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As filed pursuant to Rule 424(b)(3)
Series D Registration No. 333-83011
Series E Registration No. 333-83015
Series F Registration No. 333-83017
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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
- - 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 18. In particular, you
should be aware that:
* Futures, forward and options trading is speculative, volatile and
highly leveraged.
* You could lose a substantial portion, or even all, of your investment.
* Past performance is not necessarily indicative of future results.
* Each series relies on its trading advisor for success.
* Your annual tax liability for taxable income from a series will
exceed distributions to you.
* If you redeem an interest in any series during the first 12 months
following the effective date of your purchase of that interest,
you will be charged a redemption fee, except in defined circumstances.
* The fixed expenses of each series requires estimated gains of 7.94%
per annum (Series D), 7.60% per annum (Series E) and 7.68% per
annum (Series F) to break even. These break even amounts increase
if you have to pay redemption fees.
* Transfers are restricted, the interests are not exchange listed
and no other secondary market exists for the interests.
- - You are required to make representations and warranties in connection
with this investment. You are encouraged to discuss this investment
with your individual financial, legal and tax advisors.
- - Your liability for any series will not exceed your investment in that series.
- - Subscription funds will not be subject to fees or other deductions.
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES
AND EXCHANGE COMMISSION (THE "SEC") OR ANY STATE SECURITIES COMMISSION
NOR HAS THE SEC OR ANY STATE SECURITIES COMMISSION PASSED UPON THE
ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE
CONTRARY IS A CRIMINAL OFFENSE.
THE COMMODITY FUTURES TRADING COMMISSION (THE "CFTC") HAS NOT PASSED
UPON THE MERITS OF PARTICIPATING IN THE TRUST NOR HAS THE CFTC PASSED ON
THE ACCURACY OR ADEQUACY OF THIS PROSPECTUS.
PRUDENTIAL SECURITIES PRUDENTIAL SECURITIES FUTURES
INCORPORATED MANAGEMENT INC.
Selling Agent and Managing Owner and
Clearing Broker Sponsor
The date of this prospectus is April 23, 2003
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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 79 TO 84 AND A STATEMENT OF
THE PERCENTAGE RETURN NECESSARY TO BREAK EVEN, THAT IS, TO RECOVER THE
AMOUNT OF YOUR INITIAL INVESTMENT, AT PAGE 16.
THIS BRIEF STATEMENT CANNOT DISCLOSE ALL THE RISKS AND OTHER
FACTORS NECESSARY TO EVALUATE YOUR PARTICIPATION IN THIS COMMODITY
POOL. THEREFORE, BEFORE YOU DECIDE TO PARTICIPATE IN THIS COMMODITY
POOL, YOU SHOULD CAREFULLY STUDY THIS DISCLOSURE DOCUMENT, INCLUDING A
DESCRIPTION OF THE PRINCIPAL RISK FACTORS OF THIS INVESTMENT AT PAGES
18 TO 24.
YOU SHOULD ALSO BE AWARE THAT THIS COMMODITY POOL MAY TRADE
FOREIGN FUTURES OR OPTIONS CONTRACTS. TRANSACTIONS ON MARKETS LOCATED
OUTSIDE THE UNITED STATES, INCLUDING MARKETS FORMALLY LINKED TO A
UNITED STATES MARKET, MAY BE SUBJECT TO REGULATIONS WHICH OFFER
DIFFERENT OR DIMINISHED PROTECTION TO THE POOL AND ITS PARTICIPANTS.
FURTHER, UNITED STATES REGULATORY AUTHORITIES MAY BE UNABLE TO COMPEL
THE ENFORCEMENT OF THE RULES OF REGULATORY AUTHORITIES OR MARKETS IN
NON-UNITED STATES JURISDICTIONS WHERE TRANSACTIONS FOR THE POOL MAY BE
EFFECTED.
===================
- - You should rely only on the
information contained in this
prospectus or incorporated by
reference (all of which
legally form a part of the
prospectus). We have not
authorized anyone to provide
you with information that is
different.
- - There is no guarantee that
information in this
prospectus is correct as of
any time after the date
appearing on the cover.
- - This prospectus must be
accompanied by a recent
monthly report of the Trust.
- - Prudential Securities
Incorporated (referred to as
Prudential Securities) and
any additional sellers must
deliver any supplemented or
amended prospectus issued by
the Trust.
- - This prospectus is not an
offer to sell, nor is it
seeking an offer to buy these
securities in any
jurisdiction where the offer
or sale is not permitted.
- - World Monitor Trust II
(referred to as the Trust) is
not a mutual fund or any
other type of investment
company within the meaning of
the Investment Company Act of
1940, as amended, and is not
subject to the regulations
under that Act.
- - You should not invest more
than 10% of your "liquid" net
worth (exclusive of home,
home furnishings and
automobiles in the case of
individuals or readily
marketable securities in the
case of entities) in any
series of the Trust or in the
Trust as a whole.
- - If you are an Individual
Retirement Account (referred
to as an IRA), 401(k) or
ERISA plan, you should not
invest more than 10% of your
assets in the Trust.
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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 16
RISK FACTORS 18
Trading And Performance Risks 18
Trading Advisor Risks 21
Trust And Offering Risks 21
Tax Risks 23
Regulatory Risks 24
ACTUAL AND POTENTIAL CONFLICTS OF INTEREST 25
STRUCTURE OF THE TRUST 27
PERFORMANCE OF EACH SERIES 28
SERIES D 43
Bridgewater Associates And Its Principals 43
Bridgewater Associates' Trading Strategy 44
SERIES E 46
Graham Capital And Its Principals 46
Graham Capital's Trading Strategy 47
SERIES F 56
Campbell & Company And Its Principals 56
Campbell & Company's Trading Strategy 57
TRADING LIMITATIONS AND POLICIES 60
DESCRIPTION OF THE TRUST, TRUSTEE, MANAGING OWNER AND AFFILIATES 62
DUTIES AND COMMITMENTS OF THE MANAGING OWNER 66
FIDUCIARY RESPONSIBILITIES 68
THE OFFERING 69
WHO MAY SUBSCRIBE 73
HOW TO SUBSCRIBE FOR, EXCHANGE AND REDEEM INTERESTS 76
FEES AND EXPENSES 79
Charges To Be Paid By The Trust 79
Charges To Be Paid By Prudential Securities Or Its Affiliates 83
Charges To Be Paid By Limited Owners 83
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Projected Twelve-Month Break-Even Analysis 84
SUMMARY OF AGREEMENTS 85
Advisory Agreements 85
Brokerage Agreement 86
Trust Agreement 87
U.S. FEDERAL INCOME TAX CONSEQUENCES 96
LEGAL MATTERS 99
ADDITIONAL INFORMATION 99
EXPERTS 99
PART TWO: CFTC STATEMENT OF ADDITIONAL INFORMATION
THE FUTURES MARKETS 100
HOW MANAGED FUTURES FIT INTO A PORTFOLIO 105
GLOSSARY OF TERMS 113
INDEX TO CERTAIN FINANCIAL INFORMATION 118
FINANCIAL STATEMENTS
World Monitor Trust II -- Series D 119
World Monitor Trust II -- Series E 129
World Monitor Trust II -- Series F 138
Managing Owner 148
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
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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 113 for the definition of any term you may
not understand.
The Trust
The Trust was formed as a Delaware Business
Trust on April 22, 1999, with separate series
of interests. The principal offices of the
Trust and of Prudential Securities Futures
Management Inc. (referred to as the managing
owner) are located at One New York Plaza, 13th
Floor, New York, New York 10292-2013; phone
(212) 778-7866.
The Series
Currently, the Trust's interests are offered
in three separate and distinct series: Series
D, Series E and Series F. The series
commenced trading activities during March and
April of 2000. Each series:
- - Engages in the speculative trading of a
diversified portfolio of futures, forward
(including interbank foreign currencies)
and/or options contracts and may, from time
to time, engage in cash and spot transactions.
- - Has a one-year renewable contract with its
own independent professional trading
advisor that manages 100% of that series'
assets and makes the trading decisions for
that series.
- - Trades and accounts for its assets
separately from the other series and the
other Trust assets.
- - Segregates its assets from the other series
and maintains separate and distinct
records.
- - Calculates the net asset value (sometimes
referred to as the NAV) of its interests
separately from the net asset value of the
other series.
- - Has an investment objective of increasing
the value of your interests over the long
term (capital appreciation), while
controlling risk and volatility.
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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 12/31/02 $7,513,273 $26,539,650 $22,651,075
NAV On 3/31/03 $13,610,080 $41,960,195 $34,574,035
NAV per interest
On start date $100 $100 $100
NAV per interest
On 12/31/02 $93.17 $158.38 $118.76
NAV per interest
On 3/31/03 $97.05 $168.73 $130.20
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, 2003,
Bridgewater Associates had approximately $38.0
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, 2003, Graham Capital had approximately
$3.0 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,
2003, Campbell & Company had approximately
$4.6 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 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.
- - Futures, forward and options contracts
trading is speculative, volatile and highly
leveraged, and you could lose a substantial
portion or even all of your investment.
- - The trading advisors' programs may not
perform for each series as they have
performed in the past, and you should not
rely on past performance to predict the
results of an investment in a series.
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Risk Factors To Consider
(continued)
- - Each series is traded by a single advisor
rather than by dispersing the risk among
several advisors, and if that advisor does
not trade well, that series will not be
profitable. There is no guarantee that any
series will meet its intended objective.
- - Your annual tax liability for any taxable
income from a series will exceed cash
distributions to you from the Trust.
- - If you redeem an interest in any series
during the first 12 months following the
effective date of your purchase, you will
be charged redemption fees (4% in the first
6-month period, 3% in the second 6-month
period), except in defined circumstances.
- - Each series has large fixed expenses.
Assuming interest income equal to 1.15%
annually and March 31, 2003 net asset
values, we estimate that the series' gains
from trading must be 7.94% per annum
(Series D), 7.60% per annum (Series E) and
7.68% per annum (Series F) in order to
break even. These break even amounts
increase if you have to pay redemption fees.
- - Although the Trust offers weekly purchase,
exchange and redemption rights, liquidity
is limited because of transfer restrictions
and because of the absence of any exchange
listing or secondary trading market for the
interests.
- - Actual and potential conflicts of interest
exist among Prudential Securities, the
managing owner and the trading advisors.
For example, conflicts related to the
brokerage fee and effecting transactions or
trading for their own accounts and other
accounts may create an incentive for
Prudential Securities, the managing owner
and the trading advisors to benefit
themselves rather than you, the investor.
- - You will have limited voting rights and no
control over the Trust's business.
- - Although an investment in the series is
designed to diversify your portfolio, we
cannot assure you that diversification will
create profits for you.
The Trustee
Wilmington Trust Company, a Delaware banking
corporation, is the Trust's sole trustee
(referred to as the trustee). The trustee has
delegated to the managing owner all of the
power and authority to manage the business and
affairs of the Trust and has only nominal
duties and liabilities to the Trust.
The Managing Owner
The managing owner is a wholly-owned
subsidiary of Prudential Securities, and as
the managing owner it:
- - Administers the business and affairs of
each series (excluding commodity trading
decisions, except in certain limited, and
essentially emergency, situations).
- - Makes a contribution to each series in
order to maintain at least a 1% interest in
the profits and losses of each series at
all times.
- - Accepts responsibility for the obligations
of any series whose liabilities exceed its assets.
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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:
- - You must generally have a net worth
(exclusive of home, home furnishings and
automobiles) of at least $150,000 or a net
worth, similarly calculated, of at least
$45,000 and an annual gross income of at
least $45,000, although several states
impose higher requirements. See the
section in the subscription agreement
(Exhibit D) entitled "State Suitability
Requirements."
- - You may not invest more than 10% of your
liquid net worth in any series or
combination of series.
- - IRAs, 401(k) accounts and other employee
benefit plans are subject to special
suitability requirements.
- - If your aggregate interests in all series,
when added to your aggregate interests in
the various series of World Monitor Trust,
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:
- - The fundamental risks and possible
financial hazards of this investment.
- - 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)
- - The tax consequences of your investment in
the series.
- - That if you decide to sell securities in
your Prudential Securities account to
subscribe for interests, you may have
income tax consequences from that sale.
- - The fees and expenses to which you will be subject.
- - Your rights and obligations as a limited owner.
Your Minimum Subscription
And Interest Pricing
Minimum required subscriptions and interest
prices are as follows:
- - Your minimum initial purchase is $5,000,
unless you are investing in an IRA in which
case your minimum initial investment is $2,000.
- - You may purchase interests in all or any
combination of the series so long as your
total minimum subscription amount is
satisfied, but your minimum initial
purchase in any one series must be at least $1,000.
- - Each series' interests are being offered
and sold at their weekly net asset value;
if you are an existing limited owner, you
may purchase additional interests in
increments of $100.
- - No front-end sales charges or selling
commissions are charged. A series' net
asset value is not diluted by the Trust's
organization and ongoing offering expenses
because Prudential Securities or an
affiliate is responsible for payment of
those expenses.
How To Subscribe
To subscribe for and be permitted to purchase
any series' interests:
- - You must complete and sign a subscription
agreement (Exhibit D).
- - You are required to have a securities
account with Prudential Securities (or with
another brokerage firm, which is referred
to as an additional seller) and to have
funds in that account equal to the amount
of your purchase at the time you subscribe.
- - You must subscribe in cash.
- - You must meet the established application
time deadlines.
You may revoke your subscription within five
business days after you submit a subscription
agreement to Prudential Securities or to an
additional seller. You may not revoke it
after that time. The managing owner may
reject any subscription in whole or in part
for any reason.
How The Offering Works
Interests in each series will be sold once
each week until the total amount of interests
registered for sale with the SEC for each
series is issued, either through sale or
exchange. For purposes of describing the
purchase, exchange and redemption of
interests, the following terms are used:
- - "Dealing day" means the first business day
of each week.
- - "Valuation point" means the close of
business on Friday of each week.
The sale price, or net asset value per
interest, is set at a valuation point, and
subscriptions for new interests become
effective on a dealing day.
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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 the series'
account with Prudential Securities during that
month at a 13-week (91-day) Treasury bill
rate. This rate is determined weekly and
represents 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 the effective date 4% of redemption price
of purchase
after the sixth month and through the 12th 3% of redemption price
month from the effective date of purchase
Redemption fees may be waived if:
- - Your aggregate interests in all series,
when added to your aggregate interests in
the various series of World Monitor Trust,
another futures fund previously sponsored
by the managing owner that was publicly
offered, total at least $5 million.
Redemption fees will be waived if the
redemption proceeds are used to effect an
exchange for interests in another series.
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
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defined in the Internal Revenue Code.
The managing owner believes that each
series currently satisfies this test.
As long as each series is treated as a
partnership for U.S. federal income tax
purposes, the Trust and each series in the
Trust will not be subject to any U.S. federal
income tax as an entity. Instead, as a
limited owner, your allocable share of annual
trading profits and other income generated
from the series in which you have purchased
interests will be taxable to you whether or
not any cash is distributed to you by the
Trust. Your ability to deduct any losses that
may be incurred and the expenses relating to
the Trust's trading activities may be subject
to significant limitations. The excess of a
series' capital losses over capital gains will
be deductible by you if you are a non-
corporate limited owner only against your
capital gain income each year (and up to
$3,000 per year against your ordinary income).
Furthermore, special tax risks apply if you
are a tax-exempt limited owner or a non-U.S.
investor.
Reports
During the year, you will receive unaudited
monthly reports and an annual financial
statement audited by the Trust's independent
accountants. You also will be provided with
appropriate information to permit you to file
your federal and state income tax returns.
Fiscal Year
The Trust's fiscal year runs from January 1
through December 31.
Financial Information
Financial information concerning the Trust and
the managing owner is set forth under
"FINANCIAL STATEMENTS."
12
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Selected Financial Information
As of December 31, 2002 and for
the year ended December 31, 2002
Series D Series E Series F
Total Assets $7,623,129 $26,874,553 $22,906,675
Total Liabilities $109,856 $334,903 $255,600
Total Trust's Capital $7,513,273 $26,539,650 $22,651,075
Total Income $1,311,418 $6,164,457 $4,198,419
Net Income $764,248 $3,768,209 $2,184,146
Net Asset Value Per Interest $93.17 $158.38 $118.76
Net Income Per Weighted $11.41 $34.59 $14.83
Average Interest
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 $(8.54) $9.39 $(0.36)
Weighted Average Interest
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 $(13.32) $19.41 $8.41
Weighted Average Interest
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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,
2002, this fee, plus trading
transaction costs, equated to an
amount per round-turn transaction
of:
Series D: $64
Series E: $84
Series F: $76
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.
However, given current routine
operating expense levels and
current net asset values for each
series, it is anticipated that
substantially all routine
operating expenses will be
incurred by the respective series
in 2003, as well as for the
foreseeable future.
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.
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Fees Paid By Prudential Securities Or Its Affiliates:
Organization, Offering and Excess Operating Expenses
Approximately $250,000 per series for
the organization and initial offering,
and approximately $75,000 per
series each year during the
continuous offering. Excess
operating expenses will vary based
upon the level of routine
operating expenses and net asset
values. However, as described
above, it is not anticipated that
any substantial portion of routine
operating expenses in 2003, as
well as for the foreseeable
future, will be paid by Prudential
Securities or its affiliates.
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, 2003 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:
<Table>
<Caption>
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) $17.17 0.34% $17.13 0.34% $16.78 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% $20.26 0.41% $24.86 0.49%
Total $454.67 9.09% $437.39 8.75% $441.64 8.83%
Less Estimated Interest Income (4) $(57.50) (1.15)% $(57.50) (1.15)% $(57.50) (1.15)%
-------- -------- --------
Estimated 12-Month Break-Even
Level Without Redemption
Charges (5)(7)(8) $397.17 7.94%(9) $379.89 7.60%(10) $384.13 7.68%(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) $547.17 10.94%(9) $529.89 10.60%(10) $534.13 10.68%(11)
======== ======== ========
</Table>
- --------------------------------
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 $140,000 to $150,000 per series each year.
However, during each year, no series will pay more than the
amount that equals the lesser of the actual expenses or 1.50%
(with a maximum of 0.5% attributable to non-legal and audit
expenses for Series E and Series F, and a maximum of 1.25%
attributable to non-legal and audit expenses for Series D) of
that series net asset value for that year. (For example, if a
series' net asset value remained constant at $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.
Additionally, it is not anticipated that any substantial portion
of routine operating expenses in 2003, as well as for the
foreseeable future, will be paid by Prudential Securities or its
affiliates.
(Notes are continued on the next page)
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<Page>
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 the series' account with
Prudential Securities during that month at a 13-week (91-day)
Treasury bill discount rate. This rate is determined weekly and
represents 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 6.72% without
redemption charges and 9.72% 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 7.50% without
redemption charges and 10.50% 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 7.48% without
redemption charges and 10.48% with the 3% redemption charge.
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<Page>
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.
18
<Page>
Likewise, you and other investors will invest in different series
managed by different trading advisors. Each series' assets are:
- Segregated from every other series' assets.
- Traded separately from every other series.
- Valued and accounted for separately from every other series.
Consequently, the past performance of one series has no bearing
on the past performance of another series. You should not consider
the past performance record of one series when deciding whether to
invest in another series.
Performance Is Not Correlated To The Debt Or Equity Markets
We anticipate that over time each series' performance will not be
similar to the performance of the general financial markets for equity
and debt, and will move up and down independently. For example, the
net asset value of a series may rise or fall while general stock
indices rise or while stock indices fall. Non-correlation is not,
however, negative correlation. Negative correlation would mean that
there is an inverse and opposite relationship between a series'
performance and the performance of the general financial markets.
Because of non-correlation, during certain periods a given series may
perform in a manner very similar to or in a manner different from a
more traditional portfolio, providing few, if any, diversification
benefits.
The Series Have Limited Operating Histories
Series D and F each commenced trading during March 2000 and
Series E commenced trading in April 2000.
Futures, Forward And Options Trading May Be Illiquid
Although each series generally purchases and sells actively
traded contracts, we cannot assure you that orders will be executed at
or near the desired price, particularly in thinly traded markets, in
markets that lack trading liquidity, or because of applicable "daily
price fluctuation limits," "speculative position limits" or market
disruptions. Market illiquidity or disruptions could cause major
losses.
Technical Trading Systems Require Trending Markets
And Sustained Price Moves To Be Profitable
Graham Capital and Campbell & Company use primarily technical
trading systems for many of their trading decisions. For any
technical trading system to be profitable, there must be price moves
or "trends" -- either upward or downward -- in some commodities that the
system can track and those trends must be significant enough to
dictate entry or exit decisions. Trendless markets have occurred in
the past, however, and are likely to recur. In addition, technical
systems may be profitable for a period of time, after which the system
fails to detect correctly any future price movements. Accordingly,
technical traders may modify and alter their systems on a periodic
basis. Any factor (such as increased governmental control of, or
participation in, the markets traded) that lessens the prospect of
sustained price moves in the future may reduce the likelihood that any
commodity trading advisor's technical systems will be profitable.
The Large Number Of Existing Technical Traders
Could Adversely Affect Each Series
In recent years, there has been a substantial increase in the use
of technical trading systems. Different technical systems will tend
to generate different trading signals. However, the significant
increase in the use of technical systems as a proportion of the
trading volume in the particular markets included in each series'
portfolio could result in traders attempting to initiate or liquidate
substantial positions at or about the same time as a series'
19
<Page>
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 D, Series E and
Series F, 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. 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.
20
<Page>
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.
21
<Page>
Under extraordinary 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
7.94% per annum (Series D), 7.60% per annum (Series E) and 7.68% 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.
23
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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.
24
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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.
25
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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.
26
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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 Statutory 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 Statutory Trust Act
provides that, except as otherwise provided in the trust agreement,
interest-holders in a Delaware Business Trust have the same limitation
of liability as do shareholders of private, for-profit, Delaware cor-
porations. The trust agreement confers substantially the same limited
liability, and contains the same limited exceptions thereto, as would
a limited partnership 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 not 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.
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.
27
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PERFORMANCE OF EACH SERIES
Set forth hereafter in summary form is the actual performance of each
of Series D, Series E and Series F from the start of trading of each
series through March 31, 2003, along with a discussion by the
managing owner of each series' performance.
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 29 TO 42
PAST PERFORMANCE IS NOT NECESSARILY INDICATIVE OF FUTURE RESULTS
28
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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 2003 2002 2001 2000
- ----------------------------------------------------------------------
January 4.51% (7.31)% (2.78)%
February 1.61% 2.02% (3.54)%
March (1.91)% 5.45% (5.72)% (2.07)%
April 2.43% 3.66% (1.59)%
May 6.62% (8.48)% 9.10%
June 8.03% 4.07% (2.07)%
July (6.44)% 1.45% (1.80)%
August 3.40% 4.22% (8.01)%
September (6.36)% (2.80)% (6.36)%
October 5.80% 8.39% (7.84)%
November 0.64% (0.89)% 3.81%
December 0.32% (2.95)% 5.00%
- ------------------------------------------------------------------------
Annual 4.16% 13.84% (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: $18,593,667 (as of March 31, 2003)
Current net asset
value per interest: $97.05 (as of March 31, 2003)
"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
29
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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 from the sales of
interests for the year ended December 31, 2002 and 2001 and for the
period from March 13, 2000 (commencement of operations) to December
31, 2002 resulted in additional gross proceeds to Series D of
$3,812,923, $1,007,395 and $7,770,812, respectively. Additional
limited interests of Series D will continue to be offered on a weekly
basis at the net asset value per interest until the subscription
maximum of $50,000,000 is sold.
Limited Interests in Series D may be redeemed on a weekly basis,
but are subject to a redemption fee if transacted within one year of
the effective date of purchase. Redemptions of limited interests for
the years ended December 31, 2002 and 2001 and for the period from
March 13, 2000 (commencement of operations) to December 31, 2002 were
$1,359,820, $2,281,677 and $4,948,407, respectively. Redemptions of
general interests for the year ended December 31, 2001 and for the
period from March 13, 2000 (commencement of operations) to December
31, 2002 were $18,432 and $54,024, respectively. There were no
redemptions of general interests for year ended December 31, 2002.
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 on a weekly basis for as long as limited interests
in those series are being offered to the public. Future
contributions, redemptions and exchanges will impact the amount of
funds available for investment in commodity contracts in subsequent
periods.
At December 31, 2002, 100% of Series D's net assets were
allocated to commodities trading. A significant portion of the net
assets was held in cash, which was 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 its accounts
with Prudential Securities during each month at the 13-week Treasury
bill discount rate.
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
The net asset value per interest as of December 31, 2002 was
$93.17, an increase of 13.84% from the December 31, 2001 net asset
value per interest of $81.84, which was a decrease of 6.46% from the
December 31,
30
<Page>
2000 net asset value per Interest of $87.49. The CISDM
Fund/Pool Qualified Universe Index (formerly known as the Zurich
Fund/Pool Qualified Universe Index) returned 11.99% and 7.52% for the
years ended December 31, 2002 and 2001, respectively. The CISDM
Fund/Pool Qualified Universe Index is the dollar weighted, total
return of all commodity pools tracked by Managed Accounts Reports,
LLC. Past performance is not necessarily indicative of future
results.
Series D had trading gains (losses) before commissions and
related fees of $1,218,000, $(221,000) and $(657,000) for the years
ended December 31, 2002 and 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 2002 trading results is presented
below.
Net losses for Series D were experienced in the index and metals
sectors. Profits were the result of gains in the currency and
financial sectors.
Equity indices began the year choppily due to a continuing weak
economy and concerns about balance sheet reporting and accounting
irregularities. Positive data and hopes of an economic recovery
boosted stock markets towards the middle of the first quarter.
However, as investor confidence collapsed in response to concerns
about accounting transparency at some firms, heightened tension in the
Middle East, and decreased corporate sales and profits, global equity
markets moved sharply lower throughout the second quarter. In Japan,
the Nikkei Index hit new lows in the third quarter as the economy
continued to struggle with structural problems and the Japanese
government prepared new fiscal policy initiatives. Equity markets
rallied in mid-October, triggered by a surge of global economic
optimism, but fell once again towards the end of the year providing a
negative return for the third consecutive year. Overall, equity
markets around the world showed poor performance for 2002. In the
U.S., the Dow Jones Industrial Average was down 16.76% for the year
while the S&P 500 was down 23.37%. The London FTSE returned a
negative 24.48% and the Hong Kong Hang Seng Index ended the year down
18.21%. Long positions in the S&P 500, London FTSE and Tokyo TOPIX
incurred losses in the second and third quarters of the year resulting
in net losses for Series D in this sector.
Base metals began the year on a rise as global economic activity
showed signs of recovery but fell towards the end of the year due to
weak economies and decreased industrial production. Long positions in
copper resulted in gains in the second quarter as a result of supply
cutbacks initiated by some producers. These gains were not sufficient
to offset the losses incurred in copper positions the rest of the
year, resulting in net losses for Series D.
In foreign exchange markets, the U.S. dollar began the year
strong against most major foreign currencies as the U.S. economy
exhibited signs of recovery. The trend reversed in the second quarter
as weak U.S. economic growth in relation to other economies and
concerns regarding accounting irregularities in major U.S.
corporations drove the dollar downward. Most European currencies and
the euro were weak early in the year but rallied in March amid hopes
of an economic recovery. In the third quarter, the euro surpassed
parity with the U.S. dollar as investors' desire for U.S. assets
decreased, but ended the quarter lower. The British pound rose
against the U.S. dollar early in the year amid perceived strength in
the British economy and positive economic data. Towards the end of
the year, the U.S. dollar began the quarter up amid evidence of a
firming U.S. economy, but traded lower against many major foreign
currencies in December. The market reacted to the sluggish U.S.
economy, weaker foreign demand for the U.S. dollar and expectations of
war with Iraq. Gains for long euro, Australian dollar and British
pound currency positions during the first, second and fourth quarter
offset losses incurred during the third quarter. This resulted in net
gains for Series D.
Global bond markets trended lower through most of the first
quarter amid growing prospects for imminent interest rate hikes by
central banks. In the U.S., interest rates rose towards the end of
the first quarter in response to stronger than expected economic data
and indications that the U.S. Federal Reserve Bank (the "Fed") would
lean towards increasing rates in the near future. The Fed kept rates
unchanged at 1.75% throughout the first three quarters of the year.
Other central banks, including the European Central Bank and the Bank
of Japan, generally followed the lead of the Fed leaving rates
unchanged and foreign bond markets rose. Global bond prices were
slightly weaker at the start of the last quarter as interest rates
rose in response to the stock market rally and optimism on economic
prospects. This trend reversed when the Fed cut interest rates by 50
basis points to 1.25%, a new 40-year low, at its quarterly meeting in
November. This was the first rate cut of 2002, following 11 cuts in
2001. The
31
<Page>
Fed also switched its economic outlook for the near future from a
bias toward "economic weakness" to "balanced." Long positions
in European bonds during the last three quarters resulted in net gains
for Series D.
Fluctuations in overall average net asset levels have led to
corresponding fluctuations in interest earned and commissions and
management fees incurred by Series D, which are largely based on the
level of net assets. Series D's average net asset levels were
significantly higher during the year ended December 31, 2002 as
compared to the prior year, primarily from additional contributions
and favorable trading performance throughout 2002 offset, in part, by
redemptions during 2002. Series D's average net asset levels were
lower during the year ended December 31, 2001 as compared to the prior
year, primarily from redemptions and unfavorable trading performance,
as well as a full year of operations in 2001 as compared to
approximately ten months in 2000 offset, in part, by contributions
during 2001.
Interest income is earned on the average daily equity maintained
in its accounts 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 decreased $67,000 for the year ended December 31, 2002 as
compared to the prior year and decreased $122,000 for the year ended
December 31, 2001 as compared to the prior period. These decreases
were primarily due to declining interest rates throughout 2002 and
2001. In addition, the fluctuation in average net asset levels, as
discussed above, effected the amount of interest income earned.
Commissions are calculated on Series D's net asset level at the
end of each week and, therefore, vary according to weekly trading
performance, contributions and redemptions. Other transaction fees
consist of National Futures Association, exchange and clearing fees,
as well as floor brokerage costs and give-up charges, which are based
on the number of trades the trading advisor executes, as well as which
exchange, clearing firm or bank on, or through, which the contract is
traded. Commissions and other transaction fees increased $95,000 for
the year ended December 31, 2002 as compared to the prior year and
decreased $21,000 for the year ended December 31, 2001 as compared to
the prior period due to the fluctuation in net asset levels as
discussed above.
All trading decisions for Series D are made by 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
increased $20,000 for the year ended December 31, 2002 as compared to
the prior year and decreased $4,000 for the year ended December 31,
2001 as compared to the prior period due to the fluctuation in average
net asset levels as discussed above.
Incentive fees are based on the "new high net trading profits"
generated by the trading advisor, as defined in the advisory agreement
among Series D, the managing owner and Bridgewater Associates. Incentive
fees were $6,000 and $27,000 for the year ended December 31, 2002 and for
the period from March 13, 2000 (commencement of operations) to December
31, 2000, respectively. There were no incentive fees earned for the year
ended December 31, 2001.
General and administrative expenses for the years ended December
31, 2002 and 2001 and for the period from March 13, 2000 (commencement
of operations) to December 31, 2000 were $140,000, $120,000 and
$119,000, respectively. These expenses include accounting, audit, tax,
and legal fees, as well as printing and postage costs related to
reports sent to limited owners and are before reimbursement of costs
incurred by the managing owner on behalf of Series D. 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 has been borne by the
managing owner and its affiliates, resulting in a net cost to Series D
of $89,000, $66,000 and $70,000, respectively.
Inflation
Inflation has had no material impact on operations or on the
financial condition of Series D from inception through December 31,
2002.
PLEASE TURN TO PAGES 43 TO 45 FOR A DESCRIPTION OF BRIDGEWATER
ASSOCIATES AND ITS PRINCIPALS AND TRADING PROGRAMS.
32
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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 2003 2002 2001 2000
- ------------------------------------------------------------------------
January 8.70% 2.14% (2.12)%
February 7.77% (3.88)% 2.51%
March (9.06)% (4.07)% 10.56%
April (5.09)% (12.05)% (0.80)%
May 4.84% 1.17% (4.54)%
June 10.37% (0.33)% (5.59)%
July 9.46% (2.03)% (0.63)%
August 5.94% 6.76% 4.94%
September 4.82% 11.30% (0.77)%
October (7.30)% 8.45% 2.39%
November (4.09)% (13.65)% 12.57%
December 9.60% 0.17% 12.87%
- -------------------------------------------------------------------------
Annual 6.52% 22.50% 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: $40,971,366 (as of March 31, 2003)
Current net asset value
per interest: $168.73 (as of March 31, 2003)
"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: (22.68)% November 2001 to April 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 from the sales of
interests for the years ended December 31, 2002 and 2001 and for the
period from April 6, 2000 (commencement of operations) to December 31,
2002 resulted in additional gross proceeds to Series E of $16,368,262,
$4,884,134 and $21,967,894, respectively. Additional limited
interests of Series E will continue to be offered on a weekly basis at
the net asset value per interest until the subscription maximum is
sold.
Limited interests in Series E may be redeemed on a weekly basis,
but are subject to a redemption fee if transacted within one year of
the effective date of purchase. Redemptions of limited interests for
the years ended December 31, 2002 and 2001 were $2,490,631 and
$2,617,616, respectively, and redemptions of general interests were
$19,576 for the year ended December 31, 2001 and there were no such
redemptions in 2002. Redemptions of limited interests and general
interests for the period from April 6, 2000 (commencement of
operations) to December 31, 2002 were $5,910,658 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 limited interests in those
series are being offered to the public. Future contributions,
redemptions and exchanges will impact the amount of funds available
for investment in commodity contracts in subsequent periods.
At December 31, 2002, 100% of Series E's net assets were
allocated to commodities trading. A significant portion of the net
assets was held in cash which was 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 its accounts with
Prudential Securities during each month at the 13-week Treasury bill
discount rate.
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
The net asset value per interest as of December 31, 2002 was
$158.38, an increase of 22.50% from the December 31, 2001 net asset
value per interest of $129.29 which was an increase of 7.42% from the
December 31,
34
<Page>
2000 net asset value per interest of $120.36. The CISDM
Fund/Pool Qualified Universe Index (formerly known as the Zurich
Fund/Pool Qualified Universe Index) returned 11.99% and 7.52% for the
years ended December 31, 2002 and 2001, respectively. The CISDM
Fund/Pool Qualified Universe Index is the dollar weighted, total
return of all commodity pools tracked by Managed Account Reports, LLC.
Past performance is no guarantee of future results.
Series E's trading gains before commissions and related fees for
the years ended December 31, 2002 and 2001 and the period from April
6, 2000 (commencement of operations) to December 31, 2000 were
$5,920,000, $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, 2002
is presented below.
Net losses for Series E were experienced in the metals and energy
sectors. Profits were the result of gains in the financial, currency,
and grain sectors.
Base metals began the year on a rise as global economic activity
showed signs of recovery but fell in the second half of the year due
to weak economies and decreased industrial production. Short
positions in aluminum and zinc early in the year and long positions in
copper, zinc and nickel in the second half led to net losses in this
sector.
Energy markets were volatile at the beginning of the year, but
rose toward the first quarter-end as the escalating conflict in the
Middle East prompted fears of an interruption in supplies. This,
together with hopes for increased U.S. energy demand due to a
recovering economy, reinforced the normal seasonal upward pressure on
energy prices. Expectations for colder March weather, together with
concerns regarding the safety of nuclear power plants, helped drive
natural gas prices higher. Energy markets continued their upward
climb through the end of the year as fears of impending war with Iraq
and the Venezuelan oil strike pushed crude oil prices up
significantly. Crude oil rose from the low $20's per barrel earlier in
the year to approximately $30 a barrel at year-end. Gains earned in
the third quarter from long crude oil positions did not offset losses
incurred throughout the year.
Global bond markets trended lower through most of the first
quarter of 2002 amid growing prospects for interest rate hikes by
central banks. In the U.S., interest rates rose towards the end of
the first quarter in response to stronger than expected economic data
and indications that the U.S. Federal Reserve Bank (the "Fed") would
lean towards increasing rates in the near future. In the second and
third quarters, significant downturns in world equity markets and
disappointing corporate profits caused a flight to quality into bond
markets around the world. The Fed kept rates unchanged at 1.75%
throughout the first three quarters of the year. Other central banks,
including the European Central Bank and the Bank of Japan, generally
followed the lead of the Fed leaving rates unchanged and foreign bond
markets rose. Global bond prices were slightly weaker at the start of
the last quarter as interest rates rose in response to the stock
market rally and optimism on economic prospects. This trend reversed
when the Fed cut interest rates by 50 basis points to 1.25%, a new 40-
year low, at its quarterly meeting in November. This was the first
rate cut of 2002, following 11 cuts in 2001. The Fed also switched its
economic outlook for the near future from a bias toward "economic
weakness" to "balanced." Long positions in European bonds during the
second half of the year resulted in net gains for Series E.
In foreign exchange markets, the U.S. dollar began the year
strong against most major foreign currencies as the U.S. economy
exhibited signs of recovery. The trend reversed in the second quarter
as weak U.S. economic growth in relation to other economies and
concerns regarding accounting irregularities in major U.S.
corporations drove the dollar downward. Most European currencies and
the euro were weak early in the year but rallied in March amid hopes
of an economic recovery. In the third quarter, the euro surpassed
parity with the U.S. dollar as investors' desire for U.S. assets
decreased, but ended the quarter lower. The British pound rose against
the U.S. dollar early in the year amid perceived strength in the
British economy and gained as a result of positive economic data.
Towards the end of the year, the U.S. dollar began the quarter up amid
evidence of a firming U.S. economy, but traded lower against many
major foreign currencies in December. The market reacted to the
sluggish U.S. economy, weaker foreign demand for the U.S. dollar and
expectations of war with Iraq. Long euro, Swiss franc and New Zealand
dollar positions resulted in net gains.
In commodities markets, drought in the mid-western U.S. during
the second half of the year drove price increases in corn, wheat and
soybean markets. Long positions in corn and wheat resulted in gains.
35
<Page>
Equity indices began the year choppily due to a continuing weak
economy and concerns about balance sheet reporting and accounting
irregularities. Positive data and hopes of an economic recovery
boosted stock markets towards the middle of the first quarter.
However, as investor confidence collapsed in response to concerns
about accounting transparency at some firms, heightened tension in the
Middle East, and decreased corporate sales and profits, global equity
markets moved sharply lower throughout the second quarter. In Japan,
the Nikkei Index hit new lows in the third quarter as the economy
continued to struggle with structural problems and the Japanese
government prepared new fiscal policy initiatives. Equity markets
rallied in mid-October, triggered by a surge of global economic
optimism, but fell once again towards the end of the year providing a
negative return for the third consecutive year. Overall, equity
markets around the world showed poor performance for 2002. In the
U.S., the Dow Jones Industrial Average was down 16.76% for the year
while the S&P 500 was down 23.37%. The London FTSE returned a negative
24.48% and the Hong Kong Hang Seng Index ended the year down 18.21%.
Overall, short positions in the euro DAX, NASDAQ and S&P 500 during
the second, third and fourth quarters of the year resulted in net
gains for Series E.
Increasing average net asset levels have led to increases in
interest earned and commissions and management fees incurred by Series
E. Series E's average net asset levels were significantly higher
during the year ended December 31, 2002 as compared to the prior year,
primarily from additional contributions and favorable trading
performance during 2002 offset, in part, by redemptions during 2002.
Series E's average net assets levels were higher during the year ended
December 31, 2001 as compared to the prior period, primarily from
additional contributions and favorable trading performance during 2000
and 2001 offset, in part, by redemptions during 2001. Additionally,
there was a full year of operations in 2001 as compared to
approximately nine months in the period ended December 2000.
Interest income is earned on the average daily equity maintained
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 increased
by $4,000 during 2002 as compared to 2001 and increased by $11,000
during 2001 as compared to the 2000 period due to the increases in
average net asset levels as discussed above, which were significantly
offset by the impact of declining interest rates. There were lower
overall interest rates during 2002 versus 2001 and lower overall
interest rates during 2001 versus the 2000 period.
Commissions are calculated on Series E's net asset value at the
end of each week and, therefore, vary according to weekly trading
performance, contributions and redemptions. Other transaction fees
consist of National Futures Association, exchange and clearing fees as
well as floor brokerage costs and give-up charges, which are based on
the number of trades the trading advisor executes, as well as which
exchange, clearing firm or bank on, or through, which the contract is
traded. Commissions and other transaction fees increased by $512,000
during 2002 as compared to 2001 and increased by $220,000 during 2001
as compared to the 2000 period due to the increases in average net
asset levels as discussed above.
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 increased
by $167,000 during 2002 as compared to 2001 and increased by $68,000
during 2001 as compared to the 2000 period due to the increases in
average net asset levels as discussed above.
Incentive fees are based on the "new high net trading profits"
generated by the trading advisor, as defined in the advisory agreement
among Series E, the managing owner and the Graham Capital. Incentive
fees incurred during the years ended December 31, 2002 and 2001 and
the period from April 6, 2000 (commencement of operations) to December
31, 2000 were $986,000, $303,000 and $239,000, respectively.
General and administrative expenses for the years ended December
31, 2002 and 2001 and the period from April 6, 2000 (commencement of
operations) to December 31, 2000 were $152,000, $111,000 and $123,000,
respectively. These expenses include accounting, audit, tax and legal
fees as well as printing and postage costs related to reports sent to
limited owners, and are before reimbursement of costs incurred by the
managing owner on behalf of Series E. 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
36
<Page>
these expenses has been borne by the managing owner and its affiliates,
resulting in a net cost to Series E of $116,000, $77,000 and $58,000,
respectively. The net cost to Series E has been increasing primarily
as a result of applying these limitations to increasing net asset
levels as discussed above.
Inflation
Inflation has had no material impact on operations or on the
financial condition of Series E from inception through December 31,
2002.
PLEASE TURN TO PAGES 46 TO 55 FOR A DESCRIPTION OF GRAHAM CAPITAL AND
ITS PRINICPALS AND TRADING PROGRAMS AND ITS PERFORMANCE RECORD FOR ALL
ACCOUNTS UNDER ITS MANAGEMENT FOR 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 2003 2002 2001 2000
- ------------------------------------------------------------------------
January 7.09% (0.96)% (1.87)%
February 7.51% (2.52)% 0.93%
March (4.78)% (2.01)% 6.26% (0.80)%
April (4.14)% (8.77)% (2.13)%
May 3.17% 0.69% 1.86%
June 7.87% (2.39)% 0.87%
July 6.87% 1.24% (3.01)%
August 3.04% 1.27% 2.80%
September 3.58% 6.82% (3.35)%
October (4.62)% 4.48% 2.67%
November (1.63)% (10.36)% 7.04%
December 3.34% 2.83% 1.17%
- -------------------------------------------------------------------------
Annual 9.63% 11.62% (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: $35,019,251 (as of March 31, 2003)
Current net asset
value per interest: $130.20 (as of March 31, 2003)
"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: (16.41)% November 2001 to April 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 from the sales of
interests for the years ended December 31, 2002 and 2001 and for the
period from March 1, 2000 (commencement of operations) to December 31,
2002 resulted in additional gross proceeds to Series F of $10,795,194,
$6,358,524 and $20,156,536, respectively. Additional limited
interests of Series F will continue to be offered on a weekly basis at
the net asset value per interest until the subscription maximum is
sold.
Limited interests in Series F may be redeemed on a weekly basis,
but are subject to a redemption fee if transacted within one year of
the effective date of purchase. Redemptions of limited interests for
the years ended December 31, 2002 and 2001 were $2,531,248 and
$2,036,399, respectively. Redemptions of general interests for the
year ended December 31, 2001 was $9,324. There were no redemptions of
general interests for the year ended December 31, 2002. Redemptions
of limited interests and general interests for the period from March
1, 2000 (commencement of operations) to December 31, 2002 were
$5,386,438 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
limited interests in those series are being offered to the public.
Future contributions, redemptions and exchanges will impact the amount
of funds available for investment in commodity contracts in subsequent
periods.
At December 31, 2002, 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 its accounts with
Prudential Securities during each month at the 13-week Treasury bill
discount rate.
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 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 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
The net asset value per interest as of December 31, 2002, was
$118.76, an increase of 11.62% from the December 31, 2001 net asset
value per interest of $106.40 which was a decrease of 0.47% from the
December 31,
39
<Page>
2000 net asset value per interest of $106.90. The CISDM
Fund/Pool Qualified Universe Index (formerly known as the Zurich
Fund/Pool Qualified Universe Index) returned 11.99% and 7.52% for the
years ended December 31, 2002 and 2001, respectively. The CISDM
Fund/Pool Qualified Universe Index is the dollar weighted, total
return of all commodity pools tracked by Managed Account Reports, LLC.
Past performance is not necessarily indicative of future results.
Series F's trading gains before commissions and related fees for
the years ended December 31, 2002 and 2001 and for the period from
March 1, 2000 (commencement of operations) to December 31, 2000 were
$3,938,000, $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, 2002 is presented
below.
Net losses for Series F were experienced in the energy and metals
sectors. Profits were the result of gains in the financial, currency,
and index sectors.
Energy markets were volatile at the beginning of the year, but
rose toward the first quarter-end as the escalating conflict in the
Middle East prompted fears of an interruption in supplies. This,
together with hopes for increased U.S. energy demand due to a
recovering economy, reinforced the normal seasonal upward pressure on
energy prices. Energy prices declined in the second quarter amid
increased U.S. stock suggesting ample supply for the summer season and
anticipation that Russia would discontinue output restrictions.
Energy markets climbed through the end of the year as fears of
impending war with Iraq and the Venezuelan oil strike pushed crude oil
prices up significantly. Crude oil rose from the low $20's per barrel
earlier in the year to approximately $30 a barrel at year-end. Gains
made in the first and third quarter from long heating oil, crude oil
and natural gas positions did not offset losses incurred throughout
the year.
Gold and other precious metals soared throughout most of the
first half of the year in response to weaknesses in the U.S. dollar
and global equity markets and instability in the Middle East. Base
metals also began the year on a rise as global economic activity
showed signs of recovery. Gold prices reversed at second quarter-end
as a result of profit taking by traders and the sentiment that U.S.
and Japanese central banks would support the U.S. dollar. Gold ended
the year above $300 an ounce. Base metal prices fell in the second
half of the year due to weak economies and decreased industrial
production. Gains earned by long gold positions in the first and last
quarters of the year were not sufficient to offset second and third
quarter losses.
Global bond markets trended lower through most of the first
quarter amid growing prospects for imminent interest rate hikes by
central banks. In the U.S., interest rates rose towards the end of the
first quarter in response to stronger than expected economic data and
indications that the U.S. Federal Reserve Bank (the "Fed") would lean
towards increasing rates in the near future. Short U.S. Treasury bond
positions in the first quarter resulted in gains. The Fed kept rates
unchanged at 1.75% throughout the first three quarters of the year.
Other central banks, including the European Central Bank and the Bank
of Japan, generally followed the lead of the Fed leaving rates
unchanged and foreign bond markets rose as well. In the second half of
the year, the Japanese bond market was particularly strong as the
Japanese economy continued to struggle with recession and investors
fled to bonds for safety. Global bond prices in the fourth quarter
were slightly weaker as interest rates rose in response to the stock
market rally and optimism on economic prospects. This trend reversed
when the Fed cut interest rates by 50 basis points to 1.25%, a new 40-
year low, at its quarterly meeting in November. This was the first
rate cut of 2002, following 11 cuts in 2001. The Fed also switched its
economic outlook for the near future from a bias toward "economic
weakness" to "balanced." U.S., Japanese and European bond markets
ended the year strong resulting in net gains for long U.S. Treasury,
Japanese and European bond positions.
In foreign exchange markets, the U.S. dollar began the year
strong against most major foreign currencies as the U.S. economy
exhibited signs of recovery. The trend reversed in the second quarter
as weak U.S. economic growth in relation to other economies and
concerns regarding accounting irregularities in major U.S.
corporations drove the dollar downward. Most European currencies and
the euro were weak early in the year but rallied in March amid hopes
of an economic recovery. In the third quarter, the euro surpassed
parity with the U.S. dollar as investors' desire for U.S. assets
decreased, but ended the quarter lower. The British pound rose against
the U.S. dollar early in the year amid perceived strength in the
British economy and gained as a result of positive economic data.
Towards the end of the year, the U.S. dollar began the quarter up amid
evidence of a firming U.S. economy, but traded lower
40
<Page>
against many major foreign currencies in December. The market reacted to
the sluggish U.S. economy, weaker foreign demand for the U.S. dollar and
expectations of war with Iraq. Long euro, Australian dollar and New
Zealand/U.S. dollar cross-rate positions resulted in gains.
Equity indices began the year choppy due to a continuing weak
economy and concerns about balance sheet reporting and accounting
irregularities. Positive data and hopes of an economic recovery
boosted stock markets towards the middle of the first quarter.
However, as investor confidence collapsed in response to concerns
about accounting transparency at some firms, heightened tension in the
Middle East, and decreased corporate sales and profits, global equity
markets moved sharply lower throughout the second quarter. This
resulted in investors re-evaluating their outlook for a near-term
economic recovery. Equity markets rallied in mid October, triggered by
a surge of global economic optimism, but fell once again towards the
end of the year providing a negative return for the third consecutive
year. Overall, equity markets around the world showed poor performance
for 2002. In the U.S., the Dow Jones Industrial Average was down
16.76% for the year while the S&P 500 was down 23.37%. The London FTSE
returned a negative 24.48% and the Hong Kong Hang Seng Index ended the
year down 18.21%. Overall, short positions in the London FTSE, EURSTOX
50 and EUR DAX Indexes resulted in gains.
Increasing overall average net asset levels have led to
corresponding increases in commissions and management fees incurred by
Series F. Series F's average net asset levels were significantly
higher during the year ended December 31, 2002 as compared to the
prior year, primarily from additional contributions and favorable
trading performance during 2002 offset, in part, by redemptions during
2002. Series F's average net asset levels were higher during the year
ended December 31, 2001 as compared to the period from March 1, 2000
(commencement of operations) to December 31, 2000, primarily from
additional contributions during 2000 and 2001 and favorable trading
performance in the Fourth Quarter of 2000 offset, in part, by
redemptions during 2001. Additionally, there was a full year of
operations in 2001 as compared to ten months in the period ended
December 31, 2000.
Interest income is earned on the average daily equity maintained
in its accounts 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 decreased $81,000 for the year ended December 31, 2002 as
compared to 2001 primarily due to the overall decrease in interest
rates during 2002 offset, in part, by the increase in net assets as
discussed above. Interest income increased $8,000 for the year ended
December 31, 2001 as compared to the period from March 1, 2000
(commencement of operations) to December 31, 2000 primarily due to the
difference in the length of the 2001 and 2000 periods covered as well
as higher overall net asset levels as discussed above. 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 the trading advisor executes, as well as which
exchange, clearing firm or bank on, or through, which the contract is
traded. Commissions and other transaction fees increased $375,000 for
the year ended December 31, 2002 as compared to 2001 and increased
$305,000 for the year ended December 31, 2001 as compared to the
period from March 1, 2000 (commencement of operations) to December 31,
2000 due to the increase in net asset levels discussed above.
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 increased
$123,000 for the year ended December 31, 2002 as compared to 2001 and
increased $94,000 for the year ended December 31, 2001 as compared to
the period from March 1, 2000 (commencement of operations) to December
31, 2000 due to the increase in net asset levels discussed above.
Incentive fees are based on the "new high net trading profits"
generated by the trading advisor, as defined in the advisory agreement
among Series F, the managing owner and Campbell & Company. Incentive
fees incurred during the years ended December 31, 2002 and 2001 and
the period from March 1, 2000 (commencement of operations) to December
31, 2000 were $533,000, $114,000 and $70,000, respectively.
41
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General and administrative expenses for the years ended December
31, 2002 and 2001 and the period from March 1, 2000 (commencement of
operations) to December 31, 2000 were $145,000, $111,000 and $132,000,
respectively. These expenses include accounting, audit, tax and legal
fees as well as printing and postage costs related to reports sent to
limited owners and are before reimbursements of costs incurred by the
managing owner on behalf of Series F. To the extent that general and
administrative expenses exceed 1.5% of Series F's net asset value
during such 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
$123,000, $80,000 and $84,000, respectively. The net cost to Series F
has been increasing primarily as a result of applying these
limitations to increasing net asset levels as discussed above.
Inflation
Inflation has had no material impact on operations or on the
financial condition of Series F from inception through December 31,
2002.
PLEASE TURN TO PAGES 56 TO 59 FOR A DESCRIPTION OF CAMPBELL & COMPANY
AND ITS PRINICPALS AND TRADING PROGRAMS.
42
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DESCRIPTION OF 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 Director of Operations at 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.
Bridgewater Associates and its principals and employees may trade
securities, futures and forward contracts for proprietary accounts.
Bridgewater Associates and its principals reserve the right to trade for their
own accounts. There are written procedures that govern proprietary trading
by principals. Bridgewater Associates and/or its employees may trade
experimental investment strategies that the trading advisor wants to test
before employing these strategies for clients. These strategies might involve
different levels of risk, trading frequency and/or commission rates and
therefore can be expected to produce results that are different from those
of its clients. The records of trading in such accounts will not be made
available to clients for inspection.
Bridgewater Associates may purchase interests in Series D. As of March
31, 2003, Bridgewater Associates did not hold any interests in Series D.
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.
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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
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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, 2003. 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 48%
Currencies 38
Stock Indices 8
Commodities 6
----------
Total 100%
[BAR GRAPH OMITTED]
45
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DESCRIPTION OF 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, and may, in the future, with the consent of the managing
owner also utilize other trading programs.
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. Mr. Tropin is a member of the
Chicago Mercantile Exchange.
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. Mr. Sedlack began his career at the law firm of
Coudert Brothers in New York in 1986 and was resident in Coudert Brothers'
Singapore office from 1988 to 1989. Prior to joining Graham Capital in June
1998, Mr. Sedlack was a partner at the law firm of McDermott, Will & Emery in
New York, focusing on securities and commodities laws pertaining to the
investment management and related industries. Mr. Sedlack received a JD from
Cornell Law School in 1986 and an M.B.A. in Finance in 1983 and a BS in
Engineering in 1982, both from State University of New York at Buffalo.
46
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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 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 and its principals may trade in futures interests for their
own accounts. There are written procedures that govern proprietary trading by
Graham Capital and its principals. Trading records for all proprietary trading
are available for review by the Trust upon reasonable notice.
47
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Graham Capital may purchase interests in Series E. As of March 31, 2003,
Graham Capital did not hold any interests in Series E.
Graham Capital's Trading Strategy
Graham Capital has both systematic and discretionary trading programs.
Graham Capital uses systematic trading programs or models to produce trading
signals on a largely automated basis when applied to market data. Graham
Capital also uses a discretionary trading program for which trades are
determined subjectively on the basis of its traders' assessments of
market conditions, rather than through application of an automated system.
The investment objective of each Graham Capital trading strategy is to
provide clients with significant potential for capital appreciation in
both rising and falling markets during expanding and recessionary economic
cycles.
Systematic Trading
Graham Capital's trading systems rely primarily on technical rather
than fundamental information as the basis for their trading decisions.
Graham Capital's systems are based on the expectation that they can over time
successfully anticipate market events using quantitative mathematical models
to determine their trading activities, as opposed to attempting properly to
forecast price trends using subjective analysis of supply and demand.
Graham Capital's core trading systems are primarily very long term in
nature and are designed to participate selectively in potential profit
opportunities that can occur during periods of sustained price trends in a
diverse number of U.S. and international markets. The primary objective of
the core trading systems is to establish positions in markets where the price
action of a particular market signals the computerized systems used by Graham
Capital that a potential trend in prices is occurring. The systems are
designed to analyze mathematically the recent trading characteristics of each
market and statistically compare such characteristics to the long-term
historical trading pattern of the particular market. As a result of this
analysis, the systems will utilize proprietary risk management and trade
filter strategies that are intended to benefit from sustained price trends
while reducing risk and volatility exposure.
Graham Capital utilizes discretion in connection with its systematic
trading programs in determining which markets warrant participation in the
programs, market weighting, leverage and timing of trades for new accounts.
Graham Capital also may utilize discretion in establishing positions or
liquidating positions in unusual market conditions where, in its sole
discretion, Graham Capital believes that the risk-reward characteristics have
become unfavorable.
Discretionary Trading
The Discretionary Trading Group (referred to as the DTG) was
established at Graham Capital in February 1998. Unlike Graham Capital's
systematic trading programs, which are based almost entirely on computerized
mathematical models, the DTG determines its trades subjectively on the basis
of personal assessment of trading data and trading experience. One of the
significant advantages Graham Capital's traders benefit from is Graham
Capital's experience in systematic trading and trend identification. This
experience has proven helpful in enabling the DTG to take advantage of
significant market trends when they occur and, equally important, the DTG has
the potential to profit from trend reversals as well. Additionally, Graham
Capital makes available extensive technical and fundamental research
resources to the DTG in an effort to improve its competitive performance edge
over time. The DTG's performance results generally are not correlated to the
results of other discretionary traders or Graham Capital's systematic trading
programs. Importantly, the DTG can generate successful performance results
in trading range type markets where there are few long-term trends.
Graham Capital's Trading Programs
The various futures interests markets that are traded pursuant to each
Graham Capital systematic trading program are identified on the following
pages. Graham Capital conducts ongoing research regarding expanding the
number of futures interests markets each program trades to further the
objective of portfolio diversification. Particular futures interests markets
may be added to or deleted from a program at any time without notice.
Portfolios may be rebalanced with respect to the weighting of existing
markets at any time without notice. Additions, deletions and rebalancing
decisions with respect to each program are made based on a variety of
factors, including performance, risk, volatility, correlation, liquidity and
price action, each of which factors may change at any time.
48
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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, and may, in the future, with the consent of the managing
owner also utilize other trading programs 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, 2003, 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 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, 2003, 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.
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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, 2003. As of that date, investor funds are exposed to these
sectors in approximately the percentage allocations stated; however, these
percentage allocations are subject to change at Graham Capital's discretion.
Actual allocations change as market conditions and trading opportunities
change, and it is likely that the targeted risk allocations may vary for
Series E during future periods, although the focus will remain on a
diversified portfolio:
Market Sector Percentage
------------- ----------
Currencies 26%
Interest Rates 24
Stock Indices 17
Agricultural Products/Softs 16
Energy Products 10
Metals 7
----------
Total 100%
[BAR GRAPH OMITTED]
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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.
CFTC rules do not require performance disclosure with respect to a
trading advisor where the commodity pool has been in operation for at least
three years. Notwithstanding the fact that Series E has been in operation
for over three years, the following information with respect to Graham
Capital's past performance is included in the event that it is determined
between Graham Capital and the managing owner that Graham Capital should
utilize other trading programs in addition to its Global Diversified Program
trading strategy, the strategy currently used to trade Series E.
Global Diversified Program
The following is a capsule summary, as of February 28, 2003, 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: 10
Aggregate $$ In All Programs: $2,991,228,000 (All Programs including Notional)
$$ in this Program: $394,415,000 (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: (16.40%) November 2001 through April 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 = 9
Unprofitable = 2
RATE OF RETURN INFORMATION IS ON FOLLOWING PAGE
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CAPSULE E(1) -- GRAHAM CAPITAL GLOBAL DIVERSIFIED PROGRAM
MONTHLY/ANNUAL RATES OF RETURN*
MONTH 2003 2002 2001 2000 1999 1998
January 6.55% 1.52% (1.40)% 1.17% (0.08)% 1.65%
February 5.78 (2.39) 1.56 (1.08) 0.95 1.41
March (2.22) 7.98 0.51 (5.09) 4.56
April (3.62) (8.53) (2.91) 2.63 (3.02)
May 3.44 0.76 (2.52) (4.14) (0.82)
June 6.35 (0.08) (3.33) 5.65 (5.95)
July 6.62 (1.28) (0.63) (1.86) (3.49)
August 4.58 4.68 4.29 3.37 11.01
September 3.91 8.05 (1.16) 1.07 6.93
October (4.64) 6.63 2.21 (3.61) 3.24
November (2.39) (9.68) 10.06 1.66 (2.80)
December 6.88 (0.06) 9.23 5.14 0.09
Annual 12.71% 18.42% 7.02% 15.83% 5.12% 12.20%
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 persons the
performance of which is not included in the composite performance record.
52
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The following is a capsule summary, as of February 28, 2003, 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: 13
Aggregate $$ In All
Programs: $2,991,228,000 (All Programs including Notional)
$$ in this Program: $331,129,000 (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: (24.27%) November 2001 to April 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 = 14
Unprofitable = 2
RATE OF RETURN INFORMATION IS ON FOLLOWING PAGE
53
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CAPSULE E(2) -- GRAHAM CAPITAL GLOBAL DIVERSIFIED PROGRAM
TRADED AT 150% LEVERAGE
MONTHLY/ANNUAL RATES OF RETURN*
MONTH 2003 2002 2001 2000 1999 1998
January 9.64% 2.44% (1.93)% 2.38% (0.62)% 2.14%
February 8.08 (3.32) 2.91 (1.83) 1.35 1.71
March (3.84) 11.12 0.46 (7.79) 6.52
April (5.27) (11.73) (3.58) 4.02 (4.42)
May 5.67 1.42 (3.81) (6.25) (1.08)
June 11.30 0.03 (5.35) 8.05 (9.21)
July 11.25 (1.60) (1.05) (2.59) (5.22)
August 6.81 6.87 6.18 5.00 17.07
September 5.67 11.99 (0.97) 2.03 9.34
October (6.75) 9.26 3.22 (5.46) 4.97
November (3.55) (13.45) 14.80 2.26 (3.40)
December 10.39 0.28 13.77 7.52 0.12
Annual 18.49% 32.25% 12.16% 24.33% 6.17% 17.00%
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 persons the
performance of which is not included in the composite performance record.
54
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SUPPLEMENTAL INFORMATION
CAPSULE E(3)
PAST PERFORMANCE OF OTHER PROGRAMS OFFERED BY GRAHAM CAPITAL THAT ARE
NOT CURRENTLY BEING 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 (15.6) (21.41)
Capital Program 2/2/95 1/7/98 2 $2,991,228,000 $159,661,000 11/01 11/01-4/02
Graham Non-Trend (5.01) (9.52)
Capital Based Program 2/2/95 1/4/99 0 $2,991,228,000 -- 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 $2,991,228,000 -- 10/99 6/99-10/99
Discretionary
Graham Trading (2.22) (4.18)
Capital Program 2/2/95 1/4/99 0 $2,991,228,000 -- 8/99 6/99-8/99
Graham (7.16) (11.54)
Capital K4 Program 2/2/95 1/4/99 8 $2,991,228,000 $616,572,000 4/01 11/01-4/02
Graham K4 Program at (10.15) (16.35)
Capital 150% Leverage 2/2/95 6/1/99 14 $2,991,228,000 $814,349,000 4/01 11/01-4/02
International
Graham Financial (8.41) (18.07)
Capital Program 2/2/95 1/2/96 0 $2,991,228,000 -- 6/98 4/98-6/98
Natural
Graham Resource (6.68) (19.22)
Capital Program 2/2/95 9/27/96 0 $2,991,228,000 -- 10/97 2/97-11/97
Graham Federal Policy (3.41) (3.41)
Capital Program 2/2/95 8/1/00 4 $2,991,228,000 $517,947,000 1/02 1/02
Proprietary
Graham Matrix (11.16) (15.71)
Capital Program 2/2/95 6/1/99 1 $2,991,228,000 $362,403,000 11/01 11/01-4/02
ANNUAL RATES OF RETURN*
Name of -------------------------------------------------------
Commodity Closed Accounts
Trading ---------------------------
Advisor Program Profitable Unprofitable 2003 2002 2001 2000 1999 1998
- --------- ------------- ---------- ------------ -------- -------- -------- -------- -------- --------
% % % % %
Selective
Graham Trading
Capital Program 0 0 19.70 30.11 0.55 7.07 0.91 25.86
(2 mo)
Graham Non-Trend
Capital Based Program 2 0 -- -- (9.54) 11.86 0.46 --
(6 mos)
Non-Trend
Based Program
Graham at 150%
Capital Leverage 1 4 -- -- (12.95) 21.01 (9.67) --
(6 mos) (7 mos)
Discretionary
Graham Trading
Capital Program 1 0 -- 13.58 15.55 8.20 (1.03) --
Graham
Capital K4 Program 1 0 11.56 29.83 29.56 16.39 7.25 --
(2 mo)
Graham K4 Program at
Capital 150% Leverage 2 1 17.98 48.10 43.14 (10.05) 8.96 --
(2 mo) (6 mos) (7 mos)
International
Graham Financial
Capital Program -- -- -- -- -- -- -- 8.15
Natural
Graham Resource
Capital Program -- -- -- -- -- -- -- 4.71
Graham Federal Policy
Capital Program 6 0 1.47 17.90 16.88 2.51 -- --
(2 mo) (5 mos)
Proprietary
Graham Matrix
Capital Program 1 1 12.00 28.10 6.77 15.94 2.90 --
(2 mo) (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 persons
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
55
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DESCRIPTION OF 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 previously served as a member of the Board of
Directors of the Managed Funds Association and 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. Ms. Becks is currently a member of the
Board of Directors of the Managed Funds Association. 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.
56
<Page>
Phil Lindner, born in 1954, serves as Vice President-Information
Technology. He has been employed by Campbell & Company since October 1994.
He was appointed the IT Director in March 1996 and Vice President in
January 1998. Prior to joining Campbell & Company, Mr. Lindner worked as
a programmer and manager for Amtote, a provider of race track computer systems.
James M. Little, born in 1946, joined Campbell & Company in April
1990 and serves as Executive Vice President-Client Development and a
Director. Mr. Little holds a B.S. in Economics and Psychology from
Purdue University. From March 1989 through April 1990, Mr. Little was
a registered representative of A.G. Edwards & Sons, Inc. From January
1984 through March 1989, he was the Chief Executive Officer of James
Little & Associates, Inc., a commodity pool operator and broker-
dealer. Mr. Little is the co-author of The Handbook of Financial
Futures, and is a frequent contributor to investment industry
publications. Mr. Little is an Associated Person of Campbell &
Company.
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 the
assets under Campbell & Company's management. 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 may purchase interests in Series F. As of March 31,
2003, Campbell & Company did not hold any interests in Series F.
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 seven portfolios: (1) 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; and (vii) the Ark Portfolio. The
managing owner and Campbell & Company have agreed that Campbell &
Company, for the present, trades on behalf of Series F utilizing only
the FME Small (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.
57
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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.
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.
58
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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, 2003. 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 53%
Interest Rates 16
Energy 11
Stock Indices 18
Precious and Base Metals 2
----------
Total 100%
[BAR GRAPH OMITTED]
59
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TRADING LIMITATIONS AND POLICIES
The following limitations and policies are applicable to each
series. A trading advisor sometimes may be prohibited from taking
positions for a series that it would otherwise prefer to acquire
because of the need to comply with these limitations and policies.
The managing owner monitors compliance with the trading limitations
and policies set forth below, and it may impose additional
restrictions upon the activities of any trading advisor (through
modification of the limitations and policies) as it deems appropriate
and in the best interests of each series.
The managing owner:
- Will not approve a material change in the following
trading limitations and policies for any series without
obtaining the prior written approval of limited owners
holding interests representing at least a majority (over
50%) of the net asset value of that series (excluding
interests owned by the managing owner and its
affiliates).
- May, without obtaining approval from the limited owners,
impose additional limitations on the activities of each
series or on the types of instruments in which a trading
advisor can invest if the managing owner determines that
additional limitations (i) would be necessary to assure
that 90% of the series' income is qualifying income or
(ii) would be in the best interests of a series.
Trading Limitations
A series will not:
- Engage in pyramiding its commodities positions (i.e., use
unrealized profits on existing positions to provide
margin for the acquisition of additional positions in the
same or a related commodity), but a series may take into
account open trading equity on existing positions in
determining whether to acquire additional commodities
positions.
- Borrow or loan money (except with respect to the
initiation or maintenance of the series' commodities
positions or obtaining lines of credit for the trading of
forward currency contracts; provided, however, that each
series is prohibited from incurring any indebtedness on a
non-recourse basis).
- Permit rebates to be received by the managing owner or
its affiliates or permit the managing owner or any
affiliate to engage in any reciprocal business
arrangements that would circumvent the foregoing
prohibition.
- Permit any trading advisor to share in any portion of the
commodity brokerage fees paid by a series.
- Commingle its assets, except as permitted by law.
- Permit the churning of its commodity accounts.
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Trading Policies
Subject to the foregoing limitations, each trading advisor has
agreed to abide by the trading policies of the Trust, which currently
are as follows:
- Series funds generally will be invested in contracts that
are traded in sufficient volume which, at the time such
trades are initiated, are reasonably expected to permit
entering and liquidating positions.
- Stop or limit orders may, in a trading advisor's
discretion, be given with respect to initiating or
liquidating positions in order to attempt to limit losses
or secure profits; if stop or limit orders are used,
however, there can be no assurance that Prudential
Securities will be able to liquidate a position at a
specified stop or limit order price, due to either the
volatility of the market or the inability to trade
because of market limitations.
- A series generally will not initiate an open position in
a futures contract (other than a cash settlement
contract) during any delivery month in that contract,
except when required by exchange rules, law or exigent
market circumstances; this policy does not apply to
forward and cash market transactions.
- A series may occasionally make or accept delivery of a
commodity including, without limitation, currencies; a
series also may engage in an exchange of futures for
physicals transaction, as permitted on the relevant
exchange, involving currencies and metals and other
commodities.
- A series may employ trading techniques such as spreads;
an example of a spread position is when a series owns a
futures contract which expires in one month and sells a
futures contract for the same commodity in a later month.
- A series will not initiate open positions that would
result in net long or short positions requiring as margin
or premium for outstanding positions in excess of 15% of
a series' net asset value for any one commodity, or in
excess of 66.67% of a series' net asset value for all
commodities combined; under certain market conditions,
such as where there is an inability to liquidate open
commodities positions because of daily price
fluctuations, the managing owner may be required to
commit as margin in excess of the foregoing limits, and
in such a case the managing owner will cause the trading
advisor to reduce its open futures and option positions
to comply with these limits before initiating new
commodities positions.
- If a series engages in transactions in forward currency
contracts other than with or through Prudential
Securities and/or Prudential-Bache Global Markets, Inc.,
it will engage in such transactions only with or through
a bank that has, as of the end of its last fiscal year,
an aggregate balance in its capital, surplus and related
accounts of at least $100 million and through other
broker-dealer firms whose aggregate balance in their
capital, surplus, and related accounts is at least $50
million; if transactions are effected for a series in the
forward markets, the only forward markets that are
permitted to be utilized without the managing owner's
consent are the interbank foreign currency markets and
the London Metal Exchange; the utilization of other
forward markets requires the consent of the managing
owner.
61
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DESCRIPTION OF THE TRUST,
TRUSTEE, MANAGING OWNER AND AFFILIATES
Prudential Financial, Inc.
Indirect 100%
100% Prudential Securities
Group Inc.
100%
Prudential-Bache
Global Markets Inc. Prudential Securities Wilmington Trust
Affiliate Incorporated Company
100% Trustee
Prudential Securities Managing Trust
Futures Management, Inc Owner
The Trust was formed on April 22, 1999 under the Delaware
Statutory 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.
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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.
In February 2003, Prudential Financial, Inc. and Wachovia Corp.
("Wachovia") announced an agreement to combine each company's
respective retail securities brokerage and clearing operations within
a new firm, which will be headquartered in Richmond, Virginia. Under
the agreement, Prudential Financial, Inc. will have a 38% ownership
interest in the new firm and Wachovia will own 62%. The transaction,
which includes the securities brokerage, securities clearing, and debt
capital markets operations of Prudential Securities, but does not
include the equity sales, trading and research operations or commodity
brokerage and derivative operations of Prudential Securities (as
utilized by the Trust), is anticipated to close in the third quarter
of 2003. The managing owner, as well as Prudential Securities, will
continue to be indirect wholly owned subsidiaries of Prudential
Financial, Inc.
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 and Chief Administrative
Officer -- Proprietary and OTC Trading of the Global Derivatives Business
Group for Prudential Securities with responsibility for precious and base
metals, and foreign exchange and 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. Mr. Bales earned his bachelor's degree
in Economics from Rutgers College in New Brunswick, New Jersey in 1981 and
his Juris Doctor from Pace University School of Law in White Plains, New
York in 1987.
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 position with Seaport Futures since such date. Mr.
Ladouceur joined Prudential Securities in August 2001 and is an
Executive Vice President and Head of the Global Derivatives Business Group.
He is responsible for all operating activities of the Global Derivatives
Business Group including
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sales and trading, foreign exchange, base and precious metals, and the
trading floors. 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.
Paul Waldman, born 1957, became the Secretary of the managing
owner in November 2002, at which time he also became the Secretary of
Seaport Futures, an affiliate of the managing owner. Prior to being
elected Secretary, Mr. Waldman had served as Assistant Secretary for
both the managing owner and Seaport Futures since December 1997. He is
a First Vice President and Associate General Counsel of Prudential
Securities. Mr. Waldman is responsible for the day-to-day corporate
governance of Prudential Securities and its subsidiary companies.
Prior to joining Prudential Securities in September 1988, Mr. Waldman
worked for E.A. Sheslow & Co., a specialist firm on the NYSE and
American Stock Exchange in 1986, and for F.P. Quinn & Co., a member
firm of the Chicago Board Options Exchange, from 1984 to 1985. Mr.
Waldman received a B.A. in Journalism from the University of Georgia
in 1979, an M.A. in Political Science from Boston University in 1981,
and a Juris Doctor from New York Law School in 1992. He is admitted to
the New York and Connecticut bars.
Steven Weinreb, born 1962, became the Treasurer and Chief
Financial Officer of the managing owner in May 2002, at which time he
also became the Treasurer and Chief Financial Officer of Seaport
Futures Management, Inc. (referred to as Seaport Futures), an
affiliate of the managing owner. He is a Senior Vice President and
Controller of Prudential Securities. Prior to joining Prudential
Securities in May 1991, he was with the public accounting firms
Deloitte & Touche from 1986 to 1991 and from 1984 to 1986 with
Laventhol & Horwath. Mr. Weinreb graduated in 1984 from the State
University of New York at Albany with a B.S. in Accounting. Mr.
Weinreb 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.
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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 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.
On October 9, 2002, Prudential Securities entered into a
settlement order with the CFTC concerning certain ex-Prudential
Securities employees' alleged failure to immediately record account
identifiers and order times and the alleged failure of Prudential
Securities to produce certain order tickets to the CFTC. Without
admitting or denying the order's findings, Prudential Securities
consented to a civil monetary penalty of $65,000, made representations
concerning policies and procedures for ensuring proper preparation of
order tickets and agreed to cease and desist from future violations of
Section 4g of the Commodity Exchange Act and CFTC Rules 1.31 and 1.35.
On or about October 15, 2002, a jury in an action in Ohio State
Court awarded $11.7 million in compensatory damages and $250 million
in punitive damages against Prudential Securities. The awards were
made in connection with the class action case of Dale Burns et al. vs.
Prudential Securities Inc. and Jeffrey Pickett, in which a former
Prudential Securities financial advisor was alleged to have
transferred, without authorization, his clients' equity mutual funds
into fixed income funds in October 1998. Prudential Securities
believes the damages
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were not legally justified, and it plans to ask the court to set them aside.
If that motion is unsuccessful, Prudential intends to appeal the award.
DUTIES AND COMMITMENTS OF THE MANAGING OWNER
Management Of The Trust
The managing owner is responsible for the management of each
series' business and affairs but does not (except in certain limited,
and essentially emergency, situations) direct the trading activities
for any series. This responsibility includes:
- Renewing the advisory agreements with the trading
advisors, as well as selecting additional and/or
substitute trading advisors; provided, however, that in
no event will the managing owner retain a commodity
trading advisor affiliated with Prudential Securities.
- Determining whether to retain or replace the trustee.
- Preparing monthly and annual reports to the limited
owners, filing reports required by the CFTC, the SEC and
any other federal or state agencies or self-regulatory
organizations.
- Calculating the net asset value of each series and all
fees and expenses, if any, to be paid by each series.
- Providing suitable facilities and procedures for handling
and executing redemptions, exchanges, transfers and
distributions (if any) and the orderly liquidation of
each series.
- Selecting and monitoring the Trust's commodity clearing
broker and its foreign exchange 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:
- The affiliate that it proposes to engage is qualified to
perform such services.
- The terms and conditions of the agreement with an
affiliate are no less favorable than could be obtained
from equally qualified, unaffiliated third parties.
- The maximum period covered by any such agreement shall
not exceed one year and shall be terminable without
penalty upon 60 days' prior written notice by the Trust.
The fees of any such affiliates are the responsibility of Prudential
Securities or one of its other affiliates.
Notification Of Decline In Net Asset Value
If the estimated net asset value per interest of your investment
in the Trust declines as of the end of any business day to less than
50% of the net asset value per interest of that series as of the end
of the immediately preceding valuation point, the managing owner will
notify you within seven business days of such decline. The notice
will include a description of your voting and redemption rights.
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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.
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 149 and meets
the minimum net worth requirements under the NASAA guidelines. The
managing owner and Prudential Securities Group, Inc., the company
which owns Prudential Securities, have each agreed that so long as the
managing owner remains the managing owner of the Trust, they will not
take or voluntarily permit to be taken any affirmative action to
reduce the managing owner's net worth below any regulatory-required
amounts.
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FIDUCIARY RESPONSIBILITIES
Accountability
Pursuant to the Delaware Statutory 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 Statutory 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 Statutory 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.
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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, 2003 was as
follows:
From Investors From The Managing Owner
-------------- -----------------------
Series D $18,414,194 $179,473
Series E $40,598,303 $373,063
Series F $34,714,333 $304,918
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.
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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 the series'
account with Prudential Securities during that month at a 13-week (91-
day) Treasury bill rate. This rate is determined weekly and
represents 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 home, home
entities (such as corporations furnishings and automobiles) of at least
or trusts) must: $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, home
plans covering no common law furnishings and automobiles) of at least
employees must: $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 Have net assets of at least $150,000
example, qualified pension,
profit sharing plans, stock AND
bonus plans, welfare benefit
plans, such as group insurance Have an aggregate investment in any series
plans, or other fringe benefit or in all series combined that does not
plans and government plans) exceed 10% of its assets
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:
- "Freely transferable" (determined based on the applicable
facts and circumstances).
- 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.
- 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:
- Has investment discretion with respect to the investment
of your plan's assets.
- Has authority or responsibility to give or regularly
gives investment advice with respect to your plan's
assets, for a fee, and pursuant to an agreement or
understanding that such advice will serve as a primary
basis for investment decisions with respect to your
plan's assets and that such advice will be based on the
particular investment needs of your plan.
- Is an employer maintaining or contributing to your plan.
Neither Prudential Securities nor the trading advisor makes any
representation that this investment meets the relevant legal
requirements with respect to investments by your plan or that this
investment is appropriate for your plan. The person with investment
discretion for your plan should obtain appropriate legal and financial
advice as to the propriety of an investment in the Trust in light of
the circumstances of your plan.
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HOW TO SUBSCRIBE FOR, EXCHANGE AND REDEEM INTERESTS
To Subscribe For Interests, You Must:
- Have an account at Prudential Securities (or an additional
selling agent).
- Complete a subscription agreement (Exhibit D) if you are a new
or existing subscriber to the series being purchased.
- Have cash in your Prudential Securities account (or account
with an additional selling agent) to cover the entire
subscription amount.
- Send the subscription agreement to a Prudential Securities
financial advisor (or an additional selling agent) in a timely
manner.
- 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.")
- Meet established suitability standards.
- Subscribe for at least the subscription minimums.
Minimum Purchases
Minimum Initial Purchase $5,000 or $2,000 (for IRA accounts only)
in one or more series
Minimum Per Series $1,000 for any series
Minimum Additional Purchase
for existing limited owners $100 per series
Special Purchases
If you purchase an aggregate of at least $5 million of interests
in one or more series, you may receive a discount on the purchase
price. If you receive a discount on the purchase price of your
interests, a dollar amount equal to the discount you receive will be
paid to the Trust at the time of the sale by Prudential Securities and
deducted from the compensation payable to the Prudential Securities
employee responsible for the sale. You should consult with your tax
advisors concerning the tax consequences to you of receiving a
discount.
In addition to, or instead of, the discount, if you redeem during
the first twelve months following the effective date of your purchase,
all or a portion of the redemption fees may be waived if, at the time
of a redemption, your aggregate interests in all series, when added to
your aggregate interests in the various series of World Monitor Trust,
another 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
- Individual or joint Individual accounts are owned by one person.
tenant Joint accounts can have two or more owners.
- Gifts or transfers to a An individual can gift up to $10,000 per year
minor per person without paying federal gift
tax. Depending on state law, you can
establish a custodial account under the
Uniform Gift to Minors Act or the Uniform
Transfers to Minors Act.
- Trust The subscribing trust must be established
before an account can be opened.
- Business or other Corporations, partnerships, limited liability
organization companies or partnerships, associations or
other groups.
- Benefit Plans Individual Retirement Funds, Non-ERISA Plans
or ERISA Plans.
When A Subscription Becomes Final
- New subscribers Your subscription is not final or binding
to a series until at least five business days after
the date you submit your subscription
agreement. You may revoke a subscription
only within five business days after you
submit a subscription agreement. Thereafter,
all subscriptions are irrevocable.
- Existing limited Your subscription is not final or binding
owners in a series until at least two business days after
purchasing additional the date you submit your subscription
interests in that agreement (Exhibit D). You may revoke
same series a subscription only within two business
days after you submit a subscription
agreement. Thereafter, all subscriptions
are irrevocable.
The managing owner may, at its discretion, reject any
subscription in whole or in part. If your subscription is rejected by
the managing owner, in whole or in part, for any reason, or if you
determine to revoke your subscription within five business days, the
subscription funds, or the applicable portion thereof, will be
promptly returned to you, along with any interest earned thereon. If
your subscription is accepted, you will receive written confirmation
of acceptance into the applicable series of the Trust.
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To Exchange Interests You Must:
- Complete an exchange request (Exhibit C) if you are
exchanging interests in one series for interests of one
or more other series.
- Send the exchange request to a Prudential Securities
financial advisor (or an additional seller).
When An Exchange Becomes Final
- Existing limited Your exchange is effective on the dealing
owners exchanging date that occurs at least two business
interests in one days after the date you submit your
series for interests exchange request.
in another series
currently owned
- Existing limited Your exchange is effective on the dealing
owners exchanging date that occurs at least five days after
interests in one series the date you submit your exchange request.
for interests in
another series not
currently owned.
To Redeem Interests You Must:
- Complete a redemption request (Exhibit B).
- Submit the redemption request to a Prudential Securities
financial advisor in a timely manner.
When A Redemption Becomes Final
- Existing limited Your redemption is effective on the
owners redeeming dealing date that occurs at least two
their currently business days after the date you submit
owned interests 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:
- Series D: 0.34% per annum
- Series E: 0.34% per annum
- 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,
2002, the fixed brokerage fee paid to Prudential Securities, plus
trading transaction costs, equated to an amount per round-turn
transaction of:
Series D: $64
Series E: $84
Series F: $76
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:
- Series D -- 1.25%
- Series E -- 2%
- Series F -- 2%
For each series, the management fees are determined at the close
of business each Friday, and the sum of the amounts determined weekly
is paid monthly. The amounts determined weekly reflect profits and
losses from trading activities (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 to demonstrate how the quarterly
incentive fee is calculated. This example is for illustrative
purposes only.
<Table>
<Caption>
A. Assumptions
(1) A series commences trading activities at the beginning of a
quarter with $10 million in interests and the trading
advisor is allocated 100% of that amount.
(2) No redemptions are made during the quarter.
B. Quarterly Data
(1) Beginning NAV $10,000,000
(2) Gross Realized & Unrealized 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,
Transaction Fees and Routine
Operating Expenses (202,624) (Brokerage Fee of 6% annually,
Transaction Fees of 0.39% annually
and Routine Operating Costs of 0.82%
annually)
(6) NAV Subtotal for calculation
of Advisory Management Fee 11,038,626
(7) Advisory Management Fee (55,193) (Less the Management Fee:
2% Annually = 0.5% quarterly)
(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 is
computed $10,942,183
(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 $140,000 to $150,000 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. However,
given current routine operating expense levels and current net asset
values for each series, it is anticipated that substantially all
routine operating expenses will be incurred by the respective series
in 2003, as well as for the foreseeable future.
Extraordinary Expenses
To the extent that any extraordinary expenses are incurred,
including, without limitation, legal claims and liabilities and
litigation costs and any indemnification related thereto, the Trust is
responsible for such expenses.
Charges To Be Paid By Prudential Securities Or Its Affiliates
Prudential Securities or an affiliate is responsible for the
payment of the following charges and is not reimbursed by the Trust
therefor:
Organization And Offering Expenses
Expenses incurred in connection with the organization of the
Trust and the initial offering of interests in each series were
approximately $250,000 per series. Ongoing offering expenses are
estimated to be approximately $75,000 per series each year.
Routine Operating Expenses
If at any time the actual routine operating expenses exceed 1.50%
of a series' net asset value (or if such expenses, excluding legal and
audit charges, exceed 0.5% of Series E's or Series F's, and 1.25% of
Series D's, net asset value), Prudential Securities or its affiliates
pays such excess. For example if a series' net asset value is $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
$78,500 and $88,500 for that series. However, as described above, it
is not anticipated that any substantial portion of routine operating
expenses in 2003, as well as for the foreseeable future, will be paid
by Prudential Securities or its affiliates.
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. 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 previously
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). 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.
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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 16 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:
- Preparing and transmitting daily confirmations of
transactions and monthly statements of account.
- Calculating equity balances and margin requirements.
- Assisting the managing owner in providing continuing
information services to the limited owners holding
interests in a series.
- Keeping limited owners apprised of developments affecting
the series in which they are invested.
- Communicating valuations of interests.
- Providing information with respect to procedures for
redemptions, transfers and distributions, if any.
- Interpreting monthly and annual reports.
- Providing tax information to limited owners.
- Explaining developments in the commodity markets in the
U.S. and abroad.
- Furnishing all of the information from time to time in
its possession which the managing owner is required to
furnish to limited owners.
Many of these services are performed on behalf of Prudential
Securities by financial advisors who are registered under the
Commodity Exchange Act and who satisfy all applicable proficiency
requirements (i.e., have passed the Series 3 or Series 31 examinations
or are exempt therefrom) and who have all of the appropriate federal
and state securities registrations.
The brokerage agreement is exclusive and runs for successive one-
year terms renewed automatically each year unless terminated. The
brokerage agreement is terminable by a series (including by a vote of
a majority-in-interest of the interest-holders of that series) or by
Prudential Securities without penalty upon 60 days' prior written
notice.
Prudential Securities and its 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 Statutory
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:
- A contravention of the NASAA guidelines, as adopted in
any state where the proposed assignor and assignee
reside.
- The aggregate total of interests transferred in a
twelve-month period equaling 49% or more of the
outstanding interests (taking into account applicable
attribution rules and excluding transfers by gift,
bequest, or inheritance); the trust agreement provides
that the managing owner will incur no liability to any
investor or prospective investor for any action or
inaction by it in connection with the foregoing, provided
it acted in good faith.
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:
- The filing of a certificate of dissolution or the
revocation of the managing owner's charter (and the
expiration of 90 days after the date of notice to the
managing owner of revocation without a reinstatement of
its charter) or the withdrawal, removal, adjudication of
bankruptcy or insolvency of the managing owner (each of
the foregoing is referred to as an event of withdrawal),
unless (i) at the time there is at least one remaining
managing owner and that remaining managing owner carries
on the business of the series or (ii) within 90 days of
an event of withdrawal, all the remaining interest-
holders in each series agree in writing to continue the
business of the Trust and to select, as of the date of
such event of withdrawal, one or more successor managing
owners; within 120 days of any event of withdrawal, if
action is not taken pursuant to (i) or (ii) and the
series are dissolved, limited owners of each series
holding interests representing at least a majority (over
50%) of the net asset value of the series (without regard
for interests held by the managing owner or its
affiliates) may elect to continue the business of the
Trust and each series by forming a new business trust
(referred to as the reconstituted trust) on the same
terms and provisions set forth in the trust agreement ;
any such election must also provide for the election of a
managing owner to the reconstituted trust; if such
election is made, all limited owners will be bound
thereby and continue as limited owners of the
reconstituted trust.
- The occurrence of any event that makes the continued
existence of the Trust or any series in the Trust
unlawful.
- The suspension, revocation or termination of the managing
owner's registration as a commodity pool operator under
the Commodity Exchange Act or membership as a commodity
pool operator with the National Futures Association,
unless at the time there is at least one remaining
managing owner whose registration or membership has not
been suspended, revoked or terminated.
- The Trust or any series becomes insolvent or bankrupt.
- The limited owners of each series holding interests
representing at least a majority (over 50%) of the net
asset value of the series (excluding interests held by
the managing owner or an affiliate) vote to dissolve the
Trust with 90 days' prior written notice to the managing
owner.
- The limited owners of a series holding interests
representing at least a majority (over 50%) of the net
asset value of that series (excluding interests held by
the managing owner or an affiliate) vote to dissolve that
series with 90 days' prior written notice to the managing
owner.
- The decline of the net asset value of a series by 50%
from the net asset value of the series (i) as of the
commencement of the series' trading activities or (ii) on
the first day of a fiscal year, in each case after
appropriate adjustment for distributions, redemptions,
reallocations, and additional contributions to capital.
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:
- The net asset value of the series and the net asset value
per interest per series or the total value of your
interest in the Trust, in either case, as of the end of
the year in question and the preceding year.
- A statement of financial condition, including a condensed
schedule of investments, as of the close of the fiscal
year and, if applicable, the preceding fiscal year.
- Statements of income (loss) and changes in limited
owners' capital during the fiscal year and, to the extent
applicable, the previous fiscal year.
- Appropriate footnote disclosure and such further material
information as may be necessary to make the required
statements not misleading.
The CFTC also requires that an unaudited monthly report be
distributed to you within 30 days of the end of each month containing
information presented in the form of a statement of income (loss) and
a statement of changes in net asset value. Because the valuation
point for the purposes of calculating net asset value, fees,
subscriptions, redemptions and exchanges is the Friday of each week,
each series makes its unaudited monthly report for a four- or five-
week period ending on the last Friday of each calendar month.
The statement of income (loss) must set forth, among other
matters:
- The total amount of realized net gain or loss on
commodity interest positions liquidated during the month.
- The change in unrealized net gain or loss on commodity
interest positions during the month.
- The total amount of net gain or loss from all other
transactions in which a series is engaged.
- The total amounts of management fees, advisory fees,
brokerage fees, and other fees for commodity and other
investment transactions and all other expenses incurred
or accrued by the Trust during the month.
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The statement of changes in net asset value must itemize the
following:
- The net asset value of the series as of the beginning and
end of the month.
- The total amount representing additions of interests
during the month.
- The total amount representing redemptions of interests
during the month.
- The total net income or loss of the series during the
month.
- The net asset value per interest or the total value of
your interest in the Trust as of the end of the month.
The monthly report also is required to describe any other
material business dealings between the Trust, the managing owner, the
trading advisors, Prudential Securities or any affiliate of any of the
foregoing.
You also will be furnished with such additional information as
the managing owner, in its sole discretion, deems appropriate, as well
as any other information required to be provided by any governmental
authority having jurisdiction over the Trust.
Net asset value is calculated on each business day as required.
Upon request, the managing owner will make available to you the net
asset value per interest for a series. You will be notified of any
decline in the net asset value per interest of a series you own to
less than 50% of the net asset value per interest as of the last
valuation point. This notification will contain a description of your
voting and redemption rights.
In addition, the managing owner will furnish you with tax
information in a form which may be utilized by you in the preparation
of your U.S. federal income tax returns as soon as possible after the
end of each year, but generally no later than March 15.
The books and records maintained by the Trust will be kept at its
principal office for eight fiscal years. Once you become a limited
owner, you will have the right to obtain information about all matters
affecting the Trust if it is for a purpose reasonably related to your
interest as a beneficial owner of the Trust. You also will have
access at all times during normal business hours to the Trust's books
and records in person or by your authorized attorney or agent and to
examine such books and records in compliance with CFTC rules and
regulations. Information maintained will be made available to you at
reasonable times and during ordinary business hours for inspection and
copying by you or your representative for any purpose reasonably
related to your interest as a beneficial owner of the Trust. The
managing owner will furnish you with a copy of the list of limited
owners within ten days of a request by you for any purpose reasonably
related to your interest as a limited owner in the Trust and upon
payment by you of the reasonable cost of reproduction and mailing. If
you want such information, you must give written assurances that it
will not be used for commercial purposes. Subject to applicable law,
you must give the managing owner at least ten business days' prior
written notice of an inspection or copying request. You will be
notified of any material change in the advisory agreements or in the
compensation of any party within seven business days thereof, and you
will be provided with a description of any material effect on the
interests such changes may have.
Distributions Other than as limited by the trust agreement, the
managing owner has sole discretion in determining the amount and
frequency of distributions to you. In the event any type of
distribution is declared, you will receive a distribution in
proportion to your interest in the series held by you as of the record
date of distribution.
Sharing Of Profits And Losses Each interest in a series has a
tax capital account and a book capital account. The initial balance
of each is the amount paid for the interest in the series. At the end
of each week, the amount of any increase or decrease in the net asset
value per interest from the preceding week is credited or charged
against the book capital account of each interest for that series.
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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 Statutory
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 Statutory 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
Statutory 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 repre-
sentations, 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 Statutory 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 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
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, 2002 and 2001 and for the
years ended December 31, 2002 and 2001 and for the period from the
respective commencement of operations to December 31, 2000 with respect
to results of operations of each series, and the statement of financial
condition of Prudential Securities Futures Management, Inc. as of
December 31, 2002 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 D, 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. 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. Trading in these new products is jointly regulated by the
CFTC and the SEC, and futures commission merchants who offer them are
required to register with the SEC. Principal-to-principal
transactions between eligible contract participants (such as the
series) are also 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 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
103
<Page>
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 a useful tool to help
diversify a portfolio's exposure to systematic risk.
Managed futures is a sector of the alternative investment
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. As
the industry has grown, so has the number, liquidity and efficiency of
the futures markets globally.
Managed futures encompasses a variety of markets worldwide and,
as a result, investors can gain global market exposure in their
portfolios as well as add non-financial investments. Thus, investing
in a managed futures fund can be an effective way to globally
diversify a portfolio.
A managed futures fund provides four benefits to an investor's
overall portfolio:
- Diversification.
- Potential for both reduced portfolio volatility and
enhanced returns.
- Potential to profit in many economic environments.
- Access to global markets.
Diversification
A managed futures fund may invest in a variety of 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.
Potential 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, individual securities,
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.
105
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Correlation of Selected Asset Classes:
Diversifying among asset classes with a low correlation to each
other can create a more balanced investment portfolio. Set forth
below are various tables and charts comparing the performance of
stocks, bonds and managed futures funds over several years in a
variety of circumstances. All footnote references and risk warnings
appear below and on page 111.
Correlation Matrix
January 1984 -- March 2003
In the table below, perfect correlation is 1.00 and perfect non-
correlation is 0.00. Past performance is not necessarily indicative
of future results.
<Table>
<Caption>
Managed
Futures
U.S. Stocks1 U.S. Bonds2 Int'l. Stocks3 Funds4
------------ ----------- -------------- --------
U.S. Stocks1 1.00
U.S. Bonds2 0.21 1.00
Int'l. Stocks3 0.57 0.12 1.00
Managed Futures Funds4 0.00 0.24 -0.02 1.00
</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' Aggregate Bond Index (coupons
reinvested), an index comprised of approximately 6,000 publicly
traded bonds including U.S. Government, mortgage-backed, corporate,
and yankee bonds with an approximate average maturity of 10 years.
3. International Stocks -- Morgan Stanley Capital Indexes' Europe,
Australia and Far East Index (dividends reinvested) a measure of
international stock returns.
4. Managed Futures Funds -- CISDM Fund/Pool Qualified Universe Index
Public Fund Sub-index is the dollar-weighted, total return of
approximately 46 public funds tracked by Managed Account Reports as
of March 31, 2003, net of all fees and expenses. While reference
to the CISDM Public Fund Qualified Universe Index may indicate
certain performance characteristics which may reasonably be
considered objectives of a Managed Futures Fund investment, there
can be no assurance that the CISDM Public Fund Qualified Universe
Index provide any meaningful indication of how a fund, or any
Managed Futures investment, has performed in the past or will
perform in the future.
106
<Page>
To further demonstrate how managed futures funds have historically
performed independent of traditional asset classes, the chart below
compares the ten "worst" monthly returns of the S&P 500 to the same
monthly returns of the CISDM Fund/Pool Qualified Universe Index Public
Fund Sub-index from January 1984 to March 2003. Past performance
is not necessarily indicative of future results.
Ten "Worst" Monthly Returns:
U.S. Stocks1 Compared to Managed Futures Funds4
[THE FOLLOWING TABLE WERE REPRESENTED AS A BAR GRAPH IN THE PRINTED MATERIAL.]
CISDM Fund/Pool Qualified Universe
Public Fund Sub Index
Oct-87 0.51%
Aug-98 7.79%
Sep-02 4.39%
Feb-01 -0.98%
Aug-90 4.11%
Sep-86 -11.28%
Nov-87 7.64%
Sep-01 4.11%
Nov-00 6.18%
Jul-02 5.65%
US Stocks
Oct-87 -21.54%
Aug-98 -14.45%
Sep-02 -10.87%
Feb-01 -9.11%
Aug-90 -9.04%
Sep-86 -8.27%
Nov-87 -8.24%
Sep-01 -8.08%
Nov-00 -7.88%
Jul-02 -7.79%
Conversely, the chart below compares the ten "best" monthly returns of
the S&P 500 to the same monthly returns of the CISDM Fund/Pool
Qualified Universe Index Public Fund Sub-index from January 1984 to
March 2003. Past performance is not necessarily indicative of
future results.
Ten "Best" Monthly Returns:
U.S. Stocks1 Compared to Managed Futures Funds4
CISDM Fund/Pool Qualified Universe
Public Fund Sub Index
Jan-87 11.15%
Dec-91 15.72%
Aug-84 -7.25%
Mar-00 -0.90%
May-90 -5.55%
Jul-89 1.10%
Oct-02 -5.18%
Oct-98 -0.62%
Jul-97 6.44%
Jan-85 4.57%
US Stocks
Jan-87 13.47%
Dec-91 11.44%
Aug-84 11.04%
Mar-00 9.78%
May-90 9.75%
Jul-89 9.03%
Oct-02 8.80%
Oct-98 8.12%
Jul-97 7.95%
Jan-85 7.79%
107
<Page>
Summary of Performance of Traditional Asset Classes versus Managed
Futures Funds4:
January 1984 through March 2003
The table below provides a comparative example of how various
asset classes have performed over time. In this case industry
recognized indexes are used to represent particular asset classes.
Past performance is not necessarily indicative of future results.
Managed
Futures
Funds:
U.S. Bonds: CISDM
U.S. Lehman Int'l. Stocks: Fund/Pool
Stocks: Aggregate MSCI EAFE Public Fund
Year S&P 500 Bond Index Index Sub-index
- --------------------------------------------------------------------------
1984 6% 15% 8% 1%
1985 32% 22% 57% 22%
1986 19% 15% 70% -14%
1987 5% 3% 25% 43%
1988 17% 8% 28% 7%
1989 32% 15% 11% 5%
1990 -3% 9% -23% 14%
1991 30% 16% 13% 10%
1992 8% 7% -12% -1%
1993 10% 10% 33% 11%
1994 1% -3% 8% -8%
1995 38% 18% 12% 14%
1996 23% 4% 6% 10%
1997 33% 10% 2% 8%
1998 29% 9% 20% 8%
1999 21% -1% 27% -1%
2000 -9% 12% -14% 5%
2001 -12% 8% -21% 0%
2002 -22% 10% -16% 14%
2003 (March) -3% 1% -8% 8%
Average Annual
Return: 13% 10% 12% 8%
Annualized Standard
Deviation: 16% 5% 18% 16%
108
<Page>
Hypothetical Portfolios with Managed Futures Funds
January 1998 to March 2003
As an investment, managed futures may provide enhanced
diversification because the returns they generate have a high degree
of non-correlation to traditional assets and, at times, can be
negatively correlated. Investment returns that have a low correlation
to each other help reduce portfolio volatility and conserve capital.
In the tables below, the standard deviation decreases and the holding
period return increases when managed futures is added to a portfolio
of stocks and bonds. Past performance is not necessarily indicative
of future results.
See Glossary beginning on page 113 for definitions of summary
performance statistics.
Allocations showing an equities concentrated portfolio:
S&P 500 Index1 70% 65% 60%
Lehman Aggregate Bond Index2 30% 25% 20%
CISDM Fund/Pool Public Fund Sub-index4 0% 10% 20%
Holding Period Return 9.67% 11.89% 14.07%
Annualized Standard Deviation 12.76% 11.53% 10.42%
Largest peak-to-valley draw-down -28.86% -25.73% -22.43%
Sharpe Ratio (1.25% risk free rate) 0.10 0.14 0.17
Allocations showing a fixed income concentrated portfolio:
S&P 500 Index1 30% 25% 20%
Lehman Aggregate Bond Index2 70% 65% 60%
CISDM Fund/Pool Public Fund Sub-index4 0% 10% 20%
Holding Period Return 30.46% 32.51% 35.45%
Annualized Standard Deviation 5.60% 4.66% 4.25%
Largest peak-to-valley draw-down -4.14% -2.94% -2.16%
Sharpe Ratio (1.25% risk free rate) 0.71 0.91 1.06
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<Page>
Performance Comparisons with World Monitor Trust II
The tables below compare actual returns and statistics for Series
D, Series E and Series F from the start of trading of each series with
three asset classes, U.S. Stocks, U.S. Bonds and International Stocks,
over the same time period. Past performance is not necessarily
indicative of future results.
See Glossary beginning on page 113 for definitions of summary
performance statistics.
Series D -- Bridgewater Associates
Aggressive Pure Alpha, Futures Only
March 2000 through March 2003
Summary Performance Statistics
<Table>
<Caption>
U.S. U.S Int'l.
Stocks1 Bonds2 Stocks3 WMTD5
Value of $1000 $648 $1,341 $546 $970
Holding Period Return (35.23)% 34.14% (45.38)% (2.96)%
Average Annual Return (12.88)% 9.97% (18.01)% (0.32)%
Annualized Standard Deviation 18.46% 3.36% 15.68% 17.52%
Gain Deviation 11.48% 2.03% 7.18% 8.87%
Loss Deviation (10.90)% (2.04)% (10.10)% (9.03)%
Sharpe Ratio (0.74) 2.49 (1.24) (0.04)
Largest Peak-to-valley Draw-down (44.73)% (2.01)% (47.43)% (30.20)%
Months to Recovery 31+ 7 36+ 34+
Correlation to U.S. Stocks 1.00 (0.36) 0.85 0.11
</Table>
Series E -- Graham Capital
Global Diversified Program
April 2000 through February 2003
Summary Performance Statistics
<Table>
<Caption>
U.S. U.S Int'l.
Stocks1 Bonds2 Stocks3 WMTE6
Value of $1000 $590 $1,324 $526 $1,687
Holding Period Return (41.00)% 32.40% (47.43)% 68.70%
Average Annual Return (16.13)% 9.77% (19.63)% 18.93%
Annualized Standard Deviation 17.59% 3.40% 15.57% 24.34%
Gain Deviation 10.48% 2.07% 7.43% 13.45%
Loss Deviation (10.90)% (2.04)% (10.10)% (13.92)%
Sharpe Ratio (0.98) 2.41 (1.37) 0.79
Largest Peak-to-valley Draw-down (44.73)% (2.01)% (47.43)% (22.68)%
Months to Recovery 31+ 7 36+ 10
Correlation to U.S. Stocks 1.00 (0.41) 0.84 (0.60)8
</Table>
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<Page>
Series F -- Campbell & Company
FME Small (Above 5$ million) Portfolio
March 2000 through March 2003
Summary Performance Statistics
<Table>
<Caption>
U.S. U.S Int'l.
Stocks1 Bonds2 Stocks3 WMTF7
Value of $1000 $648 $1,341 $546 $1,302
Holding Period Return (35.23)% 34.14% (45.38)% 30.16%
Average Annual Return (12.88)% 9.97% (18.01)% 8.97%
Annualized Standard Deviation 18.46% 3.36% 15.68% 15.46%
Gain Deviation 11.48% 2.03% 7.18% 8.66%
Loss Deviation (10.90)% (2.04)% (10.10)% (9.47)%
Sharpe Ratio (0.74) 2.49 (1.24) 0.55
Largest Peak-to-valley Draw-down (44.73)% (2.01)% (47.43)% (16.41)%
Months to Recovery 31+ 7 36+ 10
Correlation to U.S. Stocks 1.00 (0.36) 0.85 (0.55)8
</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' Aggregate Bond Index (coupons
reinvested), an index comprised of approximately 6,000 publicly
traded bonds including U.S. Government, mortgage-backed, corporate,
and yankee bonds with an approximate average maturity of 10 years.
3. International Stocks -- Morgan Stanley Capital Indexes' Europe,
Australia and Far East Index (dividends reinvested) a measure of
international stock returns.
4. Managed Futures Funds -- CISDM Fund/Pool Qualified Universe Index
Public Fund Sub-index is the dollar-weighted, total return of
approximately 46 public funds tracked by Managed Account Reports as
of March 31, 2003, net of all fees and expenses. While reference
to the CISDM Public Fund Qualified Universe Index may indicate
certain performance characteristics which may reasonably be
considered objectives of a Managed Futures Fund investment, there
can be no assurance that the CISDM Public Fund Qualified Universe
Index provide any meaningful indication of how a fund, or any
Managed Futures investment, has performed in the past or will
perform in the future.
5. World Monitor Trust II - Series D -- represents actual performance of
World Monitor Trust II - Series D, net of all fees and expenses.
6. World Monitor Trust II - Series E -- represents actual performance of
World Monitor Trust II - Series E, net of all fees and expenses.
7. World Monitor Trust II - Series F -- represents actual performance of
World Monitor Trust II - Series F, net of all fees and expenses.
8. Since Series D, Series E and Series F have only been in operation
for approximately three years during which U.S. Stocks performed
particularly poorly, it is likely that a longer time horizon, or one
during which U.S. Stocks enjoyed better performance, would result in
a different correlation. See the correlation tables on pages 106
and 107.
______________________________________________________________________
(Sources: Standard & Poor's, Lehman Brothers, Lipper Analytical
Associates, and Managed Account Reports.)
111
<Page>
THESE INDICES ARE REPRESENTATIVE OF EQUITY AND DEBT SECURITIES
AND ARE NOT TO BE CONSTRUED AS AN ACTIVELY MANAGED PORTFOLIO.
Investors should be aware that stocks, bonds and managed futures
are very different types of investments, each involving different
investment considerations and risks, including but not limited to
liquidity, safety, guarantees, insurance, fluctuation of principal
and/or return, tax features, leverage and volatility. For example,
trading in futures, forwards and options may involve a greater degree
of risk than investing in stocks and bonds due to, among other things,
a greater degree of leverage and volatility. Also, U.S. government
bonds are guaranteed by the U.S. government and, if held to maturity,
offer both a fixed rate of interest and return of principal. Past
performance is not necessarily indicative of future results.
Due Diligence and Selection Process
As a fund manager, the managing owner seeks to produce superior
risk-adjusted returns through careful manager selection, active
portfolio management and ongoing risk monitoring. Before selecting a
CTA to manage a fund, the CTA undergoes a detailed examination of
their strategy and a thorough due diligence process, encompassing both
qualitative and quantitative processes. Working with the managing
owner's database of money managers, CTAs are identified and selected
for further analysis based on their performance, assets under
management, asset management experience, risk management trading
philosophy, industry reputation and ranking among their peers.
Once a CTA passes the initial screens, we conduct a background
investigation of the firm and its key professionals which includes
contacting references and a review of their disciplinary history, if
any, with regulatory agencies. Next we perform an intensive review of
the CTA's investment strategy and risk management. Our research seeks
to achieve a keen understanding of the investment process and identify
those qualities that set the CTA apart from its peers. We examine
their investable universe, the data inputs driving the investment
decision, and portfolio allocation, as well as perform analyses of
trade structure and select portfolios. A disciplined investment
strategy is important, but similarly important is a solid backoffice
infrastructure including operations and administration. The goal of
our backoffice due diligence is to make sure that control processes
are in place and the firm is operating efficiently. Counterparties,
pricing policy, reconciliation process, use of leverage and robustness
of systems are evaluated.
Lastly, prior to receiving an allocation a CTA, must be reviewed
and approved by a Prudential investment committee. An approved CTA
must meet minimum track record and equity requirements, as well as
performance and risk management standards.
A CTA who has been allocated assets undergoes continuous review
and analysis. Regularly fund portfolios are reviewed to monitor
adherence to trading strategy, leverage, daily positions and absolute
and relative performance.
112
<Page>
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.
Annualized Standard Deviation. Means the standard deviation of
the monthly returns multiplied by the square root of twelve.
Average Annual Return. Means the average of all year-end returns
divided by the number of years and fractional years. Year-end returns
are calculated by compounding monthly returns to arrive at the rate of
return for the year to date.
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.
113
<Page>
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 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.
Gain Deviation. Similar to standard deviation using only the
periods with a gain and thus measuring the volatility of upside
performance.
Holding Period Return. Calculated by compounding the monthly
returns to arrive at the rate of return for the holding period.
114
<Page>
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.
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.
Loss Deviation. Similar to standard deviation using only the
periods with a loss and thus measuring the volatility of downside
performance.
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.
Months to Recovery. Means the number of months from the trough
of the draw-down to a new equity high.
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.
115
<Page>
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.
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 Statutory Trust Act, the
interests of which shall be beneficial interests in the Trust estate
separately identified with and belonging to such series.
Sharpe Ratio. A ratio that measures the rate of return per unit
of risk, calculated as follows:
Average monthly return (annualized) - U.S. Treasury bill rate of
return (annualized) Monthly standard deviation (annualized)
Short contract. Means a contract to make delivery of (sell) a
specified amount of a commodity at a future date at a specified price.
116
<Page>
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.
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.
Value of $1000. Means the ending hypothetical value of a $1,000
investment made at inception and held for the given time period.
117
<Page>
INDEX TO
CERTAIN FINANCIAL INFORMATION
Page
-----
WORLD MONITOR TRUST II-- Series D
Report of Independent Accountants 119
Audited Financial Statements as of December 31, 2002 120
Notes to Financial Statements 123
WORLD MONITOR TRUST II--Series E
Report of Independent Accountants 129
Audited Financial Statements as of December 31, 2002 130
Notes to Financial Statements 133
WORLD MONITOR TRUST II--Series F
Report of Independent Accountants 138
Audited Financial Statements as of December 31, 2002 139
Notes to Financial Statements 142
PRUDENTIAL SECURITIES FUTURES MANAGEMENT INC.
Report of Independent Accountants 148
Audited Statement of Financial Condition as of December 31, 2002 149
Notes to Statement of Financial Condition 150
118
<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 schedules 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, 2002 and
2001 and the results of its operations for the years ended December 31, 2002 and
2001 and for the period from March 13, 2000 (commencement of operations) to
December 31, 2000, and changes in trust capital for each of the three years
ended December 31, 2002, 2001 and 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
February 24, 2003
119
<Page>
WORLD MONITOR TRUST II--SERIES D
(a Delaware Business Trust)
STATEMENTS OF FINANCIAL CONDITION
<Table>
<Caption>
December 31,
---------------------------
2002 2001
- ----------------------------------------------------------------------------------------------------
ASSETS
Cash in commodity trading accounts $7,491,183 $ 4,474,005
Net unrealized gain (loss) on open futures contracts 131,946 (61,284)
------------ -----------
Total assets $7,623,129 $ 4,412,721
------------ -----------
------------ -----------
LIABILITIES AND TRUST CAPITAL
Liabilities
Accrued expenses $ 60,329 $ 52,055
Commissions and other transaction fees payable 41,392 22,857
Management fees payable 8,135 4,465
Redemptions payable -- 22,989
Unrealized loss on open forward contracts -- 14,433
------------ -----------
Total liabilities 109,856 116,799
------------ -----------
Commitments
Trust capital
Limited interests (79,736.725 and 51,950.299 interests outstanding) 7,429,420 4,251,727
General interests (900 and 540 interests outstanding) 83,853 44,195
------------ -----------
Total trust capital 7,513,273 4,295,922
------------ -----------
Total liabilities and trust capital $7,623,129 $ 4,412,721
------------ -----------
------------ -----------
Net asset value per limited and general interests $ 93.17 $ 81.84
------------ -----------
------------ -----------
</Table>
- --------------------------------------------------------------------------------
The accompanying notes are an integral part of these statements.
120
<Page>
WORLD MONITOR TRUST II--SERIES D
(a Delaware Business Trust)
Condensed Schedules of Investments
<Table>
<Caption>
At December 31,
--------------------------------------------------------------------
2002 2001
-------------------------------- --------------------------------
Net Unrealized Net Unrealized
Gain (Loss) Gain (Loss)
as a % of Net Unrealized as a % of Net Unrealized
Futures Contracts Trust Capital Gain (Loss) Trust Capital Gain (Loss)
- -------------------------------------------------------------------------------------------------------------
Futures contracts purchased:
Stock indices $ (30,745) $ 11,982
Interest rates 293,123 (67,480)
Currencies 134,410 (107,230)
Commodities (12,350) --
-------------- --------------
Net unrealized gain (loss) on
futures contracts purchased 5.12% 384,438 (3.79)% (162,728)
------ -------------- ------ --------------
Futures contracts sold:
Stock indices 1,984 (2,981)
Interest rates (209,367) 15,412
Currencies (45,109) 78,413
Commodities -- 10,600
-------------- --------------
Net unrealized gain (loss) on
futures contracts sold (3.36) (252,492) 2.36 101,444
------ -------------- ------ --------------
Net unrealized gain (loss) on
futures contracts 1.76% $ 131,946 (1.43)% $ (61,284)
------ -------------- ------ --------------
------ -------------- ------ --------------
Forward currency contracts purchased (0.04)% $ (3,158) 0.11% $ 4,929
Forward currency contracts sold 0.04 3,158 (0.45) (19,362)
------ -------------- ------ --------------
Net unrealized loss on forward
contracts 0.00% $ 0 (0.34)% $ (14,433)
------ -------------- ------ --------------
------ -------------- ------ --------------
Settlement Currency--Futures Contracts
British pound (1.44)% $ (107,988) 0.71% $ 30,369
Canadian dollar (0.56) (42,128) 0.48 20,535
Euro 2.30 172,455 (2.32) (99,368)
Japanese yen (0.10) (7,306) 0.01 522
Australian dollar 0.05 3,790 (0.05) (2,248)
Swiss franc 0.28 20,752 -- --
Swedish krona (0.00) (9) -- --
U.S. dollar 1.23 92,380 (0.26) (11,094)
------ -------------- ------ --------------
Total 1.76% $ 131,946 (1.43)% $ (61,284)
------ -------------- ------ --------------
------ -------------- ------ --------------
Settlement Currency--Forward Contracts
U.S. dollar 0.00% $ 0 (0.34)% $ (14,433)
------ -------------- ------ --------------
------ -------------- ------ --------------
- -------------------------------------------------------------------------------------------------------------
The accompanying notes are an integral part of these statements.
</Table>
121
<Page>
WORLD MONITOR TRUST II--SERIES D
(a Delaware Business Trust)
STATEMENTS OF OPERATIONS
<Table>
<Caption>
For the period from
March 13, 2000
(commencement of
Year ended December 31, operations) to
----------------------- December 31,
2002 2001 2000
- ------------------------------------------------------------------------------------------------------
REVENUES
Net realized gain (loss) on commodity transactions $1,010,594 $ (93,119) $ (708,702)
Change in net unrealized gain/loss on open commodity
positions 207,663 (127,443) 51,726
Interest income 93,161 159,873 281,858
---------- --------- --------------------
1,311,418 (60,689) (375,118)
---------- --------- --------------------
EXPENSES
Commissions and other transaction fees 378,109 282,939 303,680
General and administrative 139,590 119,513 119,152
Management fees 74,362 54,595 58,273
Incentive fees 5,791 -- 27,238
---------- --------- --------------------
597,852 457,047 508,343
General and administrative expenses borne by the
Managing Owner and its affiliates (50,682) (53,745) (48,938)
---------- --------- --------------------
Net expenses 547,170 403,302 459,405
---------- --------- --------------------
Net income (loss) $ 764,248 $(463,991) $ (834,523)
---------- --------- --------------------
---------- --------- --------------------
ALLOCATION OF NET INCOME (LOSS)
Limited interests $ 756,063 $(459,082) $ (824,648)
---------- --------- --------------------
---------- --------- --------------------
General interests $ 8,185 $ (4,909) $ (9,875)
---------- --------- --------------------
---------- --------- --------------------
NET INCOME (LOSS) PER WEIGHTED AVERAGE LIMITED AND
GENERAL INTEREST
Net income (loss) per weighted average limited and
general interest $ 11.41 $ (8.54) $ (13.32)
---------- --------- --------------------
---------- --------- --------------------
Weighted average number of limited and general
interests outstanding 66,962 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
Contributions 43,717.827 3,781,450 31,473 3,812,923
Net income 756,063 8,185 764,248
Redemptions (15,571.401) (1,359,820) -- (1,359,820)
----------- ----------- --------- -----------
Trust capital--December 31, 2002 80,636.725 $ 7,429,420 $ 83,853 $ 7,513,273
----------- ----------- --------- -----------
----------- ----------- --------- -----------
- -------------------------------------------------------------------------------------------------------
The accompanying notes are an integral part of these statements.
</Table>
122
<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 Second 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, Prudential Securities
Futures Management Inc. (the 'Managing Owner'), is a wholly-owned subsidiary of
Prudential Securities Incorporated ('PSI') which, in turn, is an indirect
wholly-owned subsidiary of Prudential Financial, Inc. ('Prudential'). PSI is the
selling agent for the Trust, as well as its commodity broker ('Commodity
Broker').
In February 2003, Prudential and Wachovia Corp. ('Wachovia') announced an
agreement to combine each company's respective retail securities brokerage and
clearing operations within a new firm, which will be headquartered in Richmond,
Virginia. Under the agreement, Prudential will have a 38% ownership interest in
the new firm and Wachovia will own 62%. The transaction, which includes the
securities brokerage, securities clearing, and debt capital markets operations
of PSI, but does not include the equity sales, trading and research operations
or commodity brokerage and derivative operations of PSI, is anticipated to close
in the third quarter of 2003. The Managing Owner, as well as the Commodity
Broker, will continue to be indirect wholly owned subsidiaries of Prudential.
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.
123
<Page>
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.
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. Net unrealized gain or loss on open contracts denominated in foreign
currencies and foreign currency holdings are translated into U.S. dollars at the
exchange rates prevailing on the last business day of the year. Realized gains
and losses on commodity transactions are recognized in the period in which the
contracts are closed.
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 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.
124
<Page>
New Accounting Guidance
In November 2002, the Financial Accounting Standards Board issued
Interpretation No. 45 ('FIN 45'), Guarantor's Accounting and Disclosure
Requirements for Guarantees, Including Indirect Guarantees of Indebtedness of
Others, which Series D adopted at December 31, 2002. FIN 45 elaborates on the
disclosures to be made by a guarantor in its financial statements about its
obligations under certain guarantees that it has issued. Consistent with
standard business practices in the normal course of business, Series D has
provided general indemnifications to the Managing Owner, its Trading Advisor and
others when they act, in good faith, in the best interests of Series D. Series D
is unable to develop an estimate of the maximum potential amount of future
payments that could potentially result from any hypothetical future claim, but
expects the risk of having to make any payments under these general business
indemnifications to be remote.
C. Fees
Organizational and offering costs
PSI or its affiliates paid the costs of organizing Series D and will continue
to pay all 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, a portion of the expenses related to services the
Managing Owner performed for Series D, other than brokerage services, during the
years ended December 31, 2002 and 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 will continue to pay all costs of offering its
Limited Interests.
125
<Page>
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 December 31, operations) to
---------------------------- December 31,
2002 2001 2000
------------ ------------ --------------------
Commissions $357,464 $262,448 $279,774
General and administrative 73,616 65,701 76,150
------------ ------------ --------------------
431,080 328,149 355,924
General and administrative expenses borne by
the Managing Owner and its affiliates (50,682) (53,745) (48,938)
------------ ------------ --------------------
$380,398 $274,404 $306,986
------------ ------------ --------------------
------------ ------------ --------------------
</Table>
Expenses payable to the Managing Owner and its affiliates (which are included
in accrued expense) as of December 31, 2002 and 2001 were $4,880 and $922,
respectively.
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 for margin purposes. Series D receives interest income
on 100% of its average daily equity maintained in its accounts with PSI during
each month at the 13-week Treasury bill discount rate.
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.
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
126
<Page>
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 the particular exchange.
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, there is concentration risk on
forward transactions entered into by Series D as PSI, Series D's commodity
broker, is the sole counterparty. 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; however, counterparty
non-performance on only certain of Series D's contracts may result in greater
loss than non-performance on all of Series D's contracts. 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 of the Trust 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 interest 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 permitted to commingle such assets with
other assets of PSI. At December 31, 2002, such segregated assets totalled
$2,584,851. Part 30.7 of the CFTC regulations also requires PSI to secure assets
of Series D related to foreign futures trading which totalled $5,038,278 at
December 31, 2002. There are no segregation requirements for assets related to
forward trading.
As of December 31, 2002, all of Series D's open futures contracts mature
within one year.
127
<Page>
G. Financial Highlights
<Table>
<Caption>
Year ended December 31,
----------------------------
2002 2001
------------ ------------
Performance per Interest
Net asset value, beginning of period $81.84 $87.49
------------ ------------
Net realized gain (loss) and change in net unrealized gain/loss
on commodity transactions 18.01 (1.01)
Interest income 1.39 2.82
Net expenses (8.07) (7.46)
------------ ------------
Net increase (decrease) for the period 11.33 (5.65)
------------ ------------
Net asset value, end of period $93.17 $81.84
------------ ------------
------------ ------------
Total return 13.84% (6.46)%
Ratio to average net assets
Interest income 1.58% 3.63%
Net expenses, including incentive fees of 0.10% during 2002 9.29% 9.16%
</Table>
These financial highlights represent the overall results of Series D
during 2002 and 2001. An individual limited owner's actual results may differ
depending on the timing of contributions and redemptions.
128
<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 schedules 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, 2002 and
2001, and the results of its operations for the years ended December 31, 2002
and 2001 and for the period from April 6, 2000 (commencement of operations) to
December 31, 2000, and changes in trust capital for each of the three years
ended December 31, 2002, 2001 and 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
February 24, 2003
129
<Page>
WORLD MONITOR TRUST II--SERIES E
(a Delaware Business Trust)
STATEMENTS OF FINANCIAL CONDITION
<Table>
<Caption>
December 31,
---------------------------
2002 2001
- ----------------------------------------------------------------------------------------------------
ASSETS
Cash in commodity trading accounts $ 25,058,188 $ 8,838,511
Net unrealized gain on open futures contracts 1,772,644 255,757
Net unrealized gain on open forward contracts 43,721 --
Subscriptions receivable -- 5,000
------------- -----------
Total assets $ 26,874,553 $ 9,099,268
------------- -----------
------------- -----------
LIABILITIES AND TRUST CAPITAL
Liabilities
Commissions and other transaction fees payable $ 135,497 $ 45,475
Accrued expenses payable 89,968 61,754
Incentive fees payable 65,555 13,466
Management fees payable 43,883 14,408
Redemptions payable -- 60,681
Unrealized loss on open forward contracts -- 9,674
------------- -----------
Total liabilities 334,903 205,458
------------- -----------
Commitments
Trust capital
Limited interests (165,673.643 and 67,965.112 interests outstanding) 26,238,737 8,787,237
General interests (1,900 and 824.300 interests outstanding) 300,913 106,573
------------- -----------
Total trust capital 26,539,650 8,893,810
------------- -----------
Total liabilities and trust capital $ 26,874,553 $ 9,099,268
------------- -----------
------------- -----------
Net asset value per limited and general interest $ 158.38 $ 129.29
------------- -----------
------------- -----------
</Table>
- -------------------------------------------------------------------------------
The accompanying notes are an integral part of these statements.
130
<Page>
WORLD MONITOR TRUST II--SERIES E
(a Delaware Business Trust)
Condensed Schedules of Investments
<Table>
<Caption>
At December 31,
--------------------------------------------------------------------
2002 2001
-------------------------------- --------------------------------
Net Unrealized Net Unrealized
Gain (Loss) Gain (Loss)
as a % of Net Unrealized as a % of Net Unrealized
Futures and Forward Contracts Trust Capital Gain (Loss) Trust Capital Gain (Loss)
- -------------------------------------------------------------------------------------------------------------
Futures contracts purchased:
Interest rates $ 421,731 $ 4,010
Currencies 989,817 250,488
Commodities 204,590 51,792
-------------- --------------
Net unrealized gain on futures
contracts purchased 6.09% 1,616,138 3.44% 306,290
------ -------------- ------ --------------
Futures contracts sold:
Interest rates (421) 9,798
Stock indices 63,999 (12,058)
Currencies 104,559 165,385
Commodities (11,631) (213,658)
-------------- --------------
Net unrealized gain (loss) on
futures contracts sold 0.59 156,506 (0.56) (50,533)
------ -------------- ------ --------------
Net unrealized gain on futures
contracts 6.68% $1,772,644 2.88% $255,757
------ -------------- ------ --------------
------ -------------- ------ --------------
Forward currency contracts purchased:
Net unrealized gain (loss) on
forward contracts purchased .01% $ 2,833 (0.11)% $ (9,674)
Forward currency contracts sold:
Net unrealized gain on forward
contracts sold 0.15 40,888 -- --
------ -------------- ------ --------------
Net unrealized gain (loss) on
forward contracts 0.16% $ 43,721 (0.11)% $ (9,674)
------ -------------- ------ --------------
------ -------------- ------ --------------
Settlement Currency--Futures Contracts
British pound 0.50% $ 133,017 0.41% $ 36,181
Australian Dollar 0.16 41,875 -- --
Canadian Dollar 0.52 137,683 -- --
Swiss Francs 0.79 210,417 -- --
Euro 1.10 290,715 -- --
Japanese yen 0.13 35,657 2.30 205,027
Swedish krona 0.00 -- (0.01) (1,090)
U.S. dollar 3.48 923,280 0.18 15,639
------ -------------- ------ --------------
Total 6.68% $1,772,644 2.88% $255,757
------ -------------- ------ --------------
------ -------------- ------ --------------
Settlement Currency--Forward Contracts
U.S. dollar 0.16% $ 43,721 (0.11)% $ (9,674)
------ -------------- ------ --------------
------ -------------- ------ --------------
<Caption>
- -------------------------------------------------------------------------------------------------------------
The accompanying notes are an integral part of these statements.
</Table>
131
<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 December 31, operations) to
------------------------ December 31,
2002 2001 2000
- ----------------------------------------------------------------------------------------------------
REVENUES
Net realized gain on commodity transactions $4,349,429 $2,004,232 $ 474,366
Change in net unrealized gain/loss on open
commodity positions 1,570,282 (709,190) 955,273
Interest income 244,746 240,960 230,425
---------- ---------- ---------------------
6,164,457 1,536,002 1,660,064
---------- ---------- ---------------------
EXPENSES
Commissions and other transaction fees 982,336 469,966 250,449
Management fees 312,130 144,767 76,878
Incentive fees 986,144 303,423 238,625
General and administrative 151,895 110,663 123,130
---------- ---------- ---------------------
2,432,505 1,028,819 689,082
General and administrative expenses borne by the
Managing Owner and its affiliates (36,257) (33,371) (64,786)
---------- ---------- ---------------------
Net expenses 2,396,248 995,448 624,296
---------- ---------- ---------------------
Net income 3,768,209 $ 540,554 $ 1,035,768
---------- ---------- ---------------------
---------- ---------- ---------------------
ALLOCATION OF NET INCOME
Limited interests $3,720,264 $ 531,488 $ 1,020,501
---------- ---------- ---------------------
---------- ---------- ---------------------
General interests $ 47,945 $ 9,066 $ 15,267
---------- ---------- ---------------------
---------- ---------- ---------------------
NET INCOME PER WEIGHTED AVERAGE LIMITED AND
GENERAL INTEREST
Net income per weighted average limited and
general interest $ 34.59 $ 9.39 $ 19.41
---------- ---------- ---------------------
---------- ---------- ---------------------
Weighted average number of limited and general
interests outstanding 108,949 57,547 53,350
---------- ---------- ---------------------
---------- ---------- ---------------------
<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 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
Contributions 116,679.715 16,221,867 146,395 16,368,262
Net income 3,720,264 47,945 3,768,209
Redemptions (17,895.484) (2,490,631) -- (2,490,631)
----------- ----------- --------- -----------
Trust capital--December 31, 2002 167,573.643 $26,238,737 $300,913 $26,539,650
----------- ----------- --------- -----------
----------- ----------- --------- -----------
<Caption>
- -----------------------------------------------------------------------------------------------------
The accompanying notes are an integral part of these statements.
</Table>
132
<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 Second 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. ('Prudential').
PSI is the selling agent for the Trust as well as its commodity broker
('Commodity Broker').
In February 2003, Prudential and Wachovia Corp. ('Wachovia') announced an
agreement to combine each company's respective retail securities brokerage and
clearing operations within a new firm, which will be headquartered in Richmond,
Virginia. Under the agreement, Prudential will have a 38% ownership interest in
the new firm and Wachovia will own 62%. The transaction, which includes the
securities brokerage, securities clearing, and debt capital markets operations
of PSI, but does not include the equity sales, trading and research operations
or commodity brokerage and derivative operations of PSI, is anticipated to close
in the third quarter of 2003. The Managing Owner, as well as the Commodity
Broker, will continue to be indirect wholly owned subsidiaries of Prudential.
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.
133
<Page>
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.
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. Net unrealized gain or loss on open contracts denominated in foreign
currencies and foreign currency holdings are translated into U.S. dollars at the
exchange rates prevailing on the last business day of the year. Realized gains
and losses on commodity transactions are recognized in the period in which the
contracts are closed.
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.
134
<Page>
New Accounting Guidance
In November 2002, the Financial Accounting Standards Board issued
Interpretation No. 45 ('FIN 45'), Guarantor's Accounting and Disclosure
Requirements for Guarantees, Including Indirect Guarantees of Indebtedness of
Others, which Series E adopted at December 31, 2002. FIN 45 elaborates on the
disclosures to be made by a guarantor in its financial statements about its
obligations under certain guarantees that it has issued. Consistent with
standard business practices in the normal course of business, Series E has
provided general indemnifications to the Managing Owner, its Trading Advisor and
others when they act, in good faith, in the best interests of Series E. Series E
is unable to develop an estimate of the maximum potential amount of future
payments that could potentially result from any hypothetical future claim, but
expects the risk of having to make any payments under these general business
indemnifications to be remote.
C. Fees
Organizational and offering costs
PSI or its affiliates paid the costs of organizing Series E and will continue
to pay all 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, a portion of the expenses related to services the
Managing Owner performed for Series E, other than brokerage services, during the
years ended December 31, 2002 and 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 will continue to pay all 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:
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<Page>
<Table>
<Caption>
For the period
from April 6,
2000
(commencement of
Year ended December 31, operations) to
---------------------------- December 31,
2002 2001 2000
------------ ------------ ----------------
Commissions $ 929,926 $432,867 $229,887
General and administrative 83,486 56,254 76,601
------------ ------------ ----------------
1,013,412 489,121 306,488
General and administrative expenses borne by the
Managing Owner and its affiliates (36,257) (33,371) (64,786)
------------ ------------ ----------------
$ 977,155 $455,750 $241,702
------------ ------------ ----------------
------------ ------------ ----------------
</Table>
Expenses payable to the Managing Owner and its affiliates as of December 31,
2002 and December 31, 2001 were $31,671 and $9,058, 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 for margin purposes. Series E receives interest income
on 100% of its average daily equity maintained in its accounts with PSI during
each month at the 13-week Treasury bill discount rate.
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.
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 the particular exchange.
In general,
136
<Page>
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, there is concentration risk on forward
transactions entered into by Series E as PSI, Series E's commodity broker, is
the sole counterparty. Series E 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 nonperformance on all of Series
E's contracts is the net unrealized gain included in the statements of financial
condition; however, counterparty non-performance on only certain of Series E's
contracts may result in greater loss than non-performance on all of Series E's
contracts. 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 of the Trust 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 interest of Series E.
PSI, when acting as Series E's futures commission merchant in accepting
orders for the purchase or sale of domestic futures contracts, is required by
Commodity Futures Trading Commission ('CFTC') regulations to separately account
for and segregate as belonging to Series E all assets of Series E relating to
domestic futures trading and is not permitted to commingle such assets with
other assets of PSI. At December 31, 2002, such segregated assets totalled
$9,456,944. Part 30.7 of the CFTC regulations also requires PSI to secure assets
of Series E related to foreign futures trading which totalled $17,373,888 at
December 31, 2002. There are no segregation requirements for assets related to
forward trading.
As of December 31, 2002, Series E's open futures and forward contracts
generally mature within one year, although certain interest rate futures
contracts have maturities as distant as June 2004.
G. Financial Highlights
<Table>
<Caption>
Year ended December 31,
----------------------------
2002 2001
------------ ------------
Performance per Interest
Net asset value, beginning of period $ 129.29 $ 120.36
Net realized gain and change in net unrealized gain/loss
on commodity transactions 48.09 22.04
Interest income 2.25 4.30
Net expenses (21.25) (17.41)
------------ ------------
Net increase for the period 29.09 8.93
------------ ------------
Net asset value, end of period $ 158.38 $ 129.29
------------ ------------
------------ ------------
Total return 22.50% 7.42%
Ratio to average net assets
Interest income 1.60% 3.37%
Net expenses, including incentive fees of 6.44% and
4.25%, respectively 15.64% 13.94%
</Table>
These financial highlights represent the overall results of Series E during
the years ended December 31, 2002 and 2001. An individual limited owner's actual
results may differ depending on the timing of contributions and redemptions.
137
<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 schedules 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 F at December
31, 2002 and 2001, and the results of its operations for the years ended
December 31, 2002 and 2001 and for the period from March 1, 2000 (commencement
of operations) to December 31, 2000, and changes in trust capital for the three
years ended December 31, 2002, 2001 and 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
February 24, 2003
138
<Page>
WORLD MONITOR TRUST II--SERIES F
(a Delaware Business Trust)
STATEMENTS OF FINANCIAL CONDITION
<Table>
<Caption>
December 31,
----------------------------
2002 2001
- ----------------------------------------------------------------------------------------------------
ASSETS
Cash in commodity trading accounts $ 22,062,970 $ 11,860,858
Net unrealized gain on open futures contracts 843,705 549,442
------------- ------------
Total assets $ 22,906,675 $ 12,410,300
------------- ------------
------------- ------------
LIABILITIES AND TRUST CAPITAL
Liabilities
Commissions and other transaction fees payable $ 117,938 $ 60,919
Redemptions payable -- 52,294
Accrued expenses 98,802 74,176
Management fee payable 38,860 19,796
Incentive fee payable -- 132
------------- ------------
Total liabilities 255,600 207,317
------------- ------------
Commitments
Trust capital
Limited interests (188,782.991 and 113,525.333 interests outstanding) 22,420,673 12,079,558
General interests (1,940 and 1,160 interests outstanding) 230,402 123,425
------------- ------------
Total trust capital 22,651,075 12,202,983
------------- ------------
Total liabilities and trust capital 22,906,675 12,410,300
------------- ------------
------------- ------------
Net asset value per limited and general interests $ 118.76 $ 106.40
------------- ------------
------------- ------------
</Table>
- --------------------------------------------------------------------------------
The accompanying notes are an integral part of these statements.
139
<Page>
WORLD MONITOR TRUST II--SERIES F
(a Delaware Business Trust)
CONDENSED SCHEDULE OF INVESTMENTS
<Table>
<Caption>
December 31, 2002 December 31, 2001
-------------------------------- --------------------------------
Net Unrealized Net Unrealized
Gain (Loss) Gain (Loss)
as a % of Net Unrealized as a % of Net Unrealized
Futures Contracts Trust Capital Gain (Loss) Trust Capital Gain (Loss)
- -------------------------------------------------------------------------------------------------------------
Futures contracts purchased:
Interest rates $ 271,175 $(27,465)
Stock Indices (4,115) 15,933
Currencies 1,204,100 136,963
Commodities 23,010 (4,008)
------ -------------- ------ --------------
Net unrealized gain on
futures contracts purchased 6.60% 1,494,170 0.99% 121,423
-------------- --------------
Futures contracts sold:
Interest rates -- 26,672
Stock Indices 43,901 9,439
Currencies (695,153) 440,077
Commodities 787 (48,169)
-------------- --------------
Net unrealized gain (loss)
on futures contracts sold (2.87) (650,465) 3.51 428,019
------ -------------- ------ --------------
Net unrealized gain on futures
contracts 3.73% $ 843,705 4.50% $549,442
------ -------------- ------ --------------
------ -------------- ------ --------------
Settlement Currency--Futures Contracts
- --------------------------------------
British pound .12% $ 25,746 (0.05)% $ (5,935)
Canadian Dollar .01 3,147 -- --
Euro .52 118,446 0.19 23,472
Hong Kong .04 8,854 -- --
Japanese yen .26 58,542 (0.20) (24,956)
Swiss franc .08 16,992 (0.09) (10,436)
U.S. dollar 2.70 611,978 4.65 567,297
------ -------------- ------ --------------
Total 3.73% $ 843,705 4.50% $549,442
------ -------------- ------ --------------
------ -------------- ------ --------------
- -------------------------------------------------------------------------------------------------------------
The accompanying notes are an integral part of these statements.
</Table>
140
<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 Year Ended operations) to
December 31, December 31, December 31,
2002 2001 2000
- ------------------------------------------------------------------------------------------------------
REVENUES
Net realized gain on commodity transactions $3,644,035 $ 563,535 $ 404,222
Net unrealized gain/loss on open commodity
positions 294,263 115,133 434,309
Interest income 260,121 341,287 333,749
------------ ------------ ----------------
4,198,419 1,019,955 1,172,280
------------ ------------ ----------------
EXPENSES
Commissions and other transaction fees 1,031,024 655,865 350,702
Management fees 327,694 205,169 111,401
Incentive fee 532,634 113,844 70,035
General and administrative 144,892 110,646 131,840
------------ ------------ ----------------
2,036,244 1,085,524 663,978
General and administrative expenses borne by the
Managing Owner and its affiliates (21,971) (30,419) (47,991)
------------ ------------ ----------------
Net expenses 2,014,273 1,055,105 615,987
------------ ------------ ----------------
Net income (loss) $2,184,146 $ (35,150) $ 556,293
------------ ------------ ----------------
------------ ------------ ----------------
ALLOCATION OF NET INCOME (LOSS)
Limited interests $2,162,029 $ (34,511) $ 551,120
------------ ------------ ----------------
------------ ------------ ----------------
General interests $ 22,117 $ (639) $ 5,173
------------ ------------ ----------------
------------ ------------ ----------------
NET INCOME (LOSS) PER WEIGHTED AVERAGE LIMITED AND
GENERAL INTEREST
Net income (loss) per weighted average limited and
general interest $ 14.83 $ (.36) $ 8.41
------------ ------------ ----------------
------------ ------------ ----------------
Weighted average number of limited and general
interests outstanding 147,269 97,182 66,146
------------ ------------ ----------------
------------ ------------ ----------------
- ------------------------------------------------------------------------------------------------------
</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
Contributions 98,830.881 10,710,334 84,860 10,795,194
Net income 2,162,029 22,117 2,184,146
Redemptions (22,793.223) (2,531,248) -- (2,531,248)
----------- ----------- --------- -----------
Trust capital--December 31, 2002 190,722.991 $22,420,673 $230,402 $22,651,075
----------- ----------- --------- -----------
----------- ----------- --------- -----------
- -----------------------------------------------------------------------------------------------------
The accompanying notes are an integral part of these statements.
</Table>
141
<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 Second 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. ('Prudential').
PSI is the selling agent for the Trust as well as its commodity broker
('Commodity Broker').
In February 2003, Prudential and Wachovia Corp. ('Wachovia') announced an
agreement to combine each company's respective retail securities brokerage and
clearing operations within a new firm, which will be headquartered in Richmond,
Virginia. Under the agreement, Prudential will have a 38% ownership interest in
the new firm and Wachovia will own 62%. The transaction, which includes the
securities brokerage, securities clearing, and debt capital markets operations
of PSI, but does not include the equity sales, trading and research operations
or commodity brokerage and derivative operations of PSI, is anticipated to close
in the third quarter of 2003. The Managing Owner, as well as the Commodity
Broker, will continue to be indirect wholly owned subsidiaries of Prudential.
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.
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<Page>
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.
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. Net unrealized gain or loss on open contracts denominated in foreign
currencies and foreign currency holdings are translated into U.S. dollars at the
exchange rates prevailing on the last business day of the year. Realized gains
and losses on commodity transactions are recognized in the period in which the
contracts are closed.
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.
143
<Page>
New accounting guidance
In November 2002, the Financial Accounting Standards Board issued
Interpretation No. 45 ('FIN 45'), Guarantor's Accounting and Disclosure
Requirements for Guarantees, Including Indirect Guarantees of Indebtedness of
Others, which Series F adopted at December 31, 2002. FIN 45 elaborates on the
disclosures to be made by a guarantor in its financial statements about its
obligations under certain guarantees that it has issued. Consistent with
standard business practices in the normal course of business, Series F has
provided general indemnifications to the Managing Owner, its Trading Advisor and
others when they act, in good faith, in the best interests of Series F. Series F
is unable to develop an estimate of the maximum potential amount of future
payments that could potentially result from any hypothetical future claim, but
expects the risk of having to make any payments under these general business
indemnifications to be remote.
C. Fees
Organizational and offering costs
PSI or its affiliates paid the costs of organizing Series F and will continue
to pay all 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, other than brokerage services, during the
years ended December 31, 2002 and 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 will continue to pay all costs of offering its
Limited Interests.
144
<Page>
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 Year ended (commencement of
December 31, December 31, operations) to
2002 2001 2000
------------ ------------ ----------------
Commissions $ 977,143 $614,066 $332,814
General and administrative 77,174 57,893 81,740
------------ ------------ ----------------
1,054,317 671,959 414,554
General and administrative expenses borne by the
Managing Owner and its affiliates (21,971) (30,419) (47,991)
------------ ------------ ----------------
$1,032,346 $641,540 $366,563
------------ ------------ ----------------
------------ ------------ ----------------
</Table>
Expenses payable to the Managing Owner and its affiliates (which are included
in accrued expenses) as of December 31, 2002 and 2001 were $42,289 and $21,805,
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 for margin purposes. Series F receives interest income
on 100% of its average daily equity maintained in its accounts with PSI during
each month at the 13-week Treasury bill discount rate.
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.
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
145
<Page>
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 the particular exchange.
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, there is concentration risk on
forward transactions entered into by Series F as PSI, Series F's commodity
broker, is the sole counterparty. Series F 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 F's contracts is the net unrealized gain
included in the statements of financial condition; however, counterparty
non-performance on only certain of Seres F's contracts may result in greater
loss than non-performance on all of Series F's contracts. 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 interest of
Series F.
PSI, when acting as Series F's futures commission merchant in accepting
orders for the purchase or sale of domestic futures contracts, is required by
Commodity Futures Trading Commission ('CFTC') regulations to separately account
for and segregate as belonging to Series F all assets of Series F relating to
domestic futures trading and is not permitted to commingle such assets with
other assets of PSI. At December 31, 2002, such segregated assets totalled
$6,062,662. Part 30.7 of the CFTC regulations also requires PSI to secure assets
of Series F related to foreign futures trading which totalled $16,844,013 at
December 31, 2002. There are no segregation requirements for assets related to
forward trading.
As of December 31, 2002, all of Series F's open futures contracts mature
within one year.
146
<Page>
G. Financial Highlights
<Table>
<Caption>
Year ended Year ended
December 31, 2002 December 31, 2001
----------------- -----------------
Performance per Interest
Net asset value, beginning of period $106.40 $106.90
----------------- -----------------
Net realized gain and change in net unrealized
gain/loss on commodity transactions 23.99 6.90
Interest income 1.77 3.64
Net expenses (13.40) (11.04)
----------------- -----------------
Net increase (decrease) for the period 12.36 (.50)
----------------- -----------------
Net asset value, end of period $118.76 $106.40
----------------- -----------------
----------------- -----------------
Total return 11.62% (0.47)%
Ratio to average net assets
Interest income 1.62% 3.36%
Net expenses, including incentive fees of 3.32% and
1.12%, respectively 12.54% 10.40%
</Table>
These financial highlights represent the overall results of Series F
during the years ended December 31, 2002 and 2001. An individual interest
owner's actual results may differ depending on the timing of contributions and
redemptions.
147
<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 and Stockholder 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, 2002 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
February 24, 2003
148
<Page>
Prudential Securities Futures Management Inc.
(A wholly-owned subsidiary of Prudential Securities Incorporated)
Statement of Financial Condition
December 31, 2002
- --------------------------------------------------------------------------------
<Table>
Assets
Cash $ 27,386
Investments in partnerships 1,261,467
Receivables from partnerships 62,399
Other receivables 38,100
-----------
Total assets $ 1,389,352
===========
Liabilities and Stockholder's Equity
Liabilities
Due to Parent and affiliates $ 1,782,552
Accrued expenses and other liabilities 47,786
-----------
Total liabilities 1,830,338
-----------
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 2,225,000
Accumulated deficit (441,086)
-----------
1,784,014
Less: Noninterest-bearing demand note due from Prudential Securities
Group Inc. (2,225,000)
-----------
Total stockholder's equity (440,986)
-----------
Total liabilities and stockholder's equity $ 1,389,352
===========
</Table>
The accompanying notes are an integral part of this financial statement.
149
<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 both Prudential Securities Group
Inc. ('PSGI') and Prudential Financial, Inc. ('Prudential'). 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, 2002, the Company's federal and state income tax benefit
receivables are $9,488 and $2,879, respectively, and are treated as a
reduction to Due to Parent and affiliates.
150
<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 their respective
share of the underlying equity in the respective Partnerships' net assets
which approximates fair value. 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 such partnership. The
Company's investments in partnerships and its percentage ownership in those
partnerships at December 31, 2002 are as follows:
Diversified Futures Trust I $ 244,853 1.0%
Diversified Futures Trust II 105,259 1.1%
Prudential Securities Strategic Trust 85,904 1.0%
World Monitor Trust - Series A 53,046 1.0%
World Monitor Trust - Series B 105,983 1.1%
World Monitor Trust - Series C 51,253 1.1%
World Monitor Trust II - Series D 83,853 1.1%
World Monitor Trust II - Series E 300,922 1.1%
World Monitor Trust II - Series F 230,394 1.0%
----------
$1,261,467
==========
The following represents combined condensed financial information for the
Partnerships in which the Company has an investment as of December 31,
2002:
Assets $119,586,935
============
Liabilities $ 1,892,352
Partners' Capital 117,694,583
------------
Liabilities and Partners' Capital $119,586,935
============
4. Related Parties
The Company has an interest-bearing loan payable to PSGI in the amount of
$1,705,664 at December 31, 2002 which bears interest at PSGI's effective
borrowing rate (2.0% at December 31, 2002) 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 $62,399 and is included in Due to Parent and affiliates). The
amount due from the Partnerships related to these services ($62,399) is
included in Receivable from partnerships.
151
<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
maintained its net worth at a level in excess of $1 million, which exceeds
the maximum requirements of the North American Securities Administration
Association (NASAA) guidelines. The Company relies on an opinion from legal
counsel that it meets its net worth requirements under the agreements by
satisfying the NASAA guidelines.
PSGI has agreed to make available to the Company additional capital (in the
form of a demand note) in an amount sufficient to permit the Company to
meet its net worth obligation. As of December 31, 2002, the Company has a
noninterest-bearing demand note receivable from PSGI in the amount of
$2,225,000 at December 31, 2002. This note receivable is classified as a
reduction of Stockholder's Equity as it represents capital subscribed but
not funded. The demand note is collateralized by a U.S. Government security
reverse repurchase agreement for which contract amount plus accrued
interest approximates $2,225,000 at December 31, 2002.
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.
7. Subsequent Event
In February 2003, Prudential and Wachovia Corp. ('Wachovia') announced an
agreement to combine each company's respective retail securities brokerage
and clearing operations within a new firm, which will be headquartered in
Richmond, Virginia. Under the agreement, Prudential will have a 38%
ownership interest in the new firm and Wachovia will own 62%. The
transaction, which includes the securities brokerage, securities clearing,
and debt capital markets operations of PSI, but does not include the equity
sales, trading and research operations or commodity brokerage and
derivative operations of PSI, is anticipated to close in the third quarter
of 2003. The Company will continue to be an indirect wholly owned
subsidiary of Prudential.
152
<Page>
[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.
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"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
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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.
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"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.
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"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.
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"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 by ss. 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:
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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:
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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
April __, 2003. 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
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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 $__________
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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
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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
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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
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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.
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SIGN BELOW UNDER CORRESPONDING ACCOUNT TYPE
8. INDIVIDUAL OR JOINT SUBSCRIPTION
If this subscription is for a joint account, the statements,
representations, warranties and undertakings set forth in this
subscription agreement will be deemed to have been made by each owner
of the account
___________________ ___________________ ____________
(Signature of (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)
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11. REPRESENTATIONS AND WARRANTIES
I (we) hereby represent and warrant to Prudential Securities Futures
Management Inc. (sometimes referred to as the managing owner) and the Trust
as follows (please initial each applicable representation and warranty):
____ (1) I (we) satisfy one or more of the following financial standards
outlined below for subscription in the Trust (initial in the
space provided only those requirements that apply):
____ (A) I (we) am (are) not acting on behalf of an Employee Benefit
Plan and I (we) have either
____ (i) a net worth (exclusive of home, home furnishings and
automobiles) of at least $150,000 or
____ (ii) a net worth (similarly calculated) of at least $45,000
and an annual gross income of at least $45,000 and not
more than 10% of my net worth is invested in the Trust
or
____ (iii) if I (we) am (are) a resident(s) of one of those
states listed under "State Suitability Requirements" on
page D-13, I (we) meet the more restrictive suitability
requirements imposed by the State in which I (we)
reside and not more than 10% of my net worth is
invested in the Trust.
____ (B) If I (we) am (are) acting on behalf of an IRA or a Keogh
Plan which covers no common law employees, each participant
meets, and the IRA or Keogh Plan meets, the net worth and
gross income requirement in (i), (ii) or (iii) above, and
its investment in the Trust does not exceed 10% of the
assets of the IRA or Keogh Plan at the time of investment.
____ (C) If I (we) am (are) acting on behalf of an Employee Benefit
Plan (other than an IRA or a Keogh Plan which covers no
common law employees), the Plan meets the net worth and
suitability requirements in (i) or (iii) above, and its
investment in the Trust does not exceed 10% of the assets of
the Plan at the time of investment.
____ (2) The address set forth above in Items 5 and 6 is my (our) true and
correct address, and I (we) have no present intention of becoming
a resident of any other state or country. The information
provided in those Items is true, correct and complete as of the
date of this Subscription Agreement and if there should be any
material change in such information prior to my (our) admission
to the Trust as a limited owner, I (we) will immediately furnish
such revised or corrected information to the managing owner. I
(we) will furnish the managing owner with such other documents as
it may request to evaluate this subscription.
____ (3) I (we) am (are) over 21 years old, and 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
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____ (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.
D-9
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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.
D-10
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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,
D-11
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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 April 23, 2003.
The Trust files annual, quarterly and current reports and other
information with the SEC concerning each series. You may read and
copy any reports, statements or other information we file at the SEC's
public reference room in Washington, D.C. You can request copies of
these documents, upon payment of a duplicating fee, by writing the
SEC. Please call the SEC at 1-800-SEC-0330 for further information on
the operation of the public reference rooms. Our SEC filings are also
available to the public on the SEC's internet site at www.sec.gov.
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