its capacity as selling agent
for the Trust, is registered as a broker-dealer with the SEC and
is a member of the NASD. It is also registered as a futures
commission merchant under the Commodity Exchange Act and is a
member of the National Futures Association. Prudential
Securities is a clearing member of the Chicago Board of Trade,
Chicago Mercantile Exchange, Commodity Exchange, Inc. and all
other major U.S. commodity exchanges. Prudential Securities'
main business office is located at One Seaport Plaza, New York,
New York 10292-2013; telephone (212) 214-1000.
Prudential Securities Litigation And Settlements
From time to time, Prudential Securities and its principals
are involved in legal actions, some of which individually, and all
of which in the aggregate, seek significant or indeterminate
damages. However, except for the actions described below, during
the five years preceding the date of this prospectus, there has
been no administrative, civil or criminal action against
Prudential Securities or any of its principals which is material,
in light of all the circumstances, to an investor's decision to
invest in the Trust.
On 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 May 20, 1997, the CFTC filed a complaint against
Prudential Securities, Kevin Marshburn (a former Prudential
Securities financial advisor) and two of Marshburn's sales
assistants. The complaint alleges, in essence, that during the
period from May 1993 through March 1994: (i) Marshburn
fraudulently allocated trades among his personal account and
certain customer accounts, (ii) Prudential Securities, by failing
to have policies and procedures in place to detect and deter the
alleged allocation scheme, did not properly supervise Marshburn
and (iii) Prudential Securities failed to maintain and produce
records with respect to transactions during the period in issue.
The complaint seeks several forms of relief against Prudential
Securities, including a cease and desist order, suspension or
revocation of registration, restitution and civil penalties of up
to $100,000 for each alleged violation. Prudential Securities has
denied the operative allegations against it and is vigorously
defending the action.
On December 23, 1998, Prudential Securities was one of
twenty-eight market making firms that reached a settlement with
the SEC in the matter titled In the Matter of Certain Market
Making Activities on NASDAQ. As part of the global settlement of
that matter, Prudential Securities, without admitting or denying
the factual allegations, agreed to an order which requires that:
(i) it cease and desist from committing or causing any violations
of Sections 15(c)(1) and (2) of the Securities Exchange Act of
1934 and Rules 15C1-2 and 15C2-7 thereunder, (ii) pay a civil
penalty of $1 million and disgorgement of $1,361 and (iii) submit
certain policies and procedures to an independent consultant for
review.
In December of 1998, the SEC alleged that Prudential
Securities and a branch manager violated Section 15B of the
Securities Act by failing to reasonably supervise Stuart P.
Bianchi, a former Prudential Securities registered
representative. On January 29, 2001, the SEC issued an order
instituting public administrative and cease and desist
proceedings, making findings, imposing remedial sanctions and
issuing cease and desist orders against the branch manager and
Prudential Securities. The branch manager consented to the
payment of a civil penalty in the amount of $15,000 and was
suspended from associating with a broker-dealer for two months
and from associating with a broker-dealer in a supervisory
capacity for a period of nine months. Without admitting or
denying the findings, Prudential Securities consented to a
censure and the payment of a fine of $800,000.
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.
87
<Page>
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:
(BUL) 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.
(BUL) Determining whether to retain or replace the trustee.
(BUL) 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.
(BUL) Calculating the net asset value of each series and
all fees and expenses, if any, to be paid by each series.
(BUL) Providing suitable facilities and procedures for
handling and executing redemptions, exchanges,
transfers and distributions (if any) and the orderly
liquidation of each series.
(BUL) Selecting and monitoring the Trust's commodity
clearing broker and its foreign exchange counterparties.
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:
(BUL) The affiliate that it proposes to engage is
qualified to perform such services.
(BUL) The terms and conditions of the agreement with an
affiliate are no less favorable than could be obtained
from equally qualified, unaffiliated third parties.
(BUL) 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.
88
<Page>
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 167 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.
89
<Page>
FIDUCIARY RESPONSIBILITIES
Accountability
Pursuant to the Delaware Business Trust Act, the trustee
delegated to the managing owner responsibility for the management
of the business and affairs of the Trust and each series, and it
has neither a duty to supervise or monitor the managing owner's
performance nor any liability for the acts or omissions of the
managing owner. The trustee retains a statutory fiduciary duty
to the Trust only for the performance of the express obligations
it retains under the trust agreement, which are limited to the
making of certain filings under the Delaware Business Trust Act
and to the accepting of service of process on behalf of the Trust
in the State of Delaware. It 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 an "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
(including, in some cases) the Trust, 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.
90
<Page>
THE OFFERING
Interests Sold to Date
The initial offering of Series D, Series E and Series F
ended on March 13, 2000, April 6, 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, 2002 was as follows:
From Investors From The Managing Owner
-------------- -----------------------
Series D $ 9,566,444 $117,696
Series E $12,639,835 $137,447
Series F $15,816,739 $138,531
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.
91
<Page>
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 futures fund sponsored by the managing owner that
was publicly offered, 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
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provisions in the trust agreement. You will be notified
in writing within ten business days following the redemption
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 not 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.
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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 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 person 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 4(E) and or 4(F) of Rule 2810
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.
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WHO MAY SUBSCRIBE
Prudential Securities and each employee of Prudential
Securities selling interests in the Trust is obligated to make
every reasonable effort to determine that the purchase of
interests is a suitable and appropriate investment for you based
on information you provide regarding your financial situation and
investment objective.
A purchase of the interests should be made only if your
financial condition permits you to bear the risk of a total loss
of your investment in the Trust. An investment in the interests
should be considered only as a long-term investment.
You should not purchase interests with the expectation of
tax benefits in the form of losses or deductions. If losses
accrue to a series, your distributive share of such losses will,
in all probability, be treated as a capital loss and generally
will be available only for offsetting capital gains from other
sources. To the extent that you have no capital gains, capital
losses can be used only to a very limited extent as a deduction
from ordinary income.
If you are an IRA or other benefit plan investor, no one
associated with the Trust is representing to you that this
investment meets any or all of the relevant legal requirements
for investments by you or that this investment is appropriate for
you. You should consult with your attorney and financial
advisors as to the propriety of this investment in light of your
circumstances and in light of current tax law.
Subscriptions for the purchase of the interests by you are
subject to the following conditions:
Fundamental Knowledge
You should make sure that you understand, among other
things, (i) the fundamental risks and possible financial hazards
of the investment, (ii) the trading strategies to be followed in
the series in which you will invest, (iii) that transferability
of the interests is restricted, (iv) that the managing owner
manages and controls each series' and the Trust's business
operations, (v) the tax consequences of the investment, (vi) the
liabilities you will assume, (vii) the redemption and exchange
rights that apply to your purchase and (viii) the Trust's
structure, including each series' fees. In addition, the
managing owner must consent to your subscription, and the
managing owner's consent may be withheld in whole or in part for
any reason.
Ineligible Investors
If you are a benefit plan investor, you may not purchase
interests in any series if the trustee, the managing owner,
Prudential Securities, the trading advisors or any of their
respective affiliates (i) is an employer maintaining or
contributing to your plan or (ii) has investment discretion over
the investment of the assets of your plan. An investment in any
series of the Trust is not suitable for charitable remainder
annuity trusts or charitable remainder unit trusts.
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Net Worth, Income And Liquidity Requirements
The following requirements may be higher under the
securities laws of the state of your residency. The requirements
of each state are set forth in the subscription agreement
(Exhibit D) under the caption "State Suitability Requirements."
The managing owner also may impose greater requirements on you if
you propose to purchase more than the minimum number of interests
in a series.
Subscriber Category Requirements
Individual, joint tenant or Have a net worth (exclusive of
entities (such as corporations home, home furnishings and
or trusts) must: automobiles) of at least $150,000
OR
Have a net worth (similarly
calculated) of $45,000 and an
annual gross income of $45,000
AND
Invest no more than 10% of
Subscriber's liquid net worth
in all series combined
Beneficiaries of IRAs or Keogh Have a net worth (exclusive of home,
plans covering no common law home furnishings and automobiles)
employees must: of at least $150,000
OR
Have a net worth (similarly
calculated) of at least $45,000
and an annual gross income of at
least $45,000
AND
Have an aggregate investment in any
series or in all series combined
that does not exceed 10% of its assets
Group retirement plans (for example, Have net assets of at least $150,000
qualified pension, profit sharing AND
plans, stock bonus plans, welfare Have an aggregate investment in any
benefit plans, such as group series or in all series combined that
insurance 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 section 3(3) of ERISA or of a "plan" as defined in
section 4975(e) 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 any
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:
(BUL) "Freely transferable" (determined based on the
applicable facts and circumstances).
(BUL) Part of a class of securities that, on the initial
offering of the security, is owned by 100 or more
investors independent of the issuer and of each other.
(BUL) 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 within 120 days
after the end of the issuer's fiscal year during
which the public offering of the securities
occurred.
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:
(BUL) Has investment discretion with respect to the
investment of your plan's assets.
(BUL) 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.
(BUL) 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:
(BUL) Have an account at Prudential Securities (or an
additional selling agent).
(BUL) Complete a subscription agreement (Exhibit D) if you are
a new or existing subscriber to the series being purchased.
(BUL) Have cash in your Prudential Securities account (or
account with an additional selling agent) to cover the
entire subscription amount.
(BUL) Send the subscription agreement to a Prudential
Securities financial advisor (or an additional selling
agent) in a timely manner.
(BUL) Provide any information Prudential Securities or the
Trust determine to be necessary in order to comply with
the USA PATRIOT Act. (See the section entitled "THE
FUTURES MARKETS -- USA PATRIOT Act.")
(BUL) Meet established suitability standards.
(BUL) 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 futures
fund sponsored by the managing owner that was publicly offered,
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
(BUL) Individual or joint tenant Individual accounts are owned by
one person. Joint accounts can have
two or more owners.
(BUL) 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.
(BUL) Trust The subscribing trust must be established
before an account can be opened.
(BUL) Business or other Corporations, partnerships, limited
organization liability companies or partnerships,
associations or other groups.
(BUL) Benefit Plans Individual Retirement Funds, Non-ERISA
Plans or ERISA Plans.
When A Subscription Becomes Final
(BUL) New subscribers to 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.
(BUL) Existing limited owners Your subscription is not final or
in a series purchasing binding until at least two business
additional interests in that days after the date you submit your
same series 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:
(BUL) Complete an exchange request (Exhibit C) if you are
exchanging interests in one series for interests of
one or more other series.
(BUL) Send the exchange request to a Prudential Securities
financial advisor (or an additional seller).
When An Exchange Becomes Final
(BUL) Existing limited owners Your exchange is effective on the
exchanging interests in one dealing date that occurs at least two
series for interests in business days after the date you
another series currently submit your exchange request.
owned
(BUL) Existing limited owners Your exchange is effective on the
exchanging interests in one dealing date that occurs at least
series for interests in five days after the date you submit
another series not currently your exchange request.
owned.
To Redeem Interests You Must:
(BUL) Complete a redemption request (Exhibit B).
(BUL) Submit the redemption request to a Prudential
Securities financial advisor in a timely manner.
When An Redemption Becomes Final
(BUL) Existing limited owners Your redemption is effective on
redeeming their currently the dealing date that occurs at
owned interests 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 are estimated at
the following percentages of each series' net asset value, based
on the past experience of each series:
(BUL) Series D: 0.50% per annum
(BUL) Series E: 0.39% per annum
(BUL) Series F: 0.34% 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. For the year ended
December 31, 2001, the fixed brokerage fee paid to Prudential Securities,
plus trading transaction costs, equated to an amount per round-turn
transaction of:
Series D: $57
Series E: $54
Series F: $65
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.
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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.
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:
(BUL) Series D --1.25%
(BUL) Series E --2%
(BUL) 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 (including
brokerage and transaction fees) and routine operating expenses,
as well as interest income. 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.
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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 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.
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Example Of Incentive Fee
Following is a simple numerical example with respect to the
net asset value of the interests. This example illustrates how
the quarterly incentive fee 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.
<Table>
<Caption>
B. Quarterly Data
(1) Beginning NAV $10,000,000
(2) Gross Realized & Unrealized 1,200,000 ($600,000 realized and $600,000 unrealized)
Trading Profit (Loss)
(3) Interest Income 41,250 (Assumes Annual Interest of 1.65%)
(4) NAV Subtotal 11,241,250
(5) Fees for Brokerage Services, (202,624) (Brokerage Fee of 6% annually, Transaction
Transaction Fees and Fees of 0.39% annually (e.g., for Series E)
Routine Operating Expenses and Routine Operating Costs of 0.82% annually
(e.g., for Series E))
(6) NAV Subtotal for calculation 11,038,626
of Advisory Management Fee
(7) Advisory Management Fee (55,193) (Less the Management Fee: 2% Annually = 0.5%
quarterly (e.g., for Series E))
(8) Ending NAV $10,983,433 (Item (4) less Items (5) and (7), before
computation of advisory incentive fee)
(9) Interest Income Adjustment (41,250)
(10) NAV on which Incentive Fee $10,942,183
is computed
(11) Net Trading Profit (Loss) $942,183 (Item (10) minus Item (1))
</Table>
C. Incentive Fee Calculation
$942,183 [Item (11)] x 22% = $207,280
If in the next quarter, the trading advisor were to
experience net trading losses computed on both a realized
and unrealized basis, it would not receive another incentive
fee until it recouped its losses and achieved new high net
trading profits (both realized and unrealized). For
example, if the net trading losses equal $500,000 (and
assuming no subsequent redemptions), the trading advisor
must achieve net trading profits in excess of $500,000 and
then would be paid an incentive fee only on the excess --
that is, only on the new high net trading profits over
$500,000.
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Routine Operating Expenses
All of the Trust's routine operating expenses including,
without limitation, legal, auditing, accounting, cash management,
computer services, printing, mailing and duplication costs for
each series, 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
$110,000 to $120,000 per series per year, but in no event is a
series responsible to pay more than 1.50% of that series' net
asset value each year (of which, expenses other than legal and
audit charges, may not exceed 0.5% of Series E's or Series F's,
and 1.25% of Series D's, net asset value). 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 $100,000 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 $4.1 million, then the maximum amount
which that series will pay is $61,500 for that year even if
actual expenses are higher. Prudential Securities or its
affiliates will pay the difference between the $61,500 and actual
expenses incurred. Based on the estimated expenses, Prudential
Securities or its affiliates would pay between $48,500 and
$58,500 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
redeemed interests on or before the end of the 12th month from
the effective date of purchase and you simultaneously purchased
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 purchased
an interest on June 1, 2001 and on November 30, 2001 you redeemed
that interest and simultaneously purchase interests in one or
more of the various series of World
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Monitor Trust; assume further that you redeem those interests on
July 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 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 and the
Trust 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.
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 transactions, (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:
(BUL) Preparing and transmitting daily confirmations of
transactions and monthly statements of account.
(BUL) Calculating equity balances and margin requirements.
(BUL) Assisting the managing owner in providing continuing
information services to the limited owners holding
interests in a series.
(BUL) Keeping limited owners apprised of developments
affecting the series in which they are invested.
(BUL) Communicating valuations of interests.
(BUL) Providing information with respect to procedures for
redemptions, transfers and distributions, if any.
(BUL) Interpreting monthly and annual reports.
(BUL) Providing tax information to limited owners.
(BUL) Explaining developments in the commodity markets in
the U.S. and abroad.
(BUL) 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 stockholders, 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.
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 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.
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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
or 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 or (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:
(BUL) A contravention of the NASAA guidelines, as adopted
in any state where the proposed assignor and
assignee reside.
(BUL) The aggregate total of interests transferred in a
twelve-month period equaling 49% or more of the
outstanding interests (taking into account
applicable attribution rules and excluding transfers
by gift, bequest, or inheritance); the trust
agreement provides that the managing owner will
incur no liability to any investor or prospective
investor for any action or inaction by it in
connection with the foregoing, provided it acted in
good faith.
Assignments by you to (i) your ancestors or descendants,
(ii) your personal representative or heir, if you are deceased,
(iii) the trustee of a trust for which you are a beneficiary or
another person to whom a transfer could otherwise be made or
(iv) the shareholders, partners or beneficiaries of a
corporation, partnership, limited liability company or trust upon
its termination or liquidation will be effective as of the
dealing day immediately following the week in which the managing
owner receives your written instrument of assignment.
Assignments or transfers of
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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:
(BUL) 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.
(BUL) The occurrence of any event that makes the continued
existence of the Trust or any series in the Trust
unlawful.
(BUL) 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.
(BUL) The Trust or any series becomes insolvent or
bankrupt.
(BUL) 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.
(BUL) 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.
(BUL) 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.
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.
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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:
(BUL) 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.
(BUL) A statement of financial condition, including a condensed
schedule of investments, as of the close of the fiscal
year and, if applicable, the preceding fiscal year.
(BUL) Statements of income (loss) and changes in limited
owners' capital during the fiscal year and, to the
extent applicable, the previous fiscal year.
(BUL) 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:
(BUL) The total amount of realized net gain or loss on commodity
interest positions liquidated during the month.
(BUL) The change in unrealized net gain or loss on
commodity interest positions during the month.
(BUL) The total amount of net gain or loss from all other
transactions in which a series is engaged.
(BUL) The total amounts of management fees, advisory fees,
brokerage fees, and other fees for commodity and
other investment transactions and all other expenses
incurred or accrued by the Trust during the month.
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The statement of changes in net asset value must itemize the
following:
(BUL) The net asset value of the series as of the
beginning and end of the month.
(BUL) The total amount representing additions of interests
during the month.
(BUL) The total amount representing redemptions of
interests during the month.
(BUL) The total net income or loss of the series during
the month.
(BUL) 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.
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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) 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
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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, which has been
merged into tax counsel to the Trust, Katten Muchin Zavis
Rosenman, 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. The opinion is based on the facts described
in this prospectus and on the accuracy of factual representations
made by the managing owner, and 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 38.6%. 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.
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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, which has been merged into
counsel to the Trust, Katten Muchin Zavis Rosenman, 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. Katten Muchin Zavis Rosenman 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. Katten Muchin Zavis
Rosenman 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, 2001 and 2000, for
the year ended December 31, 2001 and for the period from the
respective commencement of operations of each series to December
31, 2000 and the statement of financial condition of Prudential
Securities Futures Management Inc., the managing owner, as of
December 31, 2001 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 Katten Muchin Zavis Rosenman
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 revised in December 2000 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.
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The Commodity Futures Modernization Act of 2000, enacted in
December 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.
Currently, Series E and Series F each qualify 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.
Series D may qualify in future if its total assets exceed $5
million. 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 potentially riskier,
range of investments than are allowed for segregated funds.
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.
Since the regulatory authorities have not yet adopted all of the
necessary rules governing such trading and other changes to
current industry practices, trading in security futures is not
expected to begin on U.S. trading facilities until the second
quarter of 2002. Principal-to-principal transactions between
eligible contract participants (such as the series) are currently
permitted. 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, (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
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brokers. As a result of the Commodity Futures Modernization Act of 2000, the
National Futures Association registered as a limited purpose national
securities association, and assumed 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 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, but 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.
USA PATRIOT Act
On October 25, 2001, the United States Congress adopted the
"USA PATRIOT Act", in part to stem the flow of funds to
terrorists and the organizations that support them. Commodity
pool operators, commodity trading advisors, futures commission
merchants and introducing brokers will all be required to comply
with the USA PATRIOT Act. Regulations and procedures are in the
process of being drafted or approved, and at this time it is not
clear how this legislation will affect the series' operations or
the futures markets. You may be asked to provide information at
the time of your subscription or after you have already completed
your purchase, in order to verify your identity and the source of
the funds used to purchase your interests and to meet any other
requirements under the USA PATRIOT Act or the regulations or
procedures adopted pursuant thereto.
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HOW MANAGED FUTURES FIT INTO A PORTFOLIO
Systematic risk, also known as market risk, is the risk
common to all securities in a particular asset class. Systematic
risk cannot be eliminated through diversification among
securities within the same class. However, an investor can
diversify a portfolio's exposure to systematic risk by adding
asset classes which have little or no correlation to each other.
As an alternative asset class, managed futures exhibits low or
non-correlation to traditional asset classes such as stocks and
bonds, and as such 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 $35 billion in assets under management as of December 31,
2000. 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:
(BUL) Diversification.
(BUL) Potential for both reduced portfolio volatility and
enhanced returns.
(BUL) Ability to profit in many economic environments.
(BUL) Access to global markets.
Diversification
A managed futures fund may invest in more than 50 markets
worldwide in both financial and non-financial futures contracts,
thereby broadening a portfolio's scope of opportunity and
lessening the impact of any single market.
Potential For Both Reduced Portfolio Volatility And Enhanced
Returns
Modern Portfolio Theory asserts that a portfolio of
investments which have positive returns and low to non-
correlation with each other can improve the risk/reward
characteristics of the combined holdings. Managed futures
investments exhibit low to non-correlation to traditional asset
classes such as stocks and bonds, and thus, managed futures
investments can improve a portfolio's return-to-risk profile.
Ability To Profit In Many Economic Environments
With stocks and bonds, investors typically buy securities
which they believe will increase in value, but may have no
strategy when markets fall. Futures contracts, on the other
hand, can be easily sold short on the prospect that the market
will go down. As a result, both rising and declining markets
represent opportunities for managed futures.
Access To Global Markets
As the futures markets matured, they have expanded to
include global opportunities in stock and bond indices,
currencies, precious and base metals, agricultural products and
so forth. Investors can easily and inexpensively gain access to
a variety of markets around the globe through an investment in
managed futures.
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Performance Comparisons
The tables below compare 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 March 2002
Summary Performance Statistics
<Table>
<Caption>
U.S. U.S. Int'l.
Stocks1 Bonds2 Stocks3 WMTD
Value of $1000 $862 $1,193 $710 $816
Holding Period Return (13.81)% 19.33% (29.04)% (18.39)%
Monthly Standard Deviation 5.13% 1.18% 4.44% 5.17%
Maximum Draw-down (30.48)% (2.88)% (36.82)% (30.20)%
Months to Recovery 19+ 5+ 24+ 22+
Correlation to U.S. Stocks 1.00 (0.19) 0.84 (0.02)
</Table>
Series E -- Graham Capital
Global Diversified Program
April 2000 through March 2002
Summary Performance Statistics
<Table>
<Caption>
U.S. U.S. Int'l.
Stocks1 Bonds2 Stocks3 WMTE
Value of $1000 $785 $1,176 $683 $1,218
Holding Period Return (21.49)% 17.63% (31.70)% 21.77%
Monthly Standard Deviation 4.77% 1.19% 4.40% 6.98%
Maximum Draw-down (30.48)% (2.88)% (36.82)% (18.53)%
Months to Recovery 19+ 5+ 24+ 5+
Correlation to U.S. Stocks 1.00 (0.27) 0.83 (0.60)
</Table>
Series F -- Campbell & Company
FME Small Portfolio
March 2000 through March 2002
Summary Performance Statistics
<Table>
<Caption>
U.S. U.S. Int'l.
Stocks1 Bonds2 Stocks3 WMTF
Value of $1000 $862 $1,193 $710 $1,007
Holding Period Return (13.81)% 19.33% (29.04)% 0.66%
Monthly Standard Deviation 5.13% 1.18% 4.44% 4.18%
Maximum Draw-down (30.48)% (2.88)% (36.82)% (12.80)%
Months to Recovery 19+ 5+ 24+ 5+
Correlation to U.S. Stocks 1.00 (0.19) 0.84 (0.52)
</Table>
- -----------------------
1. U.S. Stocks -- Standard & Poor's 500 Stock Index
(dividends reinvested) an unmanaged weighted index of 500 stocks.
2. U.S. Bonds -- Lehman Brothers' Government/Corporate Bond Index
(coupons reinvested).
3. International Stocks -- Morgan Stanley's EAFE Index (dividends
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.
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GLOSSARY OF TERMS
The following glossary may assist prospective investors in
understanding certain terms used in this prospectus:
Additional seller. Means certain selected additional U.S.
sellers and/or certain foreign securities firms retained by the
managing owner.
Additional U.S. seller. Means certain selected brokers or
dealers retained by the managing owner that are members of the
NASD.
Affiliate of the managing owner. Means: (i) any person
directly or indirectly owning, controlling or holding with power
to vote 10% or more of the outstanding voting securities of the
managing owner; (ii) any person 10% or more of whose outstanding
voting securities are directly or indirectly owned, controlled or
held with power to vote, by the managing owner; (iii) any person,
directly or indirectly, controlling, controlled by or under
common control of the managing owner; (iv) any officer, director
or partner of the managing owner; or (v) if such person is an
officer, director or partner of the managing owner, any person
for which such person acts in any such capacity.
Aggregate $$: (All programs excluding notional). Means the
aggregate amount of actual assets under the management of the
trading advisor in all programs as of the end of the period
covered by the capsule. This number excludes notional funds.
Aggregate $$: (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
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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.
130
<Page>
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.
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.
131
<Page>
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.
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.
132
<Page>
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.
133
<Page>
INDEX TO
CERTAIN FINANCIAL INFORMATION
Page
WORLD MONITOR TRUST II-- Series D
Report of Independent Accountants.................................... 135
Audited Financial Statements as of December 31, 2001................. 136
Notes to Financial Statements........................................ 139
WORLD MONITOR TRUST II--Series E
Report of Independent Accountants.................................... 145
Audited Financial Statements as of December 31, 2001................. 146
Notes to Financial Statements........................................ 149
WORLD MONITOR TRUST II--Series F
Report of Independent Accountants.................................... 155
Audited Financial Statements as of December 31, 2001................. 156
Notes to Financial Statements........................................ 159
PRUDENTIAL SECURITIES FUTURES MANAGEMENT INC.
Report of Independent Accountants.................................... 165
Audited Statement of Financial Condition as of December 31, 2001..... 166
Notes to Statement of Financial Condition............................ 167
134
<Page>
PricewaterhouseCoopers (LOGO)
PricewaterhouseCoopers LLP
1177 Avenue of the Americas
New York, NY 10036
Telephone (646) 471-4000
Facsimile (646) 471-4100
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, including
the condensed schedule of investments, 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, 2001 and
2000 and the results of its operations and changes in trust capital for the year
ended December 31, 2001 and 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 25, 2002
135
<Page>
WORLD MONITOR TRUST II--SERIES D
(a Delaware Business Trust)
STATEMENTS OF FINANCIAL CONDITION
<Table>
<Caption>
December 31,
---------------------------
2001 2000
- ----------------------------------------------------------------------------------------------------
ASSETS
Cash $4,474,005 $ 6,114,108
Net unrealized gain (loss) on open futures contracts (61,284) 61,961
------------ -----------
Total assets $4,412,721 $ 6,176,069
------------ -----------
------------ -----------
LIABILITIES AND TRUST CAPITAL
Liabilities
Accrued expenses $ 52,055 $ 57,594
Redemptions payable 22,989 10,586
Commissions and other transaction fees payable 22,857 37,521
Unrealized loss on open forwards contracts 14,433 10,235
Management fees payable 4,465 7,506
------------ -----------
Total liabilities 116,799 123,442
------------ -----------
Commitments
Trust capital
Limited interests (51,950.299 and 68,491.311 interests outstanding) 4,251,727 5,992,086
General interests (540 and 692 interests outstanding) 44,195 60,541
------------ -----------
Total trust capital 4,295,922 6,052,627
------------ -----------
Total liabilities and trust capital $4,412,721 $ 6,176,069
------------ -----------
------------ -----------
Net asset value per limited and general interests ('Interests') $ 81.84 $ 87.49
------------ -----------
------------ -----------
</Table>
- --------------------------------------------------------------------------------
The accompanying notes are an integral part of these statements.
136
<Page>
WORLD MONITOR TRUST II--SERIES D
(a Delaware Business Trust)
Condensed Schedule of Investments
At December 31, 2001
<Table>
<Caption>
Net Unrealized
Gain (Loss)
as a % of Net Unrealized
Futures and Forward Contracts Trust Capital Gain (Loss)
- ------------------------------------------------------------------------------------------------------
Futures contracts purchased:
Stock indices $ 11,982
Interest rates (67,480)
Currencies (107,230)
--------------
Net unrealized loss on futures contracts purchased (3.79)% (162,728)
--------------
Futures contracts sold:
Stock indices (2,981)
Interest rates 15,412
Currencies 78,413
Commodities 10,600
--------------
Net unrealized gain on futures contracts sold 2.36 101,444
------ --------------
Net unrealized loss on futures contracts (1.43)% $ (61,284)
------ --------------
------ --------------
Forward contracts purchased 0.11% $ 4,929
--------------
Forward contracts sold (0.45) (19,362)
------ --------------
Net unrealized loss on forward contracts (0.34)% $ (14,433)
------ --------------
------ --------------
Settlement Currency--Futures Contracts
British pound 0.71% $ 30,369
Canadian dollar 0.48 20,535
Euro (2.32) (99,368)
Japanese yen 0.01 522
Australian dollar (0.05) (2,248)
U.S. dollar (0.26) (11,094)
------ --------------
Total (1.43)% $ (61,284)
------ --------------
------ --------------
Settlement Currency--Forward Contracts
U.S. dollar (0.34)% $ (14,433)
------ --------------
------ --------------
- ------------------------------------------------------------------------------------------------------
The accompanying notes are an integral part of these statements.
</Table>
137
<Page>
WORLD MONITOR TRUST II--SERIES D
(a Delaware Business Trust)
STATEMENTS OF OPERATIONS
<Table>
<Caption>
For the period
from March 13, 2000
Year Ended (commencement of
December 31, operations) to
2001 December 31, 2000
- -----------------------------------------------------------------------------------------------------
REVENUES
Net realized loss on commodity transactions $ (93,119) $ (708,702)
Change in net unrealized gain/(loss) on open commodity
positions (127,443) 51,726
Interest income 159,873 281,858
------------ --------------------
(60,689) (375,118)
------------ --------------------
EXPENSES
Commissions and other transaction fees 282,939 303,680
General and administrative 119,513 119,152
Management fees 54,595 58,273
Incentive fees -- 27,238
------------ --------------------
457,047 508,343
General and administrative expenses borne by the managing
owner and its affiliates (53,745) (48,938)
------------ --------------------
Net expenses 403,302 459,405
------------ --------------------
Net loss $ (463,991) $ (834,523)
------------ --------------------
------------ --------------------
ALLOCATION OF NET LOSS
Limited interests $ (459,082) $ (824,648)
------------ --------------------
------------ --------------------
General interests $ (4,909) $ (9,875)
------------ --------------------
------------ --------------------
NET LOSS PER WEIGHTED AVERAGE LIMITED AND GENERAL INTEREST
Net loss per weighted average limited and general interest $ (8.54) $ (13.32)
------------ --------------------
------------ --------------------
Weighted average number of limited and general interests
outstanding 54,361 62,661
------------ --------------------
------------ --------------------
- -----------------------------------------------------------------------------------------------------
</Table>
STATEMENTS OF CHANGES IN TRUST CAPITAL
<Table>
<Caption>
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
Contributions 12,392.912 1,000,400 6,995 1,007,395
Net loss (459,082) (4,909 ) (463,991)
Redemptions (29,085.924) (2,281,677) (18,432 ) (2,300,109)
----------- ----------- --------- -----------
Trust capital--December 31, 2001 52,490.299 $ 4,251,727 $ 44,195 $ 4,295,922
----------- ----------- --------- -----------
----------- ----------- --------- -----------
- -------------------------------------------------------------------------------------------------------
The accompanying notes are an integral part of these statements.
</Table>
138
<Page>
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 an
indirect wholly-owned subsidiary of Prudential Financial, 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') at
$100 per Interest. The subscription minimum of $5,000,000 for each Series was
reached during the Initial Offering Period permitting Series D, E and F to
commence 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 of the Trust (Series D, E or F) 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 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
other Series.
139
<Page>
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 and general interests outstanding was
computed for purposes of disclosing net loss per weighted average limited and
general interest. The weighted average limited 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.'
Certain balances from the prior period have been reclassified to conform with
the current financial statement presentation.
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.
Financial Reporting by Commodity Pools
During March 2001, the Accounting Standards Executive Committee ('AcSEC')
issued Statement of Position ('SOP') 01-1, Amendment to Scope of Statement of
Position 95-2, Financial Reporting by Nonpublic Investment Partnerships, to
Include Commodity Pools, which is effective for financial statements issued for
periods ending after December 15, 2001. This SOP amends SOP 95-2, Financial
Reporting by Nonpublic Investment Partnerships, to include within its scope
commodity pools such as Series D. Under the new requirements, Series D is
required to present a condensed schedule of investments and certain other
information in accordance with the American Institute of Certified Public
Accountants' Audit and Accounting Guide 'Audits of Investment Companies.' The
adoption of the requirements of SOP 01-1 has not had a material effect on Series
D's financial position or results of operations.
140
<Page>
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, to the extent that general and administrative costs incurred by
Series D exceed 1.5% of Series D's net asset value during the year (with a
maximum of 1.25% attributable to other than legal and audit expenses) such
amounts will be borne by the Managing Owner and its affiliates.
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, to the extent that general and administrative expenses exceed 1.5% of
Series D's net asset value during the year (with a maximum of 1.25% attributable
to other than legal and audit expenses) such amounts will be borne by the
Managing Owner and its affiliates. Because general and administrative expenses
exceeded such limitations, all or a portion of the expenses related to services
the Managing Owner performed for Series D, other than brokerage services, during
the year ended December 31, 2001 and 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 expenses incurred by Series D for services performed by the Managing
Owner and its affiliates for Series D were:
<Table>
<Caption>
For the period from
March 13, 2000
(commencement of
Year ended operations) to
December 31, 2001 December 31, 2000
----------------- ----------------------
Commissions $ 262,448 $279,774
General and administrative 65,701 76,150
----------------- ------------
328,149 355,924
General and administrative expenses borne by
the Managing Owner and its affiliates (53,745) (48,938)
----------------- ------------
$ 274,404 $306,986
----------------- ------------
----------------- ------------
</Table>
141
<Page>
As of December 31, 2001, there were no expenses payable to the Managing Owner
and its affiliates. Expenses payable to the Managing Owner and its affiliates
(which are included in accrued expense) 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
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, 2001, a non-U.S. affiliate of the Managing Owner owned
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 contracts (including foreign exchange)
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 on United States and 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, if Series D
142
<Page>
enters into forward transactions, the sole counterparty is PSI, Series D's
commodity broker. Series D has entered into a master netting agreement with PSI
and, as a result, when applicable, 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 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 allowed to commingle such assets with other
assets of PSI. At December 31, 2001, such segregated assets totalled $2,628,195.
Part 30.7 of the CFTC regulations also requires PSI to secure assets of Series D
related to foreign futures trading which totalled $1,784,526 at December 31,
2001. There are no segregation requirements for assets related to forward
trading.
As of December 31, 2001, 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:
<Table>
<Caption>
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
-------- -----------
-------- -----------
</Table>
143
<Page>
G. Financial Highlights
<Table>
<Caption>
Year ended
December 31, 2001
-----------------
Performance per Interest
Net asset value, beginning of period $ 87.49
--------
Net realized loss and change in net unrealized gain/(loss)
on commodity transactions (1.01)
Interest income 2.82
Net expenses (7.46)
--------
Net decrease for the period (5.65)
--------
Net asset value, end of period $ 81.84
--------
--------
Total return (6.46)%
Ratio to average net assets
Interest income 3.63%
Net expenses 9.16%
</Table>
These financial highlights represent the overall results of Series D during
2001. An individual limited owner's actual results may differ depending on the
timing of contributions and redemptions.
144
<Page>
PricewaterhouseCoopers (LOGO)
PricewaterhouseCoopers LLP
1177 Avenue of the Americas
New York, NY 10036
Telephone (646) 471-4000
Facsimile (646) 471-4100
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, including
the condensed schedule of investments, 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, 2001 and
2000, and the results of its operations and changes in trust capital for the
year ended December 31, 2001 and 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 25, 2002
145
<Page>
WORLD MONITOR TRUST II--SERIES E
(a Delaware Business Trust)
STATEMENTS OF FINANCIAL CONDITION
<Table>
<Caption>
December 31,
---------------------------
2001 2000
- ----------------------------------------------------------------------------------------------------
ASSETS
Cash $ 8,838,511 $ 5,485,764
Net unrealized gain on open futures contracts 255,757 958,857
Subscriptions receivable 5,000 --
------------ -----------
Total assets $ 9,099,268 $ 6,444,621
------------ -----------
------------ -----------
LIABILITIES AND TRUST CAPITAL
Liabilities
Accrued expenses payable $ 61,754 $ 47,623
Redemptions payable 60,681 --
Commissions and other transaction fees payable 45,475 36,522
Management fees payable 14,408 11,953
Incentive fees payable 13,466 238,625
Net unrealized loss on open forward contracts 9,674 3,584
------------ -----------
Total liabilities 205,458 338,307
------------ -----------
Commitments
Trust capital
Limited interests (67,965.112 and 49,983.432 interests outstanding) 8,787,237 6,016,047
General interests (824.300 and 750.000 interests outstanding) 106,573 90,267
------------ -----------
Total trust capital 8,893,810 6,106,314
------------ -----------
Total liabilities and trust capital $ 9,099,268 $ 6,444,621
------------ -----------
------------ -----------
Net asset value per limited and general interest ('Interests') $ 129.29 $ 120.36
------------ -----------
------------ -----------
</Table>
- --------------------------------------------------------------------------------
The accompanying notes are an integral part of these statements.
146
<Page>
WORLD MONITOR TRUST II--SERIES E
(a Delaware Business Trust)
Condensed Schedule of Investments
At December 31, 2001
<Table>
<Caption>
Net Unrealized
Gain (Loss)
as a % of Net Unrealized
Futures and Forward Contracts Trust Capital Gain (Loss)
- ------------------------------------------------------------------------------------------------------
Futures contracts purchased:
Interest rates $ 4,010
Currencies 250,488
Commodities 51,792
--------------
Net unrealized gain on futures contracts purchased 3.44% 306,290
------ --------------
Futures contracts sold:
Interest rates 9,798
Stock indices (12,058)
Currencies 165,385
Commodities (213,658)
--------------
Net unrealized loss on futures contracts sold (0.56) (50,533)
------ --------------
Net unrealized gain on futures contracts 2.88% $ 255,757
------ --------------
------ --------------
Forward contracts purchased:
Unrealized loss on forward contracts (0.11)% $ (9,674)
------ --------------
------ --------------
Settlement Currency--Futures Contracts
British pound 0.41% $ 36,181
Japanese yen 2.30 205,027
Swedish krona (0.01) (1,090)
U.S. dollar 0.18 15,639
------ --------------
Total 2.88% $ 255,757
------ --------------
------ --------------
Settlement Currency--Forward Contracts
U.S. dollar (0.11)% $ (9,674)
------ --------------
------ --------------
</Table>
- --------------------------------------------------------------------------------
The accompanying notes are an integral part of this schedule.
147
<Page>
WORLD MONITOR TRUST II--SERIES E
(a Delaware Business Trust)
STATEMENTS OF OPERATIONS
<Table>
<Caption>
For the period
from
April 6, 2000
(commencement of
Year ended operations) to
December 31, December 31,
2001 2000
- --------------------------------------------------------------------------------------------------
REVENUES
Net realized gain on commodity transactions $2,004,232 $ 474,366
Change in net unrealized gain/loss on open commodity
positions (709,190) 955,273
Interest income 240,960 230,425
---------------- ----------------
1,536,002 1,660,064
---------------- ----------------
EXPENSES
Commissions and other transaction fees 469,966 250,449
Management fees 144,767 76,878
Incentive fees 303,423 238,625
General and administrative 110,663 123,130
---------------- ----------------
1,028,819 689,082
General and administrative expenses borne by the Managing
Owner and its affiliates (33,371) (64,786)
---------------- ----------------
Net expenses 995,448 624,296
---------------- ----------------
Net income $ 540,554 $1,035,768
---------------- ----------------
---------------- ----------------
ALLOCATION OF NET INCOME
Limited interests $ 531,488 $1,020,501
---------------- ----------------
---------------- ----------------
General interests $ 9,066 $ 15,267
---------------- ----------------
---------------- ----------------
NET INCOME PER WEIGHTED AVERAGE LIMITED AND GENERAL
INTEREST
Net income per weighted average limited and general
interest $ 9.39 $ 19.41
---------------- ----------------
---------------- ----------------
Weighted average number of limited and general interests
outstanding 57,547 53,350
---------------- ----------------
---------------- ----------------
- --------------------------------------------------------------------------------------------------
</Table>
STATEMENTS OF CHANGES IN TRUST CAPITAL
<Table>
<Caption>
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
Contributions 39,201.839 4,857,318 26,816 4,884,134
Net income 531,488 9,066 540,554
Redemptions (21,145.859) (2,617,616) (19,576 ) (2,637,192)
----------- ----------- --------- ----------
Trust capital--December 31, 2001 68,789.412 $ 8,787,237 $106,573 $8,893,810
----------- ----------- --------- ----------
----------- ----------- --------- ----------
- ------------------------------------------------------------------------------------------------------
</Table>
The accompanying notes are an integral part of these statements.
148
<Page>
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 an
indirect wholly owned subsidiary of Prudential Financial, 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') at
$100 per Interest. The subscription minimum of $5,000,000 for each Series was
reached during the Initial Offering Period permitting Series D, E and F to
commence 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 of the Trust (Series D, E or F) 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 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
other Series.
149
<Page>
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 and general interests outstanding was
computed for purposes of disclosing net income per weighted average limited 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.'
Certain balances from the prior period have been reclassified to conform with
the current financial statement presentation.
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.
Financial Reporting by Commodity Pools
During March 2001, the Accounting Standards Executive Committee ('AcSEC')
issued Statement of Position ('SOP') 01-1, Amendment to Scope of Statement of
Position 95-2, Financial Reporting by Nonpublic Investment Partnerships, to
Include Commodity Pools, which is effective for financial statements issued for
periods ending after December 15, 2001. This SOP amends SOP 95-2, Financial
Reporting by Nonpublic Investment Partnerships, to include within its scope
commodity pools such as Series E. Under the new requirements, Series E is
required to present a condensed schedule of investments and certain other
information in accordance with the American Institute of Certified Public
Accountants' Audit and Accounting Guide 'Audits of Investment Companies.' The
adoption of the requirements of SOP 01-1 has not had a material effect on Series
E's financial position or results of operations.
150
<Page>
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, to the extent that general and administrative costs incurred by
Series E exceed 1.5% of Series E's net asset value during the year (with a
maximum of 0.5% attributable to other than legal and audit expenses) such
amounts will be borne by the Managing Owner and its affiliates.
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, to the extent that general and administrative expenses exceed 1.5% of
Series E's net asset value during the year (with a maximum of 0.5% attributable
to other than legal and audit expenses) such amounts will be borne by the
Managing Owner and its affiliates. Because general and administrative expenses
exceeded such limitations, all or a portion of the expenses related to services
the Managing Owner performed for Series E, other than brokerage services, during
the year ended December 31, 2001 and the period from April 6, 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 E and continue to pay the costs of offering its Limited Interests.
The expenses incurred by Series E for services performed by the Managing
Owner and its affiliates for Series E were:
<Table>
<Caption>
For the period from
April 6, 2000
(commencement of
Year ended operations) to
December 31, December 31,
2001 2000
------------ -------------------
Commissions $432,867 $ 229,887
General and administrative 56,254 76,601
------------ -------------------
489,121 306,488
General and administrative expenses borne by the Managing
Owner and its affiliates (33,371) (64,786)
------------ -------------------
$455,750 $ 241,702
------------ -------------------
------------ -------------------
</Table>
151
<Page>
Expenses payable to the Managing Owner and its affiliates as of December 31,
2001 and December 31, 2000 were $9,058 and $4,029, respectively.
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, 2001, a non-U.S. affiliate of the Managing Owner owned
54.284 Limited Interests of Series E.
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 contracts (including foreign exchange)
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 on United States and 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 nonperformance 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
152
<Page>
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 (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 (subject to the opt out provisions discussed below) and
is not allowed to commingle such assets with other assets of PSI. At December
31, 2001, such segregated assets totalled $2,555,787. Part 30.7 of the CFTC
regulations also requires PSI to secure assets of Series E related to foreign
futures trading which totalled $6,538,481 at December 31, 2001. There are no
segregation requirements for assets related to forward trading.
The CFTC promulgated rules that allow futures commission merchants to permit
certain customers, including Series E, to opt out of segregation with regard to
trading on certain exchanges, but PSI has not done so to date. If Series E were
to opt out, its funds could be held in a broader and potentially riskier range
of investments than are allowed for segregated funds.
As of December 31, 2001, Series E'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:
<Table>
<Caption>
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
---------- -----------
---------- -----------
</Table>
153
<Page>
G. Financial Highlights
<Table>
<Caption>
Year ended
December 31, 2001
-----------------
Performance per Interest
Net asset value, beginning of period $120.36
Net realized gain and change in net unrealized gain/loss on
commodity transactions 22.04
Interest income 4.30
Net expenses (17.41)
-----------------
Net increase for the period 8.93
-----------------
Net asset value, end of period $129.29
-----------------
-----------------
Total return 7.42%
Ratio to average net assets
Interest income 3.37%
Net expenses, including incentive fees of 4.25% 13.94%
</Table>
These financial highlights represent the overall results of Series E during
2001. An individual limited owner's actual results may differ depending on the
timing of contributions and redemptions.
154
<Page>
PricewaterhouseCoopers (LOGO)
PricewaterhouseCoopers LLP
1177 Avenue of the Americas
New York, NY 10036
Telephone (646) 471-4000
Facsimile (646) 471-4100
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, including
the condensed schedule of investments, 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, 2001
and 2000, and the results of its operations and changes in trust capital for
the year ended December 31, 2001 and 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 25, 2002
155
<Page>
WORLD MONITOR TRUST II--SERIES F
(a Delaware Business Trust)
STATEMENTS OF FINANCIAL CONDITION
<Table>
<Caption>
December 31,
----------------------------
2001 2000
- ----------------------------------------------------------------------------------------------------
ASSETS
Cash $ 11,860,858 $ 7,697,248
Net unrealized gain on open futures contracts 549,442 434,309
------------- ------------
Total assets $ 12,410,300 $ 8,131,557
------------- ------------
------------- ------------
LIABILITIES AND TRUST CAPITAL
Liabilities
Commissions and other transaction fees payable $ 60,919 $ 48,465
Redemptions payable 52,294 --
Accrued expenses 74,176 71,749
Management fee payable 19,796 15,976
Incentive fee payable 132 70,035
------------- ------------
Total liabilities 207,317 206,225
------------- ------------
Commitments
Trust capital
Limited interests (113,525.333 and 73,387.895 interests outstanding) 12,079,558 7,845,159
General interests (1,160 and 750 interests outstanding) 123,425 80,173
------------- ------------
Total trust capital 12,202,983 7,925,332
------------- ------------
Total liabilities and trust capital 12,410,300 8,131,557
------------- ------------
------------- ------------
Net asset value per limited and general interests ('Interests') $ 106.40 $ 106.90
------------- ------------
------------- ------------
</Table>
- --------------------------------------------------------------------------------
The accompanying notes are an integral part of these statements.
156
<Page>
WORLD MONITOR TRUST II--SERIES F
(a Delaware Business Trust)
CONDENSED SCHEDULE OF INVESTMENTS
At December 31, 2001
<Table>
<Caption>
Net Unrealized
Gain (Loss)
as a % of Net Unrealized
Futures and Forward Contracts Trust Capital Gain (Loss)
- --------------------------------------------------------------------------------------------------------
Futures contracts purchased:
Interest rates $ (27,465)
Stock Indices 15,933
Currencies 136,963
Commodities (4,008)
---------------
Net unrealized gain on futures contracts purchased 0.99% 121,423
------- ---------------
Futures contracts sold:
Interest rates 26,672
Stock Indices 9,439
Currencies 440,077
Commodities (48,169)
---------------
Net unrealized gain on futures contracts sold 3.51% 428,019
------- ---------------
Net unrealized gain on futures contracts 4.50% $ 549,442
------- ---------------
------- ---------------
<Caption>
Settlement Currency--Futures Contracts
- --------------------------------------------------------------
British pound (0.05)% $ (5,935)
Euro 0.19% 23,472
Japanese yen (0.20)% (24,956)
Swiss franc (0.09)% (10,436)
U.S. dollar 4.65% 567,297
---------------
Total 4.50% $ 549,442
------- ---------------
------- ---------------
<Caption>
- --------------------------------------------------------------------------------------------------------
The accompanying notes are an integral part of this schedule.
</Table>
157
<Page>
WORLD MONITOR TRUST II--SERIES F
(a Delaware Business Trust)
STATEMENTS OF OPERATIONS
<Table>
<Caption>
For the period
from
March 1, 2000
(commencement of
Year Ended operations) to
December 31, December 31,
2001 2000
- --------------------------------------------------------------------------------------------------
REVENUES
Net realized gain on commodity transactions $ 563,535 $ 404,222
Net unrealized gain/loss on open commodity positions 115,133 434,309
Interest income 341,287 333,749
---------------- ----------------
1,019,955 1,172,280
---------------- ----------------
EXPENSES
Commissions and other transaction fees 655,865 350,702
Management fees 205,169 111,401
Incentive fee 113,844 70,035
General and administrative 110,646 131,840
---------------- ----------------
1,085,524 663,978
General and administrative expenses borne by the Managing
Owner and its affiliates (30,419) (47,991)
---------------- ----------------
Net expenses 1,055,105 615,987
---------------- ----------------
Net income (loss) $ (35,150) $ 556,293
---------------- ----------------
---------------- ----------------
ALLOCATION OF NET INCOME (LOSS)
Limited interests $ (34,511) $ 551,120
---------------- ----------------
---------------- ----------------
General interests $ (639) $ 5,173
---------------- ----------------
---------------- ----------------
NET INCOME (LOSS) PER WEIGHTED AVERAGE LIMITED AND GENERAL
INTEREST
Net income (loss) per weighted average limited and general
interest $ (.36) $ 8.41
---------------- ----------------
---------------- ----------------
Weighted average number of limited and general interests
outstanding 97,182 66,146
---------------- ----------------
---------------- ----------------
<Caption>
- --------------------------------------------------------------------------------------------------
</Table>
STATEMENTS OF CHANGES IN TRUST CAPITAL
<Table>
<Caption>
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
Contributions 60,246.577 6,305,309 53,215 6,358,524
Net loss (34,511) (639) (35,150)
Redemptions (19,699.139) (2,036,399) (9,324) (2,045,723)
----------- ---------- --------- ----------
Trust capital--December 31, 2001 114,685.333 12,079,558 123,425 12,202,983
----------- ---------- --------- ----------
----------- ---------- --------- ----------
<Caption>
- -----------------------------------------------------------------------------------------------------
The accompanying notes are an integral part of these statements.
</Table>
158
<Page>
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 an
indirect wholly owned subsidiary of Prudential Financial, 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') at
$100 per Interest. The subscription minimum of $5,000,000 for each Series was
reached during the Initial Offering Period permitting, Series D, E and F to
commence 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 of the Trust (Series D, E or F) 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 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
other Series.
159
<Page>
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 and general interests outstanding was
computed for purposes of disclosing net income (loss) per weighted average
limited and general interests. The weighted average limited 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.'
Certain balances from the prior period have been reclassified to conform with
the current financial statement presentation.
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.
Financial Reporting by Commodity Pools
During March 2001, the Accounting Standards Executive Committee ('AcSEC')
issued Statement of Position ('SOP') 01-1, Amendment to Scope of Statement of
Position 95-2, Financial Reporting by Nonpublic Investment Partnerships, to
Include Commodity Pools, which is effective for financial statements issued for
periods ending after December 15, 2001. This SOP amends SOP 95-2, Financial
Reporting by Nonpublic Investment Partnerships, to include within its scope
commodity pools such as Series F. Under the new requirements, Series F is
required to present a condensed schedule of investments and certain other
information in accordance with the American Institute of Certified Public
Accountants' Audit and Accounting Guide 'Audits of Investment Companies.' The
adoption of the requirements of SOP 01-1 has not had a material effect on Series
F's financial position or results of operations.
160
<Page>
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, to the extent that general and administrative costs incurred by
Series F exceed 1.5% of Series F's net asset value during the year (with a
maximum of 0.5% attributable to other than legal and audit expenses) such
amounts will be borne by the Managing Owner and its affiliates.
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, to the extent that general and administrative expenses exceed 1.5% of
Series F's net asset value during the year (with a maximum of 0.5% attributable
to other than legal and audit expenses) such amounts will be borne by the
Managing Owner and its affiliates. Because general and administrative expenses
exceeded such limitations, a portion of the expenses related to services the
Managing Owner performed for Series F for the year ended December 31, 2001 and
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
costs of offering its Limited Interests.
The expenses incurred by Series F for services performed by the Managing
Owner and its affiliates for Series F were:
<Table>
<Caption>
For the period
from
March 1, 2000
Year ended (commencement of
December 31, operations) to
2001 2000
---------------- ----------------
Commissions $614,066 $332,814
General and administrative 57,893 81,740
---------------- ----------------
671,959 414,554
General and administrative expenses borne by the
Managing Owner and its affiliates (30,419) (47,991)
---------------- ----------------
$641,540 $366,563
---------------- ----------------
---------------- ----------------
</Table>
161
<Page>
Expenses payable to the Managing Owner and its affiliates (which are included
in accrued expenses) as of December 31, 2001 and 2000 were $21,805 and $25,109,
respectively.
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
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, 2001, a non-U.S. affiliate of the Managing Owner owned
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 and forward contracts (including foreign exchange)
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 or forward 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 on United States and 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 nonperformance 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, if Series F enters into forward
transactions, the sole counterparty is PSI, Series F's commodity broker. Series
F has
162
<Page>
entered into a master netting agreement with PSI and, as a result, when
applicable, 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 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 that 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 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 (subject to the opt out provisions discussed below) and
is not allowed to commingle such assets with other assets of PSI. At December
31, 2001, such segregated assets totalled $6,694,325. Part 30.7 of the CFTC
regulations also requires PSI to secure assets of Series F related to foreign
futures trading which totalled $5,715,975 at December 31, 2001.
The CFTC promulgated rules that allow futures commission merchants to permit
certain customers, including Series F, to opt out of segregation with regard to
trading on certain exchanges, but PSI has not done so to date. If Series F were
to opt out, its funds could be held in a broader, and potentially riskier, range
of investments than are allowed for segregated funds.
As of December 31, 2001, Series F's open futures contracts mature within one
year.
The following table presents the fair value of futures contracts at December
31, 2000:
<Table>
<Caption>
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
-------- -----------
-------- -----------
</Table>
163
<Page>
G. Financial Highlights
<Table>
<Caption>
Year ended
December 31, 2001
-----------------
Performance per Interest
Net asset value, beginning of period $106.90
-----------------
Net realized gain and change in net unrealized gain/loss on commodity
transactions 6.90
Interest income 3.64
Net expenses (11.04)
-----------------
Net decrease for the period (.50)
-----------------
Net asset value, end of period $106.40
-----------------
-----------------
Total return (0.47)%
Ratio to average net assets
Interest income 3.36%
Net expenses, including incentive fees of 1.12% 10.40%
</Table>
These financial highlights represent the overall results of Series F during
2001. An individual interest owner's actual results may differ depending on the
timing of contributions and redemptions.
164
<Page>
PricewaterhouseCoopers (LOGO)
PricewaterhouseCoopers LLP
1177 Avenue of the Americas
New York, NY 10036
Telephone (646) 471-4000
Facsimile (646) 471-4100
Report of Independent Accountants
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, 2001
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
January 18, 2002
165
<Page>
Prudential Securities Futures Management Inc.
(A wholly-owned subsidiary of Prudential Securities Incorporated)
Statement of Financial Condition
December 31, 2001
- --------------------------------------------------------------------------------
<Table>
Assets
Cash $ 46,365
Investments in partnerships 1,088,764
Receivables from partnerships 69,062
Other receivables 150
----------
Total assets $1,204,341
----------
----------
Liabilities and Stockholder's Equity
Liabilities
Due to Parent and affiliates $1,731,601
Accrued expenses and other liabilities 15,948
----------
Total liabilities 1,747,549
----------
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 (543,308)
----------
2,996,792
Less: Noninterest-bearing demand notes due from Prudential Securities
Group Inc. (3,540,000)
----------
Total stockholder's equity (543,208)
----------
Total liabilities and stockholder's equity $1,204,341
----------
----------
</Table>
The accompanying notes are an integral part of this financial statement.
166
<Page>
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 Prudential Financial, Inc. 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 state
and local tax 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 included in the consolidated federal and state and local tax
provisions.
At December 31, 2001, the Company's federal and state income tax payables
are $5,231 and $1,587, respectively, and are included in Due to Parent and
affiliates.
167
<Page>
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, 2001 are as follows:
<Table>
Diversified Futures Trust I $ 236,757 1.0%
Diversified Futures Trust II 111,000 1.1%
Prudential-Bache Capital Return Futures Fund 2, L.P. 115,858 1.0%
Prudential Securities Strategic Trust 95,397 1.0%
World Monitor Trust - Series A 59,768 1.1%
World Monitor Trust - Series B 130,416 1.2%
World Monitor Trust - Series C 65,411 1.2%
World Monitor Trust II - Series D 44,188 1.0%
World Monitor Trust II - Series E 106,557 1.2%
World Monitor Trust II - Series F 123,412 1.0%
----------
$1,088,764
----------
----------
</Table>
The following represents combined condensed financial information for the
Partnerships in which the Company has an investment as of December 31,
2001:
<Table>
Assets $104,037,196
------------
------------
Liabilities $ 2,085,734
Partners' Capital 101,951,462
------------
Liabilities and Partners' Capital $104,037,196
------------
------------
</Table>
4. Related Parties
The Company has an interest-bearing loan payable to PSGI in the amount of
$1,652,498 at December 31, 2001 which bears interest at PSGI's effective
borrowing rate (2.5% at December 31, 2001) 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 $68,235 and is included in Due to Parent and affiliates). The
amount due from the Partnerships related to these services ($60,318) is
included in Receivable from partnerships.
168
<Page>
Prudential Securities Futures Management Inc.
(A wholly-owned subsidiary of Prudential Securities Incorporated)
Notes to Statement of Financial Condition
- --------------------------------------------------------------------------------
The Company's officers and directors are also officers of PSI.
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, 2001. 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 $2,225,000 at December 31, 2001.
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.
169
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[THIS PAGE LEFT BLANK INTENTIONALLY]
<Page>
EXHIBIT A
SECOND AMENDED AND RESTATED
DECLARATION OF TRUST
AND
TRUST AGREEMENT
OF
WORLD MONITOR TRUST II
Dated as of March 28, 2002
By and Among
PRUDENTIAL SECURITIES FUTURES MANAGEMENT INC.,
WILMINGTON TRUST COMPANY
and
THE INTERESTHOLDERS
from time to time hereunder
<Page>
TABLE OF CONTENTS
Page
ARTICLE I DEFINITIONS; THE TRUST......................................... 1
SECTION 1.1. Definitions.......................................... 1
SECTION 1.2. Name................................................. 8
SECTION 1.3. Delaware Trustee; Business Offices................... 8
SECTION 1.4. Declaration of Trust................................. 8
SECTION 1.5. Purposes and Powers.................................. 9
SECTION 1.6. Tax Treatment........................................ 9
SECTION 1.7. General Liability of the Managing Owner..............10
SECTION 1.8. Legal Title..........................................10
SECTION 1.9. Series Trust.........................................10
ARTICLE II THE TRUSTEE...................................................11
SECTION 2.1. Term; Resignation....................................11
SECTION 2.2. Powers...............................................11
SECTION 2.3. Compensation and Expenses of the Trustee.............11
SECTION 2.4. Indemnification......................................12
SECTION 2.5. Successor Trustee....................................12
SECTION 2.6. Liability of Trustee.................................12
SECTION 2.7. Reliance; Advice of Counsel..........................13
ARTICLE III INTERESTS; CAPITAL CONTRIBUTIONS.............................14
SECTION 3.1. General..............................................14
SECTION 3.2. Establishment of Series of Interests.................15
SECTION 3.3. Establishment of Classes.............................16
SECTION 3.4. Limited Interests....................................16
SECTION 3.5. Assets of Series.....................................23
SECTION 3.6. Liabilities of Series................................24
SECTION 3.7. Dividends and Distributions..........................26
SECTION 3.8. Voting Rights........................................27
SECTION 3.9. Equality.............................................27
SECTION 3.10. Exchange of Interests................................27
ARTICLE IV THE MANAGING OWNER............................................27
SECTION 4.1. Management of the Trust..............................27
SECTION 4.2. Authority of Managing Owner..........................27
SECTION 4.3. Obligations of the Managing Owner....................30
SECTION 4.4. General Prohibitions.................................32
SECTION 4.5. Liability of Covered Persons.........................33
SECTION 4.6. Indemnification of the Managing Owner................34
SECTION 4.7. Expenses and Limitations Thereon.....................35
SECTION 4.8. Compensation to the Managing Owner...................36
SECTION 4.9. Other Business of Interestholders....................36
SECTION 4.10. Voluntary Withdrawal of the Managing Owner...........36
SECTION 4.11. Authorization of Registration Statements.............37
SECTION 4.12. Litigation...........................................37
ARTICLE V TRANSFERS OF INTERESTS.........................................37
SECTION 5.1. General Prohibition..................................37
SECTION 5.2. Transfer of Managing Owner's General Interests.......37
SECTION 5.3. Transfer of Limited Interests........................38
(i)
<Page>
ARTICLE VI DISTRIBUTION AND ALLOCATIONS..................................41
SECTION 6.1. Capital Accounts.....................................41
SECTION 6.2. Weekly Allocations...................................41
SECTION 6.3. Allocation of Profit and Loss for United States
Federal Income Tax Purposes.......................42
SECTION 6.4. Allocation of Distributions..........................43
SECTION 6.5. Admissions of Interestholders; Transfers.............44
SECTION 6.6. Liability for State and Local and Other Taxes........44
ARTICLE VII REDEMPTIONS..................................................44
SECTION 7.1. Redemption of Interests..............................44
SECTION 7.2. Redemption by the Managing Owner.....................46
SECTION 7.3. Redemption Fee.......................................46
SECTION 7.4. Exchange of Interests................................46
ARTICLE VIII THE LIMITED OWNERS..........................................47
SECTION 8.1. No Management or Control; Limited Liability..........47
SECTION 8.2. Rights and Duties....................................47
SECTION 8.3. Limitation on Liability..............................48
ARTICLE IX BOOKS OF ACCOUNT AND REPORTS..................................49
SECTION 9.1. Books of Account.....................................49
SECTION 9.2. Annual Reports and Monthly Statements................49
SECTION 9.3. Tax Information......................................49
SECTION 9.4. Calculation of Net Asset Value of a Series...........49
SECTION 9.5. Other Reports........................................50
SECTION 9.6. Maintenance of Records...............................50
SECTION 9.7. Certificate of Trust.................................50
SECTION 9.8. Registration of Interests............................50
ARTICLE X FISCAL YEAR....................................................51
SECTION 10.1. Fiscal Year..........................................51
ARTICLE XI AMENDMENT OF TRUST AGREEMENT; MEETINGS........................51
SECTION 11.1. Amendments to the Trust Agreement....................51
SECTION 11.2. Meetings of the Trust................................52
SECTION 11.3. Action Without a Meeting.............................53
ARTICLE XII TERM.........................................................53
SECTION 12.1. Term.................................................53
ARTICLE XIII TERMINATION.................................................53
SECTION 13.1. Events Requiring Dissolution of the Trust or
any Series........................................53
SECTION 13.2. Distributions on Dissolution.........................55
SECTION 13.3. Termination; Certificate of Cancellation.............56
ARTICLE XIV POWER OF ATTORNEY............................................56
SECTION 14.1. Power of Attorney Executed Concurrently..............56
SECTION 14.2. Effect of Power of Attorney..........................56
SECTION 14.3. Limitation on Power of Attorney......................57
ARTICLE XV MISCELLANEOUS.................................................57
SECTION 15.1. Governing Law........................................57
SECTION 15.2. Provisions In Conflict With Law or Regulations.......58
SECTION 15.3. Construction.........................................58
SECTION 15.4. Notices..............................................58
SECTION 15.5. Counterparts.........................................59
(ii)
<Page>
SECTION 15.6. Binding Nature of Trust Agreement....................59
SECTION 15.7. No Legal Title to Trust Estate.......................59
SECTION 15.8. Creditors............................................59
SECTION 15.9. Integration..........................................60
EXHIBIT A
CERTIFICATE OF TRUST OF WORLD MONITOR TRUST II...........................61
(iii)
<Page>
WORLD MONITOR TRUST II
SECOND 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 28th day of March, 2002, 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"); and
WHEREAS, the parties entered into a First Amended and
Restated Declaration of Trust and Trust Agreement on May 15, 1999
(the "Amended and Restated Trust Agreement"); and
WHEREAS, the parties hereto desire to amend certain
provisions of the Amended and Restated 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:
"Administrator" means the official or agency administering
the securities laws of a state.
"Advisor" -- see the definition of "Trading Advisor."
"Affiliate" -- An "Affiliate" of a "person" means (i) any
Person directly or indirectly owning, controlling or holding with
power to vote 10% or more of the outstanding voting securities of
such Person, (ii) any Person 10% or more of whose outstanding
voting securities are directly or indirectly owned, controlled or
held with power to vote by such Person, (iii) any Person,
directly or indirectly, controlling, controlled by or under
common control of such Person,
<Page>
(iv) any officer, director or partner of such Person, or (v) if
such Person is an officer, director or partner, any Person for
which such Person acts in any such capacity.
"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.ss. 3801 et seq., as the same may be
amended from time to time.
"Capital Contributions" means the total investment in a
Program by a Participant or by all Participants, as the case may
be. More specifically, the term Capital Contribution refers to
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.
A-2
<Page>
"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.
"Cross Reference Sheet" means a compilation of the Guideline
sections, referenced to the page of the prospectus, Program
agreement or other exhibits and justification of any deviation
from the Guidelines.
"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 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.
A-3
<Page>
"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.
"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 Assets" means the total assets less total liabilities
of the Program, determined on the basis of generally accepted
accounting principles. Net Assets shall include any unrealized
profits or losses on open positions and any fee or expense
including Net Asset fees accruing to the Program.
"Net Asset Value 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
A-4
<Page>
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.
(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 Asset value Per Program Interest" -- see the definition
of "Net Asset Value of a Series per Interest."
"Net Trading Profits" means the excess, if any, of net
Assets at the end of the period over Net Assets at the end of the
highest previous period or Net Assets at the date trading
commences, whichever is higher, and as further adjusted to
eliminate the effect on Net Assets resulting from new Capital
Contributions, redemptions or capital distributions, if any, made
during the period decreased by interest or other income, not
directly related to trading activity, earned on Program assets
during the period, whether the assets are held separately or in
margin account.
"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.
A-5
<Page>
"New High Net Trading Profits" shall have the meaning set
forth in the Prospectus.
"NFA" means the National Futures Association.
"Organization and Offering Expenses" means all expenses
incurred by the Program in connection with and in preparing a
Program for registration and subsequently offering and
distributing it to the public, including, but not limited to,
total underwriting and brokerage discounts and commissions
(including fees of the underwriter's attorneys), expenses for
printing, engraving, mailing, salaries of employees while engaged
in sales activity, charges of transfer agents, registrars,
trustees, escrow holders, depositories, experts, expenses of
qualification of the sale of its Program Interest under federal
and state law, including taxes and fees, accountants' and
attorneys' fees. More specifically, Organization and Offering
Expenses shall have the meaning set forth in Section 4.7 of this
Trust Agreement.
"Participant" means the holder of a Program Interest.
"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.
"Pit Brokerage Fee" shall include floor brokerage, clearing
fees, National Futures Association fees and exchange fees.
"Program" means a limited partnership, joint venture,
corporation, trust or other entity formed and operated for the
purpose of investing in Commodity Contracts. More specifically,
see the definition of "Trust."
"Program Broker" means a Commodity Broker that effects
trades in Commodity Contracts for the account of a Program.
"Program Interest" means a limited partnership interest or
other security representing ownership in a Program. More
specifically, see the definition of "Interests."
"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.
A-6
<Page>
"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 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, L.P.,
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.
A-7
<Page>
"Valuation Date" means the date as of which the Net Assets
of the Trust are determined or 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.
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.
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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 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, 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 byss. 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 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.
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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 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.
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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 60 days' advance written notice to the Trust;
provided, that such resignation shall not become effective unless
and until a successor Trustee shall have been appointed by the
Managing Owner in accordance with Section 2.5 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 asset 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.
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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 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;
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(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, 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 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
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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) 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.
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.
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(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) As more specifically set forth in Section 3.4, the
Managing Owner will make a permanent investment in each Series
equal to the greater of 1% of all capital contributions to that
Series (reduced by withdrawals from that Series) or $25,000.
(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
Interests 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.
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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) 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 million). 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
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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 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 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 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
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to the Trust and deemed a Series D Limited Owner with respect to that
subscription on the Dealing Day which occurs at least five 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 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 million). 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.
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(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.
(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 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 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
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material item of Series E income, gain, loss and deduction
shall be equal, in the aggregate, to at least 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 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 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
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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.
(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 million). 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
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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 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 Series F an amount, which, when added to the
total contributions to Series F by all Series F
Interestholders, will be not less than 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 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.
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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 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 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
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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.
(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.
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(c)
(i) 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;
(ii) the Managing Owner and the Trustee will not
take, demand 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;
(iii) 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;
(iv) 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.ss. 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;
(v) 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
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(vi) 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
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.
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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.
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:
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(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 6% of a Series' Net Asset Value, Incentive Fees
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.
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(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 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 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: that the
Managing Owner, in its sole discretion, determines in good faith
to be in violation of any trading policy or limitation of
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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 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.
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;
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(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 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 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.
(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 million , 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 as determined by generally
accepted accounting principles;
(j) Admit substituted Limited Owners in accordance
with this Trust Agreement;
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(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 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 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.
(m) Notify the Interestholders within seven 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 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
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
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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;
(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) 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
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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 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 U.S.
Code by or against the Managing Owner. 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 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.
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(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 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
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: 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.
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(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 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
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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 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,
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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 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
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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;
(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
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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
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, 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.
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(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 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 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 90
days after the date of the transfer.
(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:
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(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.
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.
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(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,
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
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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
Agreement or Exchange Request for at least five 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
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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 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 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
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 Business
Days.
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(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. Limited Owners requesting
redemption shall be notified in writing within five 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 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 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 Business Days.
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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 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
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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 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,
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 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).
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(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 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 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
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per Interest to less than 50% of the Net Asset Value of a
Series per Interest as of the end of the immediately preceding
Valuation Point within seven 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 any material change in the terms of the Advisory Agreement,
including any change in the Trading Advisor or any modification
in connection with 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
for a period of at least eight 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 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.
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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.
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 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.
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(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 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 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
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written request of Limited Owners holding Interests equal to at least
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 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 30 nor more than 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.
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:
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(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 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 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, within 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 90 Business Days prior
to the effective date of such terminations.
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(h) The decline of the Net Asset Value of a Series of
the Trust Estate by 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, 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: 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
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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.
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:
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(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
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: 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
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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 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.
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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 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.
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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.
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.
By:________________________________________
Name:
Title:
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.
By:__________________________________________
Name:
Title:
A-60
<Page>
EXHIBIT A
RESTATED
CERTIFICATE OF TRUST
OF
WORLD MONITOR TRUST II
This Restated Certificate of Trust of World Monitor Trust II
(the "Trust") is being duly executed and filed on behalf of the
Trust by the undersigned, as trustee, to amend and restate the
original Certificate of Trust of the Trust which was filed on
April 22, 1999 under the Delaware Business Trust Act (12 Del. C.
Section 3801 et seq.) (the "Act").
The Certificate of Trust is hereby amended and restated in
its entirety to read as follows:
1. Name. The name of the trust formed hereby is World
Monitor Trust II.
2. Delaware Trustee. The name and the business address of
the trustee of the Trust in the State of Delaware is Wilmington
Trust Company, Rodney Square North, 1100 North Market Street,
Wilmington, Delaware 19890-0001, Attention: Corporate Trust
Administration.
3. Series. Pursuant to Section 3806(b)(2) of the Act, the
Trust shall issue one or more series of beneficial interests
having the rights, powers and duties as set forth in the
governing instrument of the Trust, as the same may be amended
from time to time (each a "Series").
4. Notice of Limitation of Liability of each Series.
Pursuant to Section 3804 of the Act, there shall be a limitation
on liability of each particular Series such that the debts,
liabilities, claims, obligations and expenses incurred,
contracted for or otherwise existing with respect to, in
connection with or arising under a particular Series shall be
enforceable against the assets of that Series only, and not
against the assets of the Trust generally or the assets of any
other Series.
5. Effective Date. This Restated Certificate of Trust
shall be effective upon filing.
WILMINGTON TRUST COMPANY, as Trustee
By:________________________________
Name:
Title:
A-61
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<Page>
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 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.
U. S. 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-U.S. Limited Owners Only
Under penalties of perjury, I hereby certify that (a) I am not a
citizen or resident of the U.S. and have not been present in the U.S.
for 183 days or more during any calendar year, or (b) I am a non-U.S.
corporation, partnership, estate or trust.
SIGNATURES ON REVERSE SIDE MUST BE IDENTICAL TO NAME(S)
IN WHICH INTERESTS OF TRUST ARE REGISTERED
INTERESTS REGISTERED IN THE NAME(S) OF:
- ---------------------- --------------------------------------------
Type or Print Name Social Security Number or Taxpayer ID Number
- ----------------------------------------------------------------------
Street
- ---------------- -------- ------------------
City State Zip Code
- ---------------- -------- ------------------
Account # Type FA
B-1
<Page>
SIGNATURE(S)
Individual Owner(s) or Assignee(s)
__________________________________
Signature(s) Guaranteed by: __________________________________
_______________________________ __________________________________
(Signature(s) of Owner(s) or
Assignee(s))
Entity Owner(s) or Assignee(s)
__________________________________
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 BUSINESS DAYS' PRIOR
TO THE DEALING DAY ON WHICH YOUR REDEMPTION IS TO
BECOME EFFECTIVE.
B-2
<Page>
EXHIBIT C
EXCHANGE REQUEST
To: WORLD MONITOR TRUST II
Prudential Securities Futures Management Inc.
One New York Plaza, 12th Floor
Specialty Finance Operations
New York, New York 10292
I hereby request the following exchange of Interests as of
the Dealing Date which first occurs two 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
May 1, 2002. 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.
<Table>
<Caption>
Amount to be Redeemed Upon Exchange Amount to be Purchased Upon Exchange
- ----------------------------------- ------------------------------------
Totals in each column must be equal.
Series D $____________ or All Interests _________ Series D $____________
Series E $____________ or All Interests _________ Series E $____________
Series F $____________ or All Interests _________ Series F $____________
Total $____________ Total $____________
</Table>
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-1
<Page>
SIGNATURE(S)
Individual Owner(s) or Assignee(s)
--------------------------------------
Signature(s) Guaranteed by: --------------------------------------
- -------------------------------- --------------------------------------
Signature(s) of owner(s) or assignee(s)
Entity Owner (or assignee)
--------------------------------------
Signature(s) Guaranteed by: --------------------------------------
By:
- ------------------------------- --------------------------------------
(Trustee, partner, or authorized
officer. If a corporation, include
certified copy of authorizing
resolution.)
NOTE: If the entity owner is a trustee, custodian or
fiduciary of an Individual Retirement Account, Keogh Plan
without common law employees or employee benefit plan under
which a plan participant may exercise control over assets in
his account, the signature of the plan participant must also
be supplied.
Plan Participant
Signature(s) Guaranteed by: --------------------------------------
Type or Print Name
- ------------------------------- --------------------------------------
(Signature)
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.
C-2
<Page>
FOR USE BY PSI-FA ONLY
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-3
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<Page>
EXHIBIT D
WORLD MONITOR TRUST II
SUBSCRIPTION AGREEMENT 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
<Page>
Number 5 CLIENT NAME, ADDRESS AND BUSINESS PHONE NUMBER. FOR
IRA OR TRUST ACCOUNT INCLUDE: "FOR THE BENEFIT OF
____________." INSERT NET WORTH AND ANNUAL GROSS INCOME.
Number 6 ADDRESS REQUIRED IF #5 IS A P.O. BOX OR IS NOT THE
INVESTOR'S RESIDENCE ADDRESS OR THE ENTITY'S PLACE OF
FORMATION.
Number 7 TO BE COMPLETED AND SIGNED BY THE FINANCIAL ADVISOR
(SOMETIMES REFERRED TO AS THE "FA"). ALL SIGNATURE
PAGES MUST BE COUNTERSIGNED BY THE BRANCH MANAGER.
Number 8 CLIENT(S) SIGNATURE(S) IF ACCOUNT TYPE IS INDIVIDUAL OR
JOINT.
Number 9 CLIENT'S SIGNATURE IF ACCOUNT TYPE IS AN IRA 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 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 offering period and continuous offering period. A
subscriber may not deliver his Subscription Agreement to the
Trust's offices. If such delivery is made, the Subscription
Agreement will be returned to the subscriber to be forwarded
to his Prudential Securities branch office or to an
additional seller.
C. U.S. subscribers must have W-9s on file with Prudential
Securities and non-U.S. subscribers must have W-8s on file
with Prudential Securities.
WORLD MONITOR TRUST II
SUBSCRIPTION AGREEMENT AND POWER OF ATTORNEY
SUBSCRIBER(S) (check status)
(i) New Subscriber(s) Complete Items 1 through 6, plus Items 8, 9 or 10
(as applicable) plus Item 11, and have FA and Branch
Manager fill out Item 7.
(ii) Existing Owner(s) (a) If information previously provided remains
accurate: Complete Item 1, plus Items 8, 9 or 10 (as
applicable) plus Item 11, and have FA and Branch
Manager fill out Item 7 or (b) if information has
changed, follow instructions for new subscriber(s).
D-2
<Page>
1. Total Dollar Amount of Subscription:
Series D Interests.....................$_______
Series E Interests.....................$_______
Series F Interests.....................$_______
2. Social Security Number 3. Prudential Securities Account
Number of Subscriber
______________________ ______________________________
or
Taxpayer I.D. Number 3a. Is the Subscriber a Prudential
Securities Employee
______________________ Yes [ ] No [ ]
or
I (we) have checked the following box because I (we) am (are) subject to
backup withholding under the provisions of Section 3406(a)(1)(C) of the
Internal Revenue Code: [ ]
4. Check Account Type
[ ] Individual Ownership [ ] Corporation
[ ] Joint Tenants with Right [ ] Keogh Plan (no common
of Survivorship law employees)
(all tenants' signatures
required)
[ ] Tenants in Common (all tenants' signatures required)
[ ] Community Property [ ] Other Employee Benefit Plan
(both signatures required) (e.g., Custodian, Pension,
Profit Sharing, Keogh plan with
employees)
[ ] Custodian Partnership
[ ] Trust [ ] Individual Retirement Account
(Non-PSI employees)
[ ] UGMA or UTMA [ ] Individual Retirement Account
(PSI employees)
5. Full name of Account, Joint Owners, Trustee, if trust account,
Custodian, if custodian account or other Authorized Person, if
Partnership, Corporation or Institutional Trustee or Plan fiduciary
(no initials).
____________________________________________________________________
Mailing Address. If trust or custodian account, address of Trustee,
Custodian or Plan Fiduciary.
_________ _____ ________ _______ _____________________________
City State Zip Code Country Business Telephone No. or if
none, Home No.
New Worth of Subscriber (exclusive of home, home furnishings and
automobiles): $_____________
Annual Gross Income of Subscriber: $_________
6. The following information must be provided if the above address is a
P.O. Box or is not the investor's residence address or the entity's
place of formation.
Residence Address (P.O. Box alone not acceptable).
_________ _____ ________ _______
City State Zip Code Country
D-3
<Page>
7. FINANCIAL ADVISOR USE ONLY (MUST BE COMPLETED IN FULL, AND EXCEPT FOR
SIGNATURE, MUST BE TYPED OR LEGIBLY PRINTED IN INK BY FINANCIAL
ADVISOR; ILLEGIBLE OR INCOMPLETE DOCUMENTS WILL BE REJECTED).
The undersigned FA hereby certifies that: (1) the FA has informed the
person(s) named above of all pertinent facts relating to the liquidity
and marketability of the limited interests as set forth in the
prospectus; and (2) the FA has reasonable grounds to believe (on the
basis of information obtained from the person(s) named above
concerning such person(s') age, investment objectives, investment
experience, income, net worth, financial situation and needs, other
investments and any other information known by the FA) that (a) the
purchase of the interests is a suitable and appropriate investment for
such person(s); (b) such person(s) meet(s) the minimum income and net
worth standards; (c) such person(s) can benefit from the investment
based on such person('s) overall investment objectives and overall
portfolio structure; (d) such person(s) can bear the economic risk of
the investment; and (e) such person(s) has (have) an understanding of
the fundamental risks of the investment, the risk that an investor may
lose its entire investment, the restriction on the liquidity of the
limited interests, the restrictions on the transferability of the
interests and the background and qualifications of the FA.
Does the undersigned FA have discretionary authority for the account
of the person(s) named above? Yes ___ No ___
The FA must insure that a current prospectus, together with the most
recent monthly report for the applicable Series, once it commences
trading, has been furnished to the person(s) named above.
PRINT FULL NAME OF FA __________ FA# ________ WIRE CODE OF BRANCH _____
FA'S SIGNATURE _________________ FA'S TELEPHONE NUMBER ____________________
I have received all documents required to accept this subscription,
and I acknowledge the suitability of the subscriber and the amount of the
subscription for each Series. If the subscriber is other than an
individual subscriber, I acknowledge that my review of the subscriber's
governing documents indicates that such documents permit investment in
commodities funds whose principal business is speculative futures trading.
( )
___________________________________________ ________________
BRANCH MANAGER'S SIGNATURE FOR ALL ACCOUNTS BRANCH MANAGER'S
TELEPHONE NUMBER
D-4
<Page>
SUBSCRIBERS -- DO NOT SIGN WITHOUT READING THE "REPRESENTATIONS AND
WARRANTIES" AT PARAGRAPH 11, THE "SUBSCRIBER(S) CONSENT AND SUBORDINATION
AGREEMENT" AT PARAGRAPH 12 AND THE "RISKS" AT PARAGRAPH 13 OR WITHOUT
FAMILIARIZING YOURSELF WITH THE PROSPECTUS INCLUDING, (I) THE FUNDAMENTAL
RISKS AND POSSIBLE FINANCIAL HAZARDS OF THIS INVESTMENT, INCLUDING THE
RISK OF LOSING YOUR ENTIRE INVESTMENT; (II) THE LACK OF LIQUIDITY OF THIS
INVESTMENT; (III) THE FACT THAT LIMITED OWNERS MAY NOT TAKE PART IN THE
MANAGEMENT OF A SERIES; (IV) THE EXISTENCE OF ACTUAL AND POTENTIAL
CONFLICTS OF INTEREST IN THE STRUCTURE AND OPERATION OF A SERIES; (V) THE
SERIES' FEE STRUCTURE; (VI) THE FACT THAT ANY PERFORMANCE AND PRO FORMA
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 or any additional seller.
In the event that the subscriber does not have a customer account with
Prudential Securities 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 branch office or the branch office
of any additional seller.
D-5
<Page>
SIGN BELOW UNDER CORRESPONDING ACCOUNT TYPE
8. INDIVIDUAL OR JOINT SUBSCRIPTION
If this subscription is for a joint account, the statements,
representations, warranties and undertakings set forth in this
subscription agreement will be deemed to have been made by each owner
of the account
___________________ ___________________ ____________
(Signature of (Signature of Joint (Date)
Subscriber) Owner, if any)
___________________ ___________________ _____________
(Print or Type Name (Print or Type Name (Date)
of Signatory) of Signatory)
9. IRA AND KEOGH PLAN (WITHOUT COMMON LAW EMPLOYEES) SUBSCRIPTION
__________________________________________________________________
(Signature of IRA beneficiary or plan participants) (Date)
__________________________________________________________________
(Print or Type Name of Signatory
10. ENTITY (CUSTODIAN, CORPORATION, PARTNERSHIP,
TRUST OR EMPLOYEE BENEFIT PLAN) SUBSCRIPTION
The undersigned corporate officer, partner or trustee custodian or
fiduciary hereby certifies and warrants that he or she has full power
and authority from and on behalf of the entity named below and (as
applicable) from its shareholders, partners or beneficiaries or plan
participants to complete, execute and deliver this Subscription
Agreement on their behalf including on behalf of the plan participants
and trust or custodial account beneficiaries and that an investment in
the Trust has been affirmatively authorized by the governing board or
body, if any, of the entity (if a corporation or partnership) and is
not prohibited by law or the governing documents of the entity.
_____________________________________
(Type or Print Name of Entity, Trust
or Custodial Account)
_____________________________________ _____________________
(Signature of Authorized Corporate (Date)
Officer, Partner, Trustee Custodian
or Fiduciary)
__________________________________
(Print or Type Name of Signatory)
D-6
<Page>
11. REPRESENTATIONS AND WARRANTIES
I (we) hereby represent and warrant to Prudential Securities Futures
Management Inc. (sometimes referred to as the managing owner) and the Trust
as follows (please initial each applicable representation and warranty):
____ (1) I (we) satisfy one or more of the following financial standards
outlined below for subscription in the Trust (initial in the
space provided only those requirements that apply):
____ (A) I (we) am (are) not acting on behalf of an Employee Benefit
Plan and I (we) have either
____ (i) a net worth (exclusive of home, home furnishings and
automobiles) of at least $150,000 or
____ (ii) a net worth (similarly calculated) of at least $45,000
and an annual gross income of at least $45,000 and not
more than 10% of my net worth is invested in the Trust
or
____ (iii) if I (we) am (are) a resident(s) of one of those
states listed under "State Suitability Requirements" on
page D-13, I (we) meet the more restrictive suitability
requirements imposed by the State in which I (we)
reside and not more than 10% of my net worth is
invested in the Trust.
____ (B) If I (we) am (are) acting on behalf of an IRA or a Keogh
Plan which covers no common law employees, each participant
meets, and the IRA or Keogh Plan meets, the net worth and
gross income requirement in (i), (ii) or (iii) above, and
its investment in the Trust does not exceed 10% of the
assets of the IRA or Keogh Plan at the time of investment.
____ (C) If I (we) am (are) acting on behalf of an Employee Benefit
Plan (other than an IRA or a Keogh Plan which covers no
common law employees), the Plan meets the net worth and
suitability requirements in (i) or (iii) above, and its
investment in the Trust does not exceed 10% of the assets of
the Plan at the time of investment.
____ (2) The address set forth above in Items 5 and 6 is my (our) true and
correct address, and I (we) have no present intention of becoming
a resident of any other state or country. The information
provided in those Items is true, correct and complete as of the
date of this Subscription Agreement and if there should be any
material change in such information prior to my (our) admission
to the Trust as a limited owner, I (we) will immediately furnish
such revised or corrected information to the managing owner. I
(we) will furnish the managing owner with such other documents as
it may request to evaluate this subscription.
____ (3) I (we) am (are) over 21 years old, and I am (are) legally
competent and am (are) permitted by applicable law to execute and
deliver this Subscription Agreement.
____ (4) If the subscriber is a trust under an Employee Benefit Plan, none
of the Trustee, managing owner, Prudential Securities, the
trading advisors, any other selling agent or any of their
affiliates either: (A) has investment discretion with respect to
the investment of the assets of such trust being used to purchase
limited interests; (B) has authority or responsibility to give or
regularly gives investment advice with respect to such trust
assets for a fee and pursuant to an agreement or understanding
that such advice will serve as a primary basis for investment
decisions with respect to such trust assets and that such advice
will be based on the particular investment needs of the trust; or
(C) is an employer maintaining or contributing to the trust.
D-7
<Page>
____ (5) I (we) have received a prospectus of each Series which
constitutes its Commodity Futures Trading Commission Disclosure
Document.
____ (6) I (we) am (are) purchasing the limited interests for our own
account.
____ (7) I (we) acknowledge that as a holder or holders of any interests
in, or claims of any kind against, any Series, I (we) will seek
to recover any debts, liabilities, obligations and expenses
incurred or otherwise existing with respect to that Series solely
from, or to assert such claims solely against, (i) the assets of
that Series (and not the assets of any other Series or the Trust
generally) or (ii) the managing owner.
By making these representations and warranties, subscribers are not
waiving any rights of action which they may have under applicable federal
or state securities laws. Federal securities law provides that any such
waiver would be unenforceable. Subscribers should be aware, however, that
the representations and warranties set forth herein may be asserted in the
defense of the Trust or others in any subsequent litigation or other
proceeding.
12. SUBSCRIBER'S 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
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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;
(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. ss. 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 its 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 or its 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; and (ix) actual and potential conflicts of
interest exist. See the section entitled "RISK FACTORS" in the prospectus.
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14. SUBSCRIPTIONS
The minimum subscription amount is $5,000 ($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 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.
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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,
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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.
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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
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WORLD MONITOR TRUST II
The date of this prospectus is May 1, 2002.
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.
Prudential (LOGO)