As filed with the Securities and Exchange Commission on March 8, 1999
Registration No. 333-43043
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, DC 20549
POST EFFECTIVE AMENDMENT NO. 1 TO
FORM S-1
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
WORLD MONITOR TRUST-SERIES C
(Exact Name of Registrant as Specified in its Charter)
Delaware 6799 13-3985042
(State of (Primary Standard Industrial (I.R.S. Employer
Organization) Classification Code Number) Identification Number)
One New York Plaza, 13th Floor
New York, New York 10292-2013
(212) 214-1000
(Address and telephone number of
registrant's principal executive offices)
___________________
Thomas M. Lane, President
Prudential Securities Futures Management, Inc.
One New York Plaza, 13th Floor
New York, New York 10292-2013
(212) 214-1000
(Name, address and telephone number of agent for service)
__________________
Copies to:
Fred M. Santo, Esq.
Rosenman & Colin LLP
575 Madison Avenue
New York, New York 10022
(212) 940-8800
__________________
Approximate date of commencement of proposed sale to the public: As
soon as practicable after the effective date of this Registration Statement.
If any of the securities being registered on this Form are to be offered on a
delayed or continuous basis pursuant to Rule 415 under the Securities Act
of 1933, check the following box. /x/
If this Form is filed to register additional securities for an offering
pursuant to Rule 462(b) under the Securities Act, please check the
following box and list the Securities Act registration statement number of
the earlier effective registration statement for the same offering. / /
If this Form is a post-effective amendment filed pursuant to Rule 462(c)
under the Securities Act, check the following box and list the Securities Act
registration statement number of the earlier effective registration statement
for the same offering. / /
If this Form is a post-effective amendment filed pursuant to Rule 462(d)
under the Securities Act, check the following box and list the Securities Act
registration statement number of the earlier effective registration statement
for the same offering. / /
If delivery of the prospectus is expected to be made pursuant to Rule 434,
please check the following box. / /
WORLD MONITOR TRUST-SERIES C
Cross Reference Sheet Pursuant to Item 501(b) of Regulation S-K
Showing Location in Prospectus of Items Required in Form S-1
Form S-1 Item Location in Prospectus
1. Forepart of the Registration
Statement and Outside Front
Cover Page of Prospectus Outside Front Cover Page
2. Inside Front and Outside Inside Front and Outside
Back Cover Pages of Prospectus Back Cover Pages; Additional
Information
3. Summary Information, Risk Factors
and Ratio of Earnings to Fixed Summary of the Prospectus; Risk
Charges Factors
4. Use of Proceeds The Offering
5. Determination of Offering Price The Offering
6. Dilution N/A
7. Selling Security Holders N/A
8. Plan of Distribution How to Subscribe, Exchange,
and Redeem Interests; The Offering
9. Description of Securities to
Be Registered Summary of Agreements--Trust Agreement
10. Interests of Named Experts and
Counsel Experts
11. Information with Respect to the Structure of the Trust;
Registrant Financial Statements
12. Disclosure of Commission Position
on Indemnification for Securities Summary of Agreements--Trust
Act Liabilities Agreement--Indemnification
WORLD MONITOR TRUST
Series A ($34,000,000), Series B ($33,000,000), and Series C ($33,000,000)
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 being separately offered. The
assets of each series are segregated from the other series. Each series is
separately valued and independently managed. Each week you may
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, but may
fluctuate between the submission date and the actual purchase date.
Series Trading Advisor Trading Program(s)
A Eagle Trading Systems, Inc. Eagle-FX and Global Systems
B Eclipse Capital Management, Inc. Global Monetary Program
C Hyman Beck & Company, Inc. Asset Allocation 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 15. 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 Trust income will exceed
distributions to you
- If you redeem an interest in any series during the first 12 full
months following the effective date of the purchase of that interest, you
will be charged a redemption fee except in defined circumstances
- The fixed expenses of each series requires gains of 5% per annum
to break even. This break even amount increases 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 will not exceed your investment in a series
------------------------------------
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE
SECURITIES AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR
HAS THE SECURITIES AND EXCHANGE COMMISSION 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 HAS NOT PASSED UPON THE
MERITS OF PARTICIPATING IN THE TRUST NOR HAS SUCH COMMISSION PASSED
ON THE ACCURACY OR ADEQUACY OF THIS PROSPECTUS.
------------------------------------
PRUDENTIAL SECURITIES PRUDENTIAL SECURITIES
INCORPORATED FUTURES MANAGEMENT, INC.
Selling Agent and Managing Owner and Sponsor
Clearing Broker
The date of this prospectus is April __, 1999
COMMODITY FUTURES TRADING COMMISSION ("CFTC")
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 96 TO 99 AND
A STATEMENT OF THE PERCENTAGE RETURN NECESSARY
TO BREAK EVEN, THAT IS, TO RECOVER THE AMOUNT OF
YOUR INITIAL INVESTMENT AT PAGE 14.
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 15 TO 21.
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 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, 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.
- --IRA, 401(k), or ERISA plans should not invest more that 10% of their
assets in the Trust.
2
TABLE OF CONTENTS
CFTC RISK DISCLOSURE STATEMENT 2
SUMMARY OF THE PROSPECTUS 5
Selected Financial Information 12
Summary Of Fees And Expenses 13
Projected Twelve-Month Break-Even Analysis 14
RISK FACTORS 15
Performance Risks 15
Trading Risks 16
Trading Advisor Risks 18
Trust And Offering Risks 19
Tax Risks 20
Regulatory Risks 21
ACTUAL AND POTENTIAL CONFLICTS OF INTEREST 22
STRUCTURE OF THE TRUST 24
PERFORMANCE OF EACH SERIES 25
SERIES A 38
Eagle Trading And Its Principals 38
Eagle Trading's Trading Systems 39
Eagle Trading's Past Performance For All Of Its Clients 42
SERIES B 47
Eclipse Capital And Its Principals 47
Eclipse Capital's Trading System 48
Eclipse Capital's Past Performance For All Of Its Clients 51
SERIES C 57
Hyman Beck And Its Principals 57
Hyman Beck's Trading System 58
Hyman Beck's Past Performance For All Of Its Clients 64
TRADING LIMITATIONS AND POLICIES 71
DESCRIPTION OF THE TRUST, TRUSTEE, MANAGING OWNER,
AND AFFILIATES 73
DUTIES AND COMMITMENTS OF THE MANAGING OWNER 83
FIDUCIARY RESPONSIBILITIES 85
THE OFFERING 86
WHO MAY SUBSCRIBE 90
HOW TO SUBSCRIBE FOR, REDEEM, AND EXCHANGE INTERESTS 94
3
FEES AND EXPENSES 96
Charges Paid By The Trust 96
Charges Paid By Prudential Securities Or Its Affiliates 99
Charges Paid By Limited Owners 99
Projected Twelve-Month Break-Even Analysis 99
SUMMARY OF AGREEMENTS 100
Advisory Agreements 100
Brokerage Agreement 101
Trust Agreement 102
THE FUTURES MARKETS 111
HOW MANAGED FUTURES FIT INTO A PORTFOLIO 115
FEDERAL INCOME TAX CONSEQUENCES 118
LEGAL MATTERS 121
ADDITIONAL INFORMATION 121
EXPERTS 121
GLOSSARY OF TERMS 122
INDEX TO CERTAIN FINANCIAL INFORMATION 127
FINANCIAL STATEMENTS 128
Trust - Series A 128
Trust - Series B 136
Trust - Series C 144
Managing Owner 152
Diversified Futures Trust I 157
EXHIBIT A - FORM OF SECOND AMENDED AND RESTATED
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-11
4
SUMMARY OF THE PROSPECTUS
This summary outlines certain important aspects of an investment in
Series A, Series B, and/or Series C. You are referred to the Glossary
beginning on page 122 for the definition of any term you may not
understand.
The Trust
The Trust was formed as a Delaware Business Trust on
December 17, 1997, with separate series of interests.
Its term expires on December 31, 2047. Early
termination is possible. The principal offices
of the Trust and 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 and
their telephone number is (212) 778-7866.
The Series
The Trust's interests are offered in three separate and
distinct series: Series A, Series B, and Series C.
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, distinct records.
- --Calculates the net asset value (referred to as NAV)
of its interests separately from 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.
Performance Of Each Series
Each series began trading on June 10, 1998.
Series A Series B Series C
NAV on 6/10/98 $6,039,177 $5,709,093 $5,706,177
NAV on 12/31/98 $10,810,746 $11,400,257 $11,293,205
NAV per interest
on 6/10/98 $100 $100 $100
NAV per interest
on 12/31/98 $98.31 $111.98 $104.22
5
Series A
Trading for Series A is directed by Eagle Trading System, Inc.
(referred to as Eagle Trading). Eagle Trading has been operating its
trading systems since 1993. As of December 31, 1998, Eagle Trading
had approximately $665 million in investor funds under management.
Eagle Trading directs trading for 100% of Series A's assets, which, in
turn, are allocated 50% to its Eagle-Global System and 50% to its Eagle-
FX System. Series A trades a diversified portfolio with a foreign
exchange focus, assuming sufficient market opportunities in the FX
markets exist. See "SERIES A."
Series B
Trading for Series B is directed by Eclipse Capital
Management, Inc. (referred to as Eclipse
Capital). Eclipse Capital has been operating its trading systems since
August 1, 1986. As of December 31, 1998, Eclipse Capital had
approximately $357 million in investor funds under management.
Eclipse Capital directs trading for 100% of Series B's assets according
to its Global Monetary Program. Series B trades a diversified portfolio
with a financial instrument focus, assuming sufficient market
opportunities in the financial instrument markets exist. See "SERIES
B."
Series C
Trading for Series C is directed by Hyman Beck &
Company, Inc. (referred to as Hyman Beck). Hyman Beck has been
operating its trading systems since March 1991. As of December 31,
1998, Hyman Beck had approximately $319 million in investor funds
under management. Hyman Beck directs trading for 100% of Series C's
assets according to a modified and up-leveraged version of its Asset
Allocation Program. Series C trades a portfolio diversified among
several markets. See "SERIES C."
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 trading is speculative, volatile,
and highly leveraged - 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 - you should not rely on past performance to
predict the results of an investment in a series.
- -Each series is traded by a single advisor rather than
dispersing the risk among several advisors - 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 taxable Trust income will
exceed cash distributions to you from the Trust.
- -If you redeem an interest in any series during the first 12 full months
following the effective date of your purchase, you will be charged a
redemption fee (4% in the first 6-month period, 3% in the second 6-
month period) unless you exchange that interest for an interest in
another series or you invest your redemption proceeds in another fund
sponsored by the managing owner. If at the time of your redemption you
have subscribed for at least $5,000,000 of interests, the redemption fee, if
applicable, may be waived.
6
Risk Factors To Consider (Continued)
- -Each series has large fixed expenses. We estimate that
each series' gains from trading and interest income must be 5% per
annum in order to break even. This break even amount increases 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 the absence of any exchange listing or
secondary trading market for the interests of any series.
- -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 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 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 necessary to maintain at least a 1%
interest in the profits and losses of each series at all times.
- -Has accepted responsibility for the obligations of any series whose
liabilities exceed its assets.
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 were not negotiated at arm's
length.
All compensation to Prudential Securities and its affiliates
will be within the limits of the guidelines for the registration of
commodity pool programs imposed by the various state regulators
referred to as NASAA guidelines.
7
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 are not subject to the losses or liabilities
of any series in which you have not invested. We have received
opinions of Rosenman & Colin LLP, counsel to the Trust, and Richards,
Layton & Finger, P.A., special Delaware counsel to the Trust and the
trustee, 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, including, without limitation, treating each
series as separate from the other series. See the "Liabilities" section in
the Trust Agreement for a more complete explanation.
Who May Subscribe
To subscribe in 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 "State Suitability
Requirements" section in the Subscription Agreement, Exhibit D to this
prospectus.
- -You may not invest more than 10% of your liquid net
worth in any series or combination of series.
- -IRA and 401(k) accounts and other employee benefit plans are
subject to special suitability requirements.
- -If you invest $5,000,000 or more, you may receive either a discount on
the purchase price and/or have the redemption fees waived if you
redeem your interests prior to the expiration of 12 full months from the
effective date of your purchase of the interests being redeemed.
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 strategies to be followed in the series you invest in.
- -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.
8
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 an IRA account in which case it is $2,000.
- -You may purchase interests in all or any combination of 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 offered and sold at their weekly net asset value,
and 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. No
series' net asset value is diluted by the
Trust's organization and offering expenses because Prudential Securities
or an affiliate is responsible for their payment.
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 only within five
business days after you submit a Subscription Agreement to Prudential
Securities (or an additional seller), and 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 each series'
subscription maximum - the total amount of interests registered for
sale with the SEC - has been issued, either through sale or exchange.
For purposes of describing the purchase, exchange, and
redemption of interests, the following terms are used:
- -Dealing day means the first business day of each week.
- -Valuation point means the close of business on Friday
of each week.
The sale price, or net asset value per interest, is set at
a valuation point, and subscriptions for new interests become effective on
a dealing day. Generally, therefore, interests are priced at the close of
business on a Friday, and new purchases become effective on the
following Monday at that price. 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, and
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
9
the date you submit your subscription but is 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.
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
(which include, among other things, accrued but unpaid incentive fees
due to those series' trading advisors) 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 is treated as a redemption of interests in one
series (with the related tax consequences) and the simultaneous purchase
of interests in the series you exchange into. See "FEDERAL INCOME
TAX CONSEQUENCES." No "exchange" charge is imposed.
Segregated Accounts/Interest Income
Except for that portion of each series' assets used as
margin to maintain that series' forward currency contract positions, 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.
Prudential Securities credits each series with 100% of the interest
earned on its average net assets (other than those assets held in the form
of U.S. Government securities) on deposit with Prudential Securities
each week. Currently, this amount is estimated to be the federal funds
rate.
Use Of Proceeds
100% of each series' offering proceeds will be
used for that series' trading activities.
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
Interests you own in a series may be redeemed (sold back to
the Trust) in whole or in part. Redemptions are made
each week at the beginning of the dealing day.
To redeem your interests, you must deliver your Redemption Request at
least two business days prior to a given dealing day. Redemptions are
made at the net asset value per interest (which includes, among other
things, accrued but unpaid incentive fees due to that series' trading
advisor) on the valuation point immediately preceding the dealing day on
which your redemption is eligible to become effective (sometimes
referred to as the redemption price). 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.
10
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 charged redemption fees, as
follows:
Redemption Date Redemption Fee
Prior to six full months 4% of redemption price
from effective date of purchase
At least six but less than 12 full 3% of redemption price
months from the effective date
of purchase
Redemption fees are paid to the managing owner.
Redemption fees are not charged and may be waived if your aggregate
subscriptions to all series total at least $5 million.
Distributions
Because the managing owner does not intend
to make ongoing distributions, your income tax liability for the profits of
any series in any year in which you have invested will exceed any
distributions you receive from that series.
Income Tax Consequences
Based on the facts set forth in this prospectus, the
managing owner's representations, and under current federal income
tax law, we have obtained an opinion of Rosenman & Colin LLP to the
effect that each series in the Trust is treated as a partnership.
As long as each series is treated as a partnership for federal income tax
purposes, the Trust and each series in the Trust is not subject to any
federal income tax as an entity. Instead, as a limited owner, only you
will recognize taxable income in an amount equal to your allocable share
of trading profits and other income generated from the series in which
you have purchased interests (whether or not any cash is distributed to
you by the Trust). Your ability to deduct any losses which 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 is 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 and certified
by the Trust's independent public accountants. You also will be
provided with appropriate information to permit you to file your federal
and state income tax returns.
Fiscal Year
January 1 through December 31.
Financial Information
Financial information concerning the Trust and the managing owner
is set forth under "FINANCIAL STATEMENTS."
11
Selected Financial Information
(unaudited)
Period from June 10, 1998
(Commencement of Operations)
to December 31, 1998
Series A Series B Series C
Total Assets 10,904,807 11,558,059 11,384,130
Total Liabilities 94,061 157,802 90,925
Total Trusts' Capital 10,810,746 11,400,257 11,293,205
Total Income 343,726 1,732,093 1,011,204
Net Income (Loss) (171,858) 1,059,653 465,857
Net Asset Value Per Interest 98.31 111.98 104.22
Net Income (Loss) Per
Weighted Average Interests (1.96) 13.06 5.80
12
Summary Of Fees And Expenses
Fees Paid By The Trust
- -Brokerage Fee - an annual percentage of each series' net asset value:
Series A: 7.75%
Series B: 7.75%
Series C: 7.75%
Prudential Securities receives this amount for brokerage
services it renders for out-of-pocket trading costs it incurs
and for assisting the managing owner. The brokerage fee is determined
at the close of business each Friday, and the sum of the amounts
determined each week is paid monthly.
Which equated to a per round-turn transaction for the period
ended 12/31/98 of:
Series A: $121
Series B: $48
Series C: $46
Differences in amounts per round-turn reflect estimated differences in
frequency of trading, not higher per-trade costs. The managing owner
does not believe that the round-turn rate for Series A will be the rate
experienced in the future. Eagle, the trading advisor for Series A, slowly
adds positions when if first begins trading an account. Eagle's trading
volume is expected to increase and to produce a round-turn rate of
approximately $54 in the future.
- -Management Fee - an annual percentage of each series' net asset value:
Series A: 2%
Series B: 2%
Series C: 2%
Each trading advisor receives a 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 - a percentage of each series' new high net trading profits:
Series A: 23%
Series B: 20%
Series C: 23%
Each trading advisor can receive an incentive fee for the
profit (realized and unrealized) it achieves for a series. The incentive
fee is determined as of the close of business on the last Friday of each
calendar quarter but accrues weekly for purposes of determining a
series' net asset value for each week.
Fees Paid By The Investors
- -Redemption Fee - 4% or 3% of the net asset value of an interest:
The managing owner receives 4% and 3%, respectively, of the
redemption price during the first and second successive six-month
periods following the effective date of purchase. This fee is not charged
if you effect an exchange or invest your redemption proceeds in another
fund sponsored by the managing owner or if at the time of your
redemption you have subscribed for at least $5,000,000 of
interests.
The above fees constitute all fees to be paid, either directly or
indirectly, to Prudential Securities and/or its affiliates or to
the trading advisors.
Fees Paid By Prudential Securities Or Its Affiliates:
- -Initial Organization And Offering Expenses
Approximately $250,000 per series and $60,000 per series
each year during the continuing offering
Includes legal, accounting, filing, and printing expenses
for the initial and continuing offering of interests
- -Routine Operational/Administrative Expenses
Approximately $80,000 per series per year
Includes filing, accounting, photocopying, postage, and
computer services expenses
- -Routine Legal, Auditing, And Other Expenses
Approximately $60,000 per series per year
Includes expenses of third party service providers, such as the trustee
13
Projected Twelve-Month Break-Even Analysis
The following is the projected twelve-month break-even analysis for each
series after taking into account all fees and expenses (other than advisory
incentive fees and extraordinary expenses which are impossible to
predict). This analysis is expressed both as a dollar amount and as a
percentage of a $5,000 initial investment:
SERIES A SERIES B SERIES C
Description of Dollar Percentage Dollar Percentage Dollar Percentage
Charges Break-Even Break-Even Break-Even Break-Even Break-Even Break-Even
- -----------------------------------------------------------------------------------------------------------
Brokerage
Fees $ 387.50 7.75% $ 387.50 7.75% $ 387.50 7.75%
Advisory Management
Fees $ 100.00 2.00% $ 100.00 2.00% $ 100.00 2.00%
Advisory Incentive
Fees (1) - - - - - -
Total $ 487.50 9.75% $ 487.50 9.75% $ 487.50 9.75%
Less Estimated
Interest Income(2) ($ 237.50) (4.75%) ($ 237.50) (4.75%) ($ 237.50) (4.75%)
Estimated 12-Month
Break-Even Level
Without Redemption
Charges (3)(5) $ 250.00 5.00% $ 250.00 5.00% $ 250.00 5.00%
Redemption Charges
(4) $ 150.00 3.00% $ 150.00 3.00% $ 150.00 3.00%
Estimated 12-Month
Break-Even Level
After Redemption
Charges (5) $ 400.00 8.00% $ 400.00 8.00% $ 400.00 8.00%
- -------------------
1 Advisory incentive fees are only paid on new high net trading
profits. New high net trading profits are determined after deducting
brokerage and advisory management fees 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.
2 Each series is credited with 100% of the interest income earned on
that series' assets, currently estimated to be the federal funds rate of
approximately 4.75% per annum.
3 A redemption fee of 4% is 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% is assessed on an interest redeemed
after the end of the sixth, but on or before the end of the 12th, full month
after its purchase. Redemption fees are not charged if you effect an
exchange or if you invest your redemption proceeds concurrently in
another fund sponsored by the managing owner.
4 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.
5 If this break-even analysis was separately computed for a $2,000
initial IRA account investment, the break-even percentages of 5%
(without redemption charges) and 8% (after redemption charges) would
be equally applicable to that investment.
14
RISK FACTORS
The Trust is a new 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."
Performance Risks
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.
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.
There Is No Protection Against The Loss Of Your Principal
You are not 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.
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 or 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
different from, a more traditional portfolio, providing few, if any,
diversification benefits.
15
The Series Have Limited Operating Histories
The series only commenced trading during June 1998.
Trading 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.
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
Eagle Trading, Eclipse Capital, and Hyman Beck 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, downward, or level - in some commodities
that the system can track and those trends must be significant enough to
dictate entry or exit decisions. Trendless markets have occurred in the
past, however, and are likely to recur. In addition, technical systems
may be profitable for a period of time, after which the system fails to
detect correctly any future price movements. Accordingly, technical
traders may modify and alter their systems on a periodic basis. Any
factor (such as increased governmental control of, or participation in,
the markets traded) that lessens the prospect of sustained price moves in
the future may reduce the likelihood that any commodity trading
advisor's technical systems will be profitable.
The Large Number Of Existing Technical Traders Could Adversely
Affect Each Series
In recent years, there has been a substantial increase in the use of
technical trading systems. Different technical systems will tend to
generate different trading signals. However, the significant increase in
the use of technical systems as a proportion of the trading volume in the
particular markets included in each series' portfolio could result in
traders attempting to initiate or liquidate substantial positions at or
about the same time as a series' trading advisor, or otherwise altering
historical trading patterns or affecting the execution of trades, all to the
significant detriment of a series.
16
Discretionary Decision-Making May Result In Missed Opportunities Or
Losses
Each of the trading advisors' strategies involve 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.
Trading On Exchanges Outside The U.S. May Be Riskier Than Trading
On U.S. Exchanges
All three series trade on non-U.S. exchanges as a component of their
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 may
involve more risks than similar trading on U.S. exchanges.
The Unregulated Nature Of The Forward Markets Creates Counter-
Party Risks That Do Not Exist In Futures Trading
Unlike futures, 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. In contrast
to futures, 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 were to take
a position as a principal with a counterparty that fails, a default would
most likely result, depriving that series of any profit potential or forcing
the series to cover its commitments for resale, if any, at the then current
market price.
Because each series executes its forward trading exclusively with
Prudential Securities (and its affiliate, Prudential-Bache Global Markets
Inc.) as principal, liquidity problems might be greater in a series'
forward trading than they would be if trades were placed with and
through a larger number of forward market participants. If
governmental authorities impose exchange and credit controls or fix
currency exchange rates, trading in certain currencies might be
eliminated or substantially reduced, and the series' forward trading
might be limited to less than desired levels.
Effect Of The European Monetary Union
The January 1, 1999 conversion of most European currencies to a single
euro-currency, or 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
conversion to a single euro-currency is a very significant and novel
political and economic event, and there can be no certainty about the
direct or indirect future effects on the European currency markets and,
in turn, the Trust.
Potential Risk To Trading Or Reporting Of Results Because Of Year
2000 Problems
Many computer systems in use today cannot recognize the computer
code for the year 2000, and therefore may revert to the year 1900 or
some other date. This is commonly known as the "Year 2000 Problem"
or the "Y2K Problem." The Trust has engaged third parties to perform
primarily all of the services it needs. Accordingly, the Trust's Year 2000
problems, if any, are not its own but are those that center around the
ability of the trustee, managing owner, Prudential Securities, trading
advisors, and any other third party with whom the Trust has a material
relationship (any such third party is referred to individually as a service
provider, and collectively such third parties are referred to as the
service providers) to address and correct problems that may cause their
systems not to function as intended as a result of the Year 2000 Problem.
The Trust has received assurances from its managing owner, Prudential
Securities, and each of its trading advisors that they anticipate being
able to continue their operations without any material adverse impact
from the Year 2000 Problem. Although other service providers have not
made similar representations to the Trust, the Trust
17
has no reason to believe that these service providers will not
take steps necessary to avoid any material adverse impact on
the Trust, though there can be no assurance that this
will be the case. The costs or consequences of
incomplete or untimely resolution of the Year 2000 Problem by the
service providers, or by governments, exchanges, clearing houses,
regulators, banks, and other third parties, are unknown to the Trust at
this time, but could have a material adverse impact on the operations of
the Trust. The managing owner will promptly notify the Trust's limited
owners if it determines that the Year 2000 Problem will have a material
adverse impact on the Trust's operations.
If the Year 2000 Problems are systemic, for example, if the federal
government, the banking system, the exchanges, or the utilities are
materially adversely affected, there may be no adequate contingency
plan for the Trust to follow other than to suspend operations. If the
Year 2000 Problems are related to one or more of the other service
providers selected by the Trust, the Trust believes that each such service
provider is prepared to address any Year 2000 Problems which arises
that could have a material adverse impact on the Trust's operations.
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 from period to period. See "SERIES A,"
"SERIES B," and "SERIES C."
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 manages 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.
The Trading Approach For Series C Has A Limited Track Record
Hyman Beck utilizes a trading approach which has a limited past
performance record on which you may rely. This trading approach has
been tailored to Series C by being traded at 1.5 times normal leverage
for a Hyman Beck account. To the extent that losses occur, you can
expect losses to increase proportionately to the amount of leverage used.
The same is true, however, with respect to profits.
18
The Use Of Multiple Strategies For Series C Interests May Affect Series
C Profits Or Losses
Hyman Beck's Asset Allocation Portfolio, which is utilized for Series C
interests, combines Hyman Beck's long-term technical, trend-following
strategies with its technical, non-linear strategy. While the use of
multiple strategies within the Asset Allocation Portfolio is expected to
add diversification to Hyman Beck's overall trading approach on behalf
of the Series C interests, the use of multiple strategies may also result in
the taking of opposite positions from time to time in respect of certain
futures interest contracts, which may reduce or eliminate profitable
positions.
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 now, nor is there expected to be, any primary or secondary
market for the interests. In addition, the Trust Agreement, included as
Exhibit A, 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, will be paid to the managing owner.
If a substantial number of limited owners redeem their interests in a
series, that series could be required to liquidate positions at unfavorable
prices. However, redemptions in one series will not affect trading in any
other series. Under extraordinary circumstances, such as an inability to
liquidate positions, the Trust may delay redemption payments to you
beyond the 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. We estimate that
each series' gains from trading must be 5% per annum in order to break
even. This break even amount increases if redemption fees are imposed.
The Payment Of Quarterly Incentive Fees Does Not Assure Profits
Each series also pays its trading advisor a quarterly incentive fee based
upon the 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 because of 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 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 the limited owners. However, no specific policies
regarding conflicts of interest have been adopted by the Trust or series.
19
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
The Trust may be unable to recover its assets in the event of the
bankruptcy of Prudential Securities, its clearing broker, or of any other
counterparty with whom it trades.
Tax Risks
Your Tax Liability Is Anticipated To Exceed Distributions To You
For 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 fund or other tax-exempt limited owners, under certain
circumstances all or part of such income will be taxable to you. Also, the
series in which you have an interest might sustain losses offsetting its
profits after the end of a 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 any series in any year, even
though you will not receive distributions of cash with which to pay such
taxes.
Deductions Are Uncertain
Your ability to claim current deductions for certain expenses or 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 each
calendar year.
Partnership Treatment Is Not Assured
The Trust has received an opinion of counsel from Rosenman & Colin
LLP to the effect that, under current federal income tax law, each series
in the Trust will be treated as a partnership for 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 it is likely, but not certain, that each series will
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 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.
20
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 adviser and counsel
about the possible tax consequences to you of an investment in the Trust.
Tax consequences may differ for different investors, and you could be
affected by future changes in the tax laws.
Regulatory Risks
Government Regulations May Change
Commodity pool regulations are constantly changing and there is no way
to predict the impact of future changes on the Trust. In addition, future
tax law revisions could have a materially adverse effect on the Trust.
Concern has also been expressed about speculative pools of capital
trading in the currency markets, because these pools have the potential
to disrupt central banks' attempts to influence exchange rates. In the
current environment, you must recognize the possibility that future
regulatory changes may alter, perhaps to a material extent, the nature of
an investment in any series of the Trust.
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.
21
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 any 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
adopted by the Trust or any series. The following actual and potential
conflicts of interest do exist.
Conflicts Related To The Payment of the Brokerage Fee To Prudential
Securities
The Fee May Not Be The Lowest Available Fee Because the managing
owner is an affiliate of Prudential Securities, the fixed fee Prudential
Securities receives is not the result of arm's-length negotiations, and the
fixed fee may not be comparable to the fee each series would receive if
the fee were negotiated with an unrelated party. Furthermore, other
customers of Prudential Securities may pay commissions that are effec-
tively 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, 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 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 was responsible for selecting the trading advisors and
will be 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 get continuing compensation that is paid from the fixed fee paid
to Prudential Securities, and such compensation is paid by Prudential
Securities in proportion to the number of then outstanding interests for
which each Financial Advisor provides 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 Is Not Independent
The Trust, acting through its trading advisors, may execute over-the-
counter, spot, forward, and option foreign exchange transactions with
Prudential Securities. Prudential Securities will then engage in back-to-
back trading with an 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, as the managing owner has a
fiduciary obligation to the Trust, the managing owner will 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.
22
Other Activities Of Prudential Securities And The Managing Owner
The officers, directors, and employees of the managing owner and of
Prudential Securities, and agents and correspondents of Prudential
Securities, may from time to time 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 will
have 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.
They will continue to be free to do so, 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 Will Compete With
The Series The trading advisors might 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 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.
Positions Taken For Other Accounts Managed By The Trading Advisors
Can Affect The Series All open positions held in the accounts owned or
controlled by a trading advisor and its principals and affiliates will be
aggregated for purposes of applying speculative position limits in the
U.S. Thus, a series might be unable to enter into or hold certain
positions if such positions, when added to contracts held for other
accounts of that series' trading advisor or for the trading advisor itself,
would exceed the applicable speculative position limits.
23
STRUCTURE OF THE TRUST
The Trust was formed on December 17, 1997 as a Delaware Business
Trust with separate series, pursuant to the requirements of the Delaware
Business Trust Act. The Trust's registered office is c/o Wilmington
Trust Company, Rodney Square North, 1110 North Market Street,
Wilmington, Delaware 19890. The Delaware Business Trust Act
provides that, except as otherwise provided in the Trust Agreement,
interest-holders in a Delaware Business Trust have the same limitation
of liability as do shareholders of private, for-profit, Delaware cor-
porations. The Trust Agreement confers substantially the same limited
liability, and contains the same limited exceptions thereto, as would a
limited 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
The Trust's interests are offered in three separate series: Series A, B,
and C. 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, the trading advisors) that manages 100% of that series'
assets and makes that series' trading decisions. It is expected that
between 15% and 40% of each series' assets normally will be 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, portfolio, and strategies complement and
differ from the others'. 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 A, B, and C, the
managing owner allocated 100% of the proceeds from the initial 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 each of Eagle
Trading, Eclipse Capital, and Hyman Beck does currently act as a
commodity trading advisor to other public or private funds 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 or 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 "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 in its trading on behalf of the Trust, along with
past performance capsule summaries of all other accounts managed by
the trading advisors for the five year period ending on December 31,
1998 in accordance with CFTC rules. 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 of necessity general in nature.
24
PERFORMANCE OF EACH SERIES
Set forth hereafter in summary form is the actual performance of each
series from the start of trading on June 10, 1998 through December 31,
1998, along with a discussion and analysis by the managing owners 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 26 TO 37
25
Past Performance Of Series A
Capsule Performance of World Monitor Trust - Series A
Commodity Trading Advisor: Eagle Trading
Rates of Return
(Computed on a Daily Basis)
Month 1998
January
February
March
April
May
June (1.12)%
July (3.19)%
August 5.64%
September 1.58%
October (2.65)%
November (0.89)%
December (0.82)%
Year to Date (1.69)%
Name of Pool: World Monitor Trust - Series A
Type of Pool: Publicly-Offered
Start Date: June 1998
Aggregate subscriptions: $10,972,171*
Current net asset value
per interest: $98.31*
"Draw-down" means losses experienced by
the World Monitor Trust -Series A over a
specified period.
Largest monthly
draw-down: (3.19)% July 1998
"Largest monthly draw-down" means the
greatest percentage decline in net
asset value due to losses sustained by
the World Monitor Trust - Series A
from the beginning to the end of a
calendar month.
Largest peak-to-valley
draw-down: (4.30)% October 1998 to December 1998
"Largest peak-to-valley draw-down" means
the greatest cumulative percentage
decline in month-end net asset value
of World Monitor Trust - Series A
due to losses sustained during a period
in which the initial month-end net
asset value of World Monitor Trust -
Series A is not equaled or
exceeded by a subsequent month-end net
asset value of World Monitor Trust - Series A.
"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.
*As of December 31, 1998.
Past Performance Is Not Necessarily Indicative Of Future Results
26
Management's Discussion And Analysis Of Financial Condition And
Results Of Operations - Series A
Liquidity And Capital Resources
Series A commenced operations on June 10, 1998 with gross proceeds of
$6,039,177 allocated to commodities trading. Additional contributions
raised through the continuous offering for the period June 10, 1998
(commencement of operations) through December 31, 1998 resulted in
additional gross proceeds to Series A of $5,071,579. Additional interests
of Series A will continue to be offered on a weekly basis at the net asset
value per interest until the subscription maximum of $34,000,000 is sold.
At December 31, 1998, 100% of Series A's net assets was allocated to
commodities trading. A significant portion of the net assets was held in
cash which is used as margin for Series A's trading in commodities.
Inasmuch as the sole business of Series A is to trade in commodities,
Series A continues to own such liquid assets to be used as margin.
Prudential Securities credits Series A monthly with 100% of the interest
it earns on the average net assets in Series A's accounts.
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 A from promptly liquidating its
commodity futures positions.
Since Series A's business is to trade futures and forward contracts, its
capital is at risk due to changes in the value of these contracts (referred
to as market risk) or the inability of counterparties to perform under the
terms of the contract (referred to as credit risk). Series A'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 relationship among
the contracts held. The inherent uncertainty of Series A's speculative
trading as well as the development of drastic market occurrences could
result in monthly losses considerably beyond Series A'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 A's trading advisor to abide by various trading
limitations and policies. See Note F to the financial statements on page
133 for a further discussion on the credit and market risks associated
with Series A's futures, forward, and options contracts.
Series A does not have, nor does it expect to have, any capital assets.
Redemptions of limited interests for the period from June 10, 1998
through December 31, 1998 were $128,152. Future redemptions and
contributions will impact the amount of funds available for investment in
commodity contracts in subsequent periods.
Results Of Operations
Series A commenced trading operations on June 10, 1998, and as such,
no comparative information to prior periods is available.
The net asset value per interest as of December 31, 1998 was $98.31, a
decrease of 1.69% from the June 10, 1998 initial net asset value per
interest of $100.00. The MAR (Managed Accounts Reports) Fund/Pool
Index return for the June through December 1998 period was 4.69%.
MAR tracked the performance of 281 futures funds in 1998.
Series A reported flat performance for the nearly seven months of
trading in 1998. Gains in the financial and energy sectors failed to
outpace losses in the currency, metal, grain, and index sectors.
27
The financial sector proved most profitable for Series A with the
majority of gains earned during the third quarter. The default of Russia
on its sovereign debt and fear of similar risks in Latin America raised
anxiety across global financial markets in the third quarter. The
subsequent flight to higher quality fixed income instruments and the
abrupt widening of credit spreads exacerbated the situation. As a result,
Series A's long positions in European, U.S., and Japanese fixed income
futures provided profits which continued into the fourth quarter. Short
positions in the energy sector also achieved gains when energy prices
trended lower due to high inventories.
Volatility characterized market activity across the currency, metal,
grain, and index sectors. Following the considerable choppiness across
the markets in the third quarter, Series A closed many of its positions
and limited exposure. Fourth quarter attempts to establish currency
positions, particularly the deutschemark and British pound, were
liquidated with losses sustained as trends failed to materialize. As the
year ended, Series A had relatively limited exposure to the markets.
Interest income is earned on the average net assets held at Prudential
Securities and, therefore, varies monthly according to interest rates,
trading performance, contributions and redemptions. Interest income
was $272,000 for the period from June 10, 1998 to December 31, 1998.
Commissions are calculated on Series A's net asset value at the end of
each week and therefore, vary according to weekly trading performance,
contributions and redemptions. Commissions were $381,000 for the
period from June 10, 1998 to December 31, 1998.
All trading decisions for Series A are made by Eagle Trading.
Management fees are calculated on Series A's net asset value at the end
of each week and therefore, are affected by weekly trading performance,
contributions and redemptions. Management fees were $98,000 for the
period from June 10, 1998 to December 31, 1998.
Incentive fees are based on the new high net trading profits generated by
Eagle Trading, as defined in the Advisory Agreement among the Trust,
the managing owner and the trading advisor. Incentive fees were
$36,000 for the period from June 10, 1998 to December 31, 1998.
New Accounting Guidance
In June 1998, the Financial Accounting Standards Board issued
Statement No. 133, Accounting for Derivative Instruments and Hedging
Activities (referred to as SFAS 133) which Series A is required to adopt
effective January 1, 2000. SFAS 133 establishes accounting and
reporting standards for derivative instruments and for hedging activities
and requires that an entity recognize all derivatives as assets or liabilities
measured at fair value. Series A does not believe the effect of the
adoption will be material.
Year 2000 Risk
Investment funds, like financial and business organizations and
individuals around the world, depend on the smooth functioning of
computer systems. The year 2000, however, holds the potential for a
significant disruption in the operation of these systems. Many computer
systems in use today cannot distinguish the year 2000 from the year 1900
because of the way in which dates are encoded. This is commonly known
as the 'Year 2000 Problem.' Series A could be adversely affected if
computer systems used by it or any third party with whom it has a
material relationship do not properly perform date comparisons and
calculations concerning dates on or after January 1, 2000, which in turn
could have a negative impact on the handling or determination of trades
and prices and the services provided to Series A.
Series A has engaged third parties to perform primarily all of the
services it needs. Accordingly, Series A's Year 2000 Problems, if any,
are not its own but those that center around the ability of the trustee, the
managing owner, Prudential Securities, its trading advisor and any other
third party with whom Series A has a material relationship (individually
referred to as a service provider and collectively referred to as the
service providers) to address and correct problems that may cause their
systems not to function as intended as a result of the Year 2000 Problem.
28
Series A has received assurances from its managing owner, Prudential
Securities and its trading advisor that they anticipate being able to
continue their operations without any material adverse impact from the
Year 2000 Problem. Although other service providers, such as Series
A's trustee, have not made similar representations to Series A, Series A
has no reason to believe that these service providers will not take steps
necessary to avoid any material adverse impact on Series A, though
there can be no assurance that this will be the case. The costs or
consequences of incomplete or untimely resolution of the Year 2000
Problem by the service providers, or by governments, exchanges,
clearing houses, regulators, banks, and other third parties, are unknown
to Series A at this time, but could have a material adverse impact on the
operations of Series A. The managing owner will promptly notify Series
A's limited owners in the event it determines that the Year 2000 Problem
will have a material adverse impact on Series A's operations.
Series A has considered various alternatives as a contingency plan. If
the Year 2000 Problems are systemic, for example, the federal
government, the banking system, exchanges, or utilities are affected
materially, there may be no adequate contingency plan for Series A to
follow other than to suspend operations. If the Year 2000 Problems are
related to one or more of the other service providers selected by Series
A, Series A believes that each such service provider is prepared to
address any Year 2000 Problems which arise that could have a material
adverse impact on Series A's operations.
Inflation
Inflation has had no material impact on operations or on the financial
condition of the Trust from inception through December 31, 1998.
PLEASE TURN TO PAGES 38 TO 41 FOR A DESCRIPTION OF
EAGLE TRADING AND ITS PRINCIPALS AND TRADING PROGRAMS
AND TO PAGE 42 FOR ITS PERFORMANCE RECORD FOR ALL
ACCOUNTS UNDER ITS MANAGEMENT FOR THE PAST FIVE YEARS
29
Past Performance Of Series B
Capsule Performance of World Monitor Trust - Series B
Commodity Trading Advisor: Eclipse Capital
Rates of Return
(Computed on a Daily Basis)
Month 1998
January
February
March
April
May
June (2.22)%
July (3.63)%
August 10.81%
September 4.94%
October 1.18%
November (2.31)%
December 3.39%
Year to Date 11.98%
Name of Pool: World Monitor Trust - Series B
Type of Pool: Publicly-Offered
Start Date: June 1998
Aggregate subscriptions: $10,450,494*
Current net asset value
per interest: $111.98*
"Draw-down" means losses experienced by
the World Monitor Trust - Series B over a
specified period.
Largest monthly draw-down: (3.63)% July 1998
"Largest monthly draw-down" means the
greatest percentage decline in net
asset value due to losses sustained by
the World Monitor Trust - Series B from
the beginning to the end of a
calendar month.
Largest peak-to-valley
draw-down: (5.77)% June 1998 to July 1998
"Largest peak-to-valley
draw-down" means the greatest cumulative
percentage decline in month-
end net asset value of World
Monitor Trust - Series B due to losses
sustained during a period in which the
initial month-end net asset value
of World Monitor Trust - Series B
is not equaled or exceeded by a
subsequent month-end net asset
value of World Monitor Trust - Series B.
"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.
*As of December 31, 1998.
Past Performance Is Not Necessarily Indicative Of Future Results
30
Management's Discussion And Analysis Of Financial Condition And Results
Of Operations - Series B
Liquidity And Capital Resources
Series B commenced operations on June 10, 1998 with gross proceeds of
$5,709,093 allocated to commodities trading. Additional contributions
raised through the continuous offering for the period June 10, 1998
(commencement of operations) through December 31, 1998 resulted in
additional gross proceeds to Series B of $4,877,833. Additional interests
of Series B will continue to be offered on a weekly basis at the net asset
value per interest until the subscription maximum of $33,000,000 is sold.
At December 31, 1998, 100% of Series B's net assets was allocated to
commodities trading. A significant portion of the net assets was held in
cash which is used as margin for Series B's trading in commodities.
Inasmuch as the sole business of Series B is to trade in commodities,
Series B continues to own such liquid assets to be used as margin.
Prudential Securities credits Series B monthly with 100% of the interest
it earns on the average net assets in Series B's accounts.
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 B from promptly liquidating its
commodity futures positions.
Since Series B's business is to trade futures, forward, and options
contracts, its capital is at risk due to changes in the value of these
contracts (referred to as market risk) or the inability of counterparties to
perform under the terms of the contract (referred to as credit risk).
Series B'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 relationship among the contracts held. The inherent uncertainty of
Series B's speculative trading as well as the development of drastic
market occurrences could result in monthly losses considerably beyond
Series B'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 B's trading advisor to abide by
various trading limitations and policies. See Note F to the financial
statements on page 141 for a further discussion on the credit and market
risks associated with Series B's futures, forward, and options contracts.
Series B does not have, nor does it expect to have, any capital assets.
Redemptions of limited interests for the period from June 10, 1998
through December 31, 1998 were $246,322. Future redemptions and
contributions will impact the amount of funds available for investment in
commodity contracts in subsequent periods.
Results Of Operations
Series B commenced trading operations on June 10, 1998, and as such,
no comparative information to prior periods is available.
As of December 31, 1998, Series B reported a net asset value of $111.98,
an increase of 11.98% from the initial net asset value of $100.00. The
MAR (Managed Account Reports) Fund/Pool Index return for the June
through December 1998 period was 4.69%. MAR tracked the
performance of 281 futures funds in 1998.
Series B ended 1998 profitably with gains reported in the financial,
currency, and index sectors. Losses were experienced in the metal and
energy sectors.
Series B began trading in June on a difficult note as extreme reactions to
the June 17th U.S. intervention in the foreign exchange markets
reverberated across global financial and commodity markets. The
markets provided little opportunity until August with the escalation of
Russia's financial woes. The resulting flight to higher quality fixed
income instruments provided gains in long financial sector and short
Nikkei index positions. The financial
31
sector continued to add profits into
the fourth quarter. Short Japanese government bond positions proved
extremely profitable amid indications of a substantial reduction in local
demand and potentially significant increases in supplies. Also adding to
fourth quarter profits were long German interest rate contracts
resulting from year end Euro optimism.
Lack of significant market direction in the metal and energy sectors left
little room for opportunity, particularly in the energy sector as the
announcement of OPEC-led oil production cuts in June precipitated a
rally in prices, leading Series B to exit its short positions. Further
energy losses were suffered in the fourth quarter as air strikes in Iraq
caused another short lived crude oil rally creating losses in short
positions.
Interest income is earned on the average net assets held at Prudential
Securities and, therefore, varies monthly according to interest rates,
trading performance, contributions, and redemptions. Interest income
was approximately $257,000 for the period from June 10, 1998 to
December 31, 1998.
Commissions are calculated on Series B's net asset value at the end of
each week and therefore, vary according to weekly trading performance,
contributions, and redemptions. Commissions were approximately
$375,000 for the period from June 10, 1998 to December 31, 1998.
All trading decisions for Series B are made by Eclipse Capital.
Management fees are calculated on Series B's net asset value at the end
of each week and therefore, are affected by weekly trading performance,
contributions and redemptions. Management fees were approximately
$97,000 for the period from June 10, 1998 to December 31, 1998.
Incentive fees are based on the new high net trading profits generated by
the Eclipse Capital, as defined in the Advisory Agreement among the
Trust, the managing owner and the trading advisor. Incentive fees were
approximately $201,000 for the period from June 10, 1998 to December
31, 1998.
New Accounting Guidance
In June 1998, the Financial Accounting Standards Board issued SFAS
133, which Series B is required to adopt effective January 1, 2000. SFAS
133 establishes accounting and reporting standards for derivative
instruments and for hedging activities and requires that an entity
recognize all derivatives as assets or liabilities measured at fair value.
Series B does not believe the effect of the adoption will be material.
Year 2000 Risk
Investment funds, like financial and business organizations and
individuals around the world, depend on the smooth functioning of
computer systems. The year 2000, however, holds the potential for a
significant disruption in the operation of these systems. Many computer
systems in use today cannot distinguish the year 2000 from the year 1900
because of the way in which dates are encoded. This is commonly known
as the 'Year 2000 Problem.' Series B could be adversely affected if
computer systems used by it or any third party with whom it has a
material relationship do not properly perform date comparisons and
calculations concerning dates on or after January 1, 2000, which in turn
could have a negative impact on the handling or determination of trades
and prices and the services provided to Series B.
Series B has engaged third parties to perform primarily all of the
services it needs. Accordingly, Series B's Year 2000 Problems, if any,
are not its own but those that center around the ability of the Trustee,
the managing owner, Prudential Securities, its trading advisor and any
other third party with whom Series B has a material relationship
(individually referred to as a service provider and collectively referred
to as the service providers) to address and correct problems that may
cause their systems not to function as intended as a result of the Year
2000 Problem.
Series B has received assurances from its managing owner, Prudential
Securities and its trading advisor that they anticipate being able to
continue their operations without any material adverse impact from the
Year 2000 Problem. Although other service providers, such as Series
B's trustee, have not made similar representations to Series B, Series B
has no reason to believe that these service providers will not take steps
necessary to avoid any material adverse impact on Series B, though
there can be no assurance that this will be the case. The costs or
consequences of incomplete or untimely resolution of the Year 2000
Problem by the service providers, or by
32
governments, exchanges, clearinghouses, regulators, banks,
and other third parties, are unknown to Series B at this
time, but could have a material adverse impact on the
operations of Series B. The managing owner will promptly notify Series
B's limited owners in the event it determines that the Year 2000 Problem
will have a material adverse impact on Series B's operations.
Series B has considered various alternatives as a contingency plan. If
the Year 2000 Problems are systemic, for example, the federal
government, the banking system, exchanges, or utilities are affected
materially, there may be no adequate contingency plan for Series B to
follow other than to suspend operations. If the Year 2000 Problems are
related to one or more of the other service providers selected by Series
B, Series B believes that each such service provider is prepared to
address any Year 2000 Problems which arise that could have a material
adverse impact on Series B's operations.
Inflation
Inflation has had no material impact on operations or on the financial
condition of Series B from inception through December 31, 1998.
PLEASE TURN TO PAGES 47 TO 50 FOR A DESCRIPTION OF
ECLIPSE CAPITAL AND ITS PRINCIPALS AND TRADING PROGRAMS
AND TO PAGE 51 FOR ITS PERFORMANCE RECORD FOR ALL
ACCOUNTS UNDER ITS MANAGEMENT FOR THE PAST FIVE YEARS
33
Past Performance Of Series C
Capsule Performance of World Monitor Trust - Series C
Commodity Trading Advisor: Hyman Beck
Rates of Return
(Computed on a Daily Basis)
Month 1998
January
February
March
April
May
June (3.42)%
July (2.43)%
August 9.29%
September 2.84%
October (0.80)%
November (6.70)%
December 6.34%
Year to Date 4.22%
Name of Pool: World Monitor Trust - Series C
Type of Pool: Publicly-Offered
Start Date: June 1998
Aggregate subscriptions: $10,828,547*
Current net asset value per
interest: $104.22*
"Draw-down" means losses experienced by
the World Monitor Trust - Series C over
a specified period.
Largest monthly draw-down: (6.70)% November 1998.
"Largest monthly draw-down" means the greatest
percentage decline in net asset value
due to losses sustained by World
Monitor Trust - Series C from the
beginning to the end of a calendar
month.
Largest peak-to-valley
draw-down: (7.45)% October 1998 to November 1998
"Largest peak-to-valley draw-down" means
the greatest cumulative percentage decline
in month-end net asset value of World
Monitor Trust - Series C due to losses
sustained during a period in which the
initial month-end net asset value
of World Monitor Trust - Series C is
not equaled or exceeded by a subsequent
month-end net asset value of World
Monitor Trust - Series C.
"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.
*As of December 31, 1998.
Past Performance Is Not Necessarily Indicative Of Future Results
34
Management's Discussion And Analysis Of Financial Condition And Results
Of Operations - Series C
Liquidity And Capital Resources
Series C commenced operations on June 10, 1998 with gross proceeds of
$5,706,177 allocated to commodities trading. Additional contributions
raised through the continuous offering for the period June 10, 1998
(commencement of operations) through December 31, 1998 resulted in
additional gross proceeds to Series C of $5,256,705. Additional interests
of Series C will continue to be offered on a weekly basis at the net asset
value per interest until the subscription maximum of $33,000,000 is sold.
At December 31, 1998, 100% of Series C's net assets was allocated to
commodities trading. A significant portion of the net assets was held in
cash which is used as margin for Series C's trading in commodities.
Inasmuch as the sole business of Series C is to trade in commodities,
Series C continues to own such liquid assets to be used as margin.
Prudential Securities credits Series C monthly with 100% of the interest
it earns on the average net assets in Series C's accounts.
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 C from promptly liquidating its
commodity futures positions.
Since Series C's business is to trade futures, forward, and options
contracts, its capital is at risk due to changes in the value of these
contracts (referred to as market risk) or the inability of counterparties to
perform under the terms of the contract (referred to as credit risk).
Series C'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 relationship among the contracts held. The inherent uncertainty of
Series C's speculative trading as well as the development of drastic
market occurrences could result in monthly losses considerably beyond
Series C'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 C's trading advisor to abide by
various trading limitations and policies. See Note F to the financial
statements on page 149 for a further discussion on the credit and market
risks associated with Series C's futures, forward, and options contracts.
Series C does not have, nor does it expect to have, any capital assets.
Redemptions of limited interests for the period from June 10, 1998
through December 31, 1998 were $135,534. Future redemptions and
contributions will impact the amount of funds available for investment in
commodity contracts in subsequent periods.
Results Of Operations
Series C commenced trading operations on June 10, 1998, and as such,
no comparative information to prior periods is available.
The net asset value per interest as of December 31, 1998 was $104.22, an
increase of 4.22% from the June 10, 1998 initial net asset value per
interest of $100.00. The MAR (Managed Account Reports) Fund/Pool
Index return was 4.69% during June through December 1998. MAR
tracked the performance of 281 futures funds in 1998.
Series C recorded profits in 1998 as gains in the financial, energy, grain,
and meat sectors outpaced losses in the currency, index, and metal
sectors.
Economic turmoil in Russia and Japan drove Series C's performance in
1998. After the U.S. intervention to support the Japanese yen in June
caused disturbances across financial and commodity markets, the
third quarter began with optimistic reports regarding signs
of recovery in Japan. Consequently, Japanese interest rates began
to stabilize with signs of strength emerging in the Japanese
stock market. Encouraging words quickly turned into concern as
Japan's commitment to a
35
unified recovery plan was lacking. Instability in Russia
compounded Asian turmoil. In August, Russia devalued the
ruble and suspended debt payments in an effort to avoid default.
European and U.S. stock markets fell sharply as political and economic
instability threatened global financial markets. The resulting chaos
drove many investors to seek the safe haven of fixed income instruments.
As a result, gains from long financial and short index sector positions
made for a profitable third quarter.
Fourth quarter losses detracted from third quarter gains. After the U.S.
dollar's decline in October, the currency markets traded with little
direction throughout the remainder of the quarter with considerable
losses sustained. Increased stock market activity added to Series C's
losses. However, short Japanese government bond positions late in the
quarter contributed gains. In November, Japanese government bond
prices fell sharply on worries of oversupplies as Japan prepared to
finance its stimulus package by issuing additional debt, thus profiting
short positions. Declining commodity prices in cocoa and light crude oil
in the soft and energy sectors, respectively, also provided profits.
Interest income is earned on the average net assets held at Prudential
Securities and, therefore, varies monthly according to interest rates,
trading performance, contributions, and redemptions. Interest income
was approximately $254,000 for the period from June 10, 1998 to
December 31, 1998.
Commissions are calculated on Series C's net asset value at the end of
each week and therefore, vary according to weekly trading performance,
contributions, and redemptions. Commissions were approximately
$365,000 for the period from June 10, 1998 to December 31, 1998.
All trading decisions for Series C are made by Hyman Beck.
Management fees are calculated on Series C's net asset value at the end
of each week and therefore, are affected by weekly trading performance,
contributions, and redemptions. Management fees were approximately
$94,000 for the period from June 10, 1998 to December 31, 1998.
Incentive fees are based on the new high net trading profits generated by
Hyman Beck, as defined in the Advisory Agreement among the Trust,
the managing owner and the trading advisor. Incentive fees were
approximately $85,000 for the period from June 10, 1998 to December
31, 1998.
New Accounting Guidance
In June 1998, the Financial Accounting Standards Board issued SFAS
133, which Series C is required to adopt effective January 1, 2000.
SFAS 133 establishes accounting and reporting standards for derivative
instruments and for hedging activities and requires that an entity
recognize all derivatives as assets or liabilities measured at fair value.
Series C does not believe the effect of the adoption will be material.
Year 2000 Risk
Investment funds, like financial and business organizations and
individuals around the world, depend on the smooth functioning of
computer systems. The year 2000, however, holds the potential for a
significant disruption in the operation of these systems. Many computer
systems in use today cannot distinguish the year 2000 from the year 1900
because of the way in which dates are encoded. This is commonly known
as the 'Year 2000 Problem.' Series C could be adversely affected if
computer systems used by it or any third party with whom it has a
material relationship do not properly perform date comparisons and
calculations concerning dates on or after January 1, 2000, which in turn
could have a negative impact on the handling or determination of trades
and prices and the services provided to Series C.
Series C has engaged third parties to perform primarily all of the
services it needs. Accordingly, Series C's Year 2000 Problems, if any,
are not its own but those that center around the ability of the trustee, the
managing owner, Prudential Securities, its trading advisor and any other
third party with whom Series C has a material relationship (individually
referred to as a service provider and collectively referred to as the
service providers) to address and correct problems that may cause their
systems not to function as intended as a result of the Year 2000 Problem.
Series C has received assurances from its managing owner, Prudential
Securities and its trading advisor that they anticipate being able to
continue their operations without any material adverse impact from the
Year 2000
36
Problem. Although other service providers, such as Series
C's trustee, have not made similar representations to Series C, Series C
has no reason to believe that these service providers will not take steps
necessary to avoid any material adverse impact on Series C, though
there can be no assurance that this will be the case. The costs or
consequences of incomplete or untimely resolution of the Year 2000
Problem by the service providers, or by governments, exchanges,
clearinghouses, regulators, banks, and other third parties, are unknown
to Series C at this time, but could have a material adverse impact on the
operations of Series C. The managing owner will promptly notify Series
C's limited owners in the event it determines that the Year 2000 Problem
will have a material adverse impact on Series C's operations.
Series C has considered various alternatives as a contingency plan. If
The Year 2000 Problems are systemic, for example, the federal
government, the banking system, exchanges, or utilities are affected
materially, there may be no adequate contingency plan for Series C to
follow other than to suspend operations. If the Year 2000 Problems are
related to one or more of the other service providers selected by Series
C, Series C believes that each such service provider is prepared to
address any Year 2000 Problems which arise that could have a material
adverse impact on Series C's operations.
Inflation
Inflation has had no material impact on operations or on the financial
condition of Series C from inception through December 31, 1998.
PLEASE TURN TO PAGES 57 TO 63 FOR A DESCRIPTION OF
HYMAN BECK AND ITS PRINCIPALS AND TRADING PROGRAMS
AND TO PAGE 64 FOR ITS PERFORMANCE RECORD FOR ALL
ACCOUNTS UNDER ITS MANAGEMENT FOR THE PAST FIVE YEARS
37
SERIES A
Eagle Trading is allocated 100% of Series A assets. In its trading, Eagle
Trading utilizes two trading strategies: the Eagle-Global System and the
Eagle-FX System.
Eagle Trading And Its Principals
Eagle Trading is a Delaware corporation, organized in May 1993, with
its main business offices at 47 Hulfish Street, Suite 410, Princeton, New
Jersey 08542. Eagle Trading became a registered commodity trading
advisor and commodity pool operator under the Commodity Exchange
Act, as amended, and a member of the National Futures Association on
June 22, 1993.
Menachem Sternberg is the Chairman of the Board and Chief Executive
Officer of Eagle Trading and is a member of the National Futures
Association. Mr. Sternberg also is a shareholder and a director of Eagle
System Development, Ltd., a Bermuda corporation engaged in the
research and development of trading programs, systems, and products,
as well as a director of Eagle World Assets Ltd., a Bermuda mutual fund
company. Prior to joining Eagle Trading in January 1997, Mr.
Sternberg was a Senior Vice President and senior trader at Caxton
Corporation ("Caxton"), and since July 1995, he was also a principal of
Caxton Associates L.L.C. Caxton is a New York-based money
management firm investing in the foreign exchange, global financial, and
commodities markets. Prior to joining Caxton in 1992, Mr. Sternberg
was the President and a Director of Tiverton Trading, Inc. ("Tiverton"),
a registered commodity trading advisor. From August 1989 to
December 1991, Mr. Sternberg was also a Managing Director of Global
Research and Trading Ltd., a corporation engaged in the research and
development of trading and investment strategies in the futures,
forward, and option markets. Prior to that time, Mr. Sternberg was
employed by Commodities Corporation (U.S.A.) from 1979 until
December 31, 1989, first as a research consultant and subsequently as a
First Vice President. In 1986 he became an employee of Tiverton in
addition to his employment at Commodities Corporation (U.S.A.). Prior
to joining Commodities Corporation (U.S.A.), Mr. Sternberg was a
systems analyst.
Mr. Sternberg received a B.A. cum laude from Tel Aviv University and
a Ph.D. in Economics from Princeton University. His doctoral
dissertation, entitled "Uncertainty and the Use of Forward Contracts,"
dealt with theoretical issues concerning hedging and market behavior.
In addition to his involvement in global financial markets, Mr. Sternberg
has advised governmental and corporate clients as an economic
consultant and has authored numerous research and academic papers.
He also served on the faculty of Ben Gurion University and as a visiting
scholar at Princeton University.
Liora Sternberg is the President and a Director of Eagle Trading and is
a member of the National Futures Association. Mrs. Sternberg is also a
shareholder and a director of Eagle System Development, Ltd., as well
as a director of Eagle-Global Ltd. and Eagle-FX Ltd., two British Virgin
Islands limited liability companies. Mrs. Sternberg has been involved in
the computer industry since 1977. Beginning in October 1982, she was
employed by Menorah Insurance Company Ltd. as a system analyst, in
charge of designing financial applications. From January 1984 until
January 1992, she was managing the General Insurance computer
applications department. Mrs. Sternberg initiated and supervised the
development and implementation of a wide range of computer support
systems, both at the management and operational levels. Her position
required involvement in key management and business decisions of the
company. Starting in January 1992, Mrs. Sternberg devoted her time to
the study of financial markets and the design of computerized trading
systems. In May 1993, Mrs. Sternberg formed and became the
President of Eagle Trading. Mrs. Sternberg received a B.A. in
Computer Science and Philosophy from Bar Ilan University in 1982.
Nancy Goldak is a Vice President of Eagle Trading in charge of trade
executions and operations. Prior to joining Eagle Trading in May 1994
in her current position, Mrs. Goldak was a Vice President of Reynwood
Trading Corporation and managed its trading desk beginning in
November 1987. Mrs. Goldak performed duties involving treasury cash
management, compliance, and brokerage operations for Commodities
Corporation (U.S.A.) N.V. from November 1979 to October 1987.
38
Eagle Trading's Trading Systems
Eagle Trading makes its trading decisions for Series A using two trading
systems, both of which are based on technical trading analysis. The
systems were developed using artificial intelligence techniques that
simulate the operation of diverse combinations of trading rules on up to
fifteen years of historical market data (to the extent available). The
systems' trading rules incorporate trend following elements, momentum
indicators, money management principles, predetermined risk
parameters and volatility adjustment features. Each system uses a
computerized, trend-following approach that is based on the
systematization of these factors. This systematic approach is designed to
enable Eagle Trading to trade in markets exhibiting orderly
intermediate and long-term trends, while avoiding those markets
experiencing excessive volatility or sharp price corrections.
Eagle Trading's trading systems result in computer-generated signals
based on mathematical analyses of closing market prices that
incorporate the elements described above. The signals determine the
types of instruments to trade, whether to take a long or short position,
the maturity and size of each position, and the timing of the execution of
trades.
No assurance can be given that all of the factors discussed above or all
the pertinent information will be available to Eagle Trading in
implementing any particular trading decision. Eagle Trading's failure
to include any of these factors or information in making trading
decisions may cause Series A to miss significant profit opportunities or to
incur substantial losses.
The Eagle-Global System
The Eagle-Global System presently tracks and may trade up to 30
different futures and forward markets trading on exchanges in the U.S.
and abroad. The system covers a wide variety of commodities,
currencies, and U.S. and global financial markets. Eagle Trading, in its
sole discretion, reserves the right to change the markets and exchanges
in which it trades.
Eagle-Global Futures and Forward Contracts and Markets
Softs
World Sugar #1 CSC
Energy
Crude Oil NYM
Heating Oil NYM
Natural Gas NYM
Metals
Gold CMX
Silver CMX
Copper LME
Aluminum LME
Grains
Corn CBT
Wheat CBT
Soybeans CBT
U.S. Financial Instruments
Treasury Bonds CBT
Treasury Notes CBT
Eurodollars CBT
Currencies
British Pound IMM
Canadian Dollar IMM
German Mark IMM
Japanese Yen IMM
Swiss Franc IMM
Foreign Financial Instruments
German Bund EUREX
Short Sterling LIFFE
Long Gilt LIFFE
Notional MATIF
Pibor MATIF
JGB TSE & SIMEX
Euroyen TIFFE
Stock and Stock Indexes
S&P 500 IMM
FTSE LIFFE
NIKKEI SIMEX
DAX EUREX
39
The Eagle-FX System
The Eagle-FX system presently tracks and may trade up to ten
different foreign currencies. The system's trading is executed by using
forward contracts in the interbank foreign exchange markets. The
system's trading rules are similar to the ones used by the Eagle-Global
System, with some modification in view of the special nature of the
foreign exchange markets. Eagle Trading, in its sole discretion, reserves
the right to change the list of currencies in which it trades.
Eagle-FX Currencies
Deutsche Mark
Japanese Yen
Swiss Franc
British Pound
Canadian Dollar
*French Franc
*Italian Lira
*Dutch Guilder
*Belgian Franc
*Danish Krone
Norwegian Krone
Swedish Krone
*Austrian Schilling
Australian Dollar
Singapore Dollar
*Finnish Marrka
New Zealand Dollar
On or about January 1, 1999, with the implementation of the
European Monetary Union, the list of currencies traded by the Eagle-FX
System was modified. Eagle-FX stopped initiating trades in the
currencies marked by the (*) asterisk because they were folded into the
Euro currency. The tracking, trading and risk exposure in European
currencies is initiated through the following currencies: Euro or
Deutsche Mark (depending on liquidity and interbank quotation), Swiss
Franc, British Pound, Norwegian Krone, and Swedish
Krone.
Exchange Legends for Eagle-FX and Eagle-Global
CBT - Chicago Board of Trade
CME - Chicago Mercantile Exchange
CMX - COMEX
CSC - Cocoa, Sugar, Coffee Exchange
EUREX - European Exchange
IMM - International Monetary Market
LIFFE - London Financial Exchange
LME - London Metals Exchange
MATIF - France Exchange
NYC - NY Cotton Exchange
NYM - NY Mercantile Exchange
SIMEX - Singapore Int'l Monetary Exchange
TIFFE - Tokyo Int'l Futures Exchange
TSE - Tokyo Stock Exchange
Allocations Between Programs
The percentage of Series A assets allocated at any point in time to the
Eagle-Global and Eagle-FX trading systems is determined by the
managing owner, subject to Eagle Trading's consent, based on its
assessment of market conditions, trading advisor capacity (i.e., the
amount that Eagle Trading trades effectively without violating its
trading and risk management capabilities), risk/reward considerations,
performance, and other factors deemed relevant at the time. Since the
inception of trading and currently, the Series A assets are allocated 50%
to the Eagle-Global and 50% to Eagle-FX trading systems. The
allocations change automatically because of trading gains and losses, but
may alter if the managing owner determines, using the factors
enumerated above, that it is in the series' best interest to do so. If Eagle
Trading wishes to add or delete a trading program, it obtains the consent
of the managing owner. Eagle Trading utilizes different trading
strategies for some of its other clients, but does not use any of these other
trading strategies for Series A trading. Limited owners are given
prompt written notice of any material change in the trading strategies
used.
The entire portion, of Series A assets traded according to the Eagle-
Global System are invested in futures markets; hence, margin-to-equity
ratio tend to fluctuate from 10% to 55%, most commonly being in the
range of 25% - 30%.
40
The entire portion of the Eagle-FX System is invested in interbank
currencies, which use credit lines in the interbank market. The use of
such lines can fluctuate between a leverage of 0 to 9 times the account's
equity. Most commonly used is in the average of 3 times account equity.
In both cases however, the major determinant of risk in the accounts is a
pre-determined allowable loss for any new trade. See "RISK FACTORS
- - Futures, Forward, And Options Trading Is Volatile And Highly
Leveraged."
Volume of Trading for Eagle Trading. Contracts and Markets
Set forth below is a bar graph showing the sectors that are traded by
Eagle Trading as of December 31, 1998. Investor funds are exposed to
these sectors in approximately the percentage allocations stated. Actual
allocations change as market conditions and trading opportunities
change, and it is likely that the targeted risk allocations may vary for
Series A during future periods, although the focus will remain on the
financial instruments markets.
Global Monetary Program Allocation:
Foreign Exchange 37.0% (Represents FX System)
IMM Currencies 13.3%
Financials 36.3%
Stock Indices 1.1%
Grains and Softs 3.7%
Energies 4.5%
Metals 4.1%
100%
(GRAPH)
The domestic and non-U.S. exchanges
on which the above commodities currently are traded are:
Domestic Exchanges CBOT, CME, CSC, NYC, COMEX, NYM, and IMM.
Non-U.S. Exchanges EUREX, LIFFE, LME, MATIF, SIMEX, TSE, and TIFFE.
41
Eagle Trading's Past Performance For All Of Its Clients
Capsule summaries A(1A) through A(3) contain actual performance
information for the periods indicated.
Eagle-Global System
The following is a capsule summary of the past performance for the
Eagle-Global System as of December 31, 1998.
As of December 31, 1998
Name of commodity trading
advisor: Eagle Trading
Program: Eagle-Global System
Start Date: August 1993 (All Trading for Eagle Trading)
August 1995 (Eagle-Global System)
No. Accounts: 19 (Eagle-Global System)
Aggregate $$:
All Programs: $ 567,214,536 (All Programs excluding Notional)
$ 617,889,207 (All Programs including
Notional)
$$ in This Program: $ 270,914,635 (Eagle-Global System
Total Assets excluding Notional)
$ 306,025,131 (Eagle-Global System
Total Assets including Notional)
Largest monthly draw-down: (14.29)% August 1995
"Largest monthly draw-down" means
the greatest percentage decline in
net asset value due to losses sustained
in the Eagle-Global System from
the beginning to the end of a calendar month.
Largest peak-to-valley
draw-down: (27.59)% February 1996 to July 1996
"Largest peak-to-valley draw-down" means
the greatest cumulative percentage decline
in month-end net asset value due to losses
sustained in the Eagle-Global System
during a period in which the initial month-end
net asset value is not equaled or exceeded
by a subsequent month-end net
asset value.
Closed accounts Profitable = 3
Unprofitable = 1
RATES OF RETURN INFORMATION IS ON THE FOLLOWING PAGES
42
CAPSULE A(1A) - EAGLE-GLOBAL SYSTEM MONTHLY/ANNUAL RATES OF RETURN
(Based on 30 - 60% Funding Level)*
MONTH 1995
Aug (14.29)%
Sep 17.74
Oct 21.71
Nov 23.39
Dec 8.73
ANNUAL 64.78%
* "30-60% Funding Level" means that each account was funded
at a level less than the standard account size - in the case of
Capsule A(1A), at an average range of between 30% - 60%
of the standard account size. This method of funding
is commonly referred to as "nominal funding." For example,
if the funding level was 30% and the standard account size was $1
million, the account had $300,000 in actual funds. When an account is
funded at less than the standard account size, the rate of return, whether
positive or negative, will be greater than the rate of return of a fully
funded account.
The performance in Capsule A(1A) is provided to show the entire
performance in the Eagle-Global System from its inception. Because no
account in the Eagle-Global System from August 1995 to September
1995 was fully funded, return is shown on a nominal funding basis.
As of December 31, 1997 the composite funding level (i.e. the average
range of funding levels) for the accounts in Capsule A(1A) was
approximately 54%. See the conversion chart for capsule A(1A), below
to determine what the rate of return for the accounts in Capsule A(1A)
would have been on a "fully funded" basis - i.e., at 100% funding.
Past Performance Is Not Necessarily Indicative Of Future Results
CAPSULE A(1B) - EAGLE-GLOBAL SYSTEM MONTHLY/ANNUAL RATES OF RETURN
(Based on Fully Funded Subset)**
MONTH 1998 1997 1996 1995
Jan 8.29% 5.05% 8.90%
Feb (0.10) 5.40 (13.14)
Mar 3.89 (11.80) (0.94)
Apr (1.33) 1.94 5.78
May 11.12 (4.23) (10.04)
Jun (1.79) 0.88 1.34
Jul (6.17) 16.95 (12.73)
Aug 20.17 (5.57) 5.14
Sep 6.04 10.72 18.64
Oct (2.40) (7.33) 27.67 0.55%
Nov 1.70 1.05 8.14 2.36
Dec 1.37 9.17 (7.71) (2.44)
ANNUAL 45.60% 20.23% 25.34% 0.41%
Past Performance Is Not Necessarily Indicative Of Future Results
** The Fully-Funded Subset refers to the subset of accounts included in
the applicable composite which is funded entirely by actual funds. A
CFTC Advisory on use of the Fully Funded Subset method for
calculating rate of return requires that certain computations be made in
order to arrive at the Fully-Funded Subset and that the accounts for
which performance is so reported meet two tests designed to provide
assurance that the Fully-Funded Subset and the resultant rates of return
are representative of the trading program. Eagle Trading has
performed these computations.
43
CONVERSION CHART FOR CAPSULE A(1A)
The following chart shows the correlation between the Rates of Return
for the partially funded accounts in Capsule A(1A) and the Rates of
Return that these accounts would have achieved if they were fully
funded. To use the chart, follow these steps: (1) in the far left column
headed "ACTUAL ROR PARTIAL FUNDING," find the Rate of
Return for a month that is closest to the Rate of Return in the Capsule
and (2) find the Rate of Return that corresponds to the Rate of Return in
step (1) under the column heading that reflects the approximate level of
funding in an account (in the case of Capsule A(1A), 54%). The Rate of
Return in step (2) reflects the approximate Rate of Return that an
account would have experienced if it had been fully funded instead of
being funded at the level in step (2). For example, the Rate of Return in
Capsule A(1A) for October 1995 is 21.71% (e.g., 20% is the closest Rate
of Return in the column "ACTUAL FOR PARTIAL FUNDING"). If an
account was 54% funded, the Rate of Return under the "54%" column
in the chart shows that a fully funded account would have achieved a
Rate of Return of approximately 10.80% in that month.
ACTUAL ROR ROR ON A FULLY
PARTIAL FUNDED BASIS FOR
FUNDING A/C's FUNDED AT: 60% 54% 50% 40% 30% 20%
40% 24.00% 21.60% 20.00% 16.00% 12.00% 8.00%
35% 21.00% 18.90% 17.50% 14.00% 10.50% 7.00%
30% 18.00% 16.20% 15.00% 12.00% 9.00% 6.00%
25% 15.00% 13.50% 12.50% 10.00% 7.50% 5.00%
20% 12.00% 10.80% 10.00% 8.00% 6.00% 4.00%
15% 9.00% 8.10% 7.50% 6.00% 4.50% 3.00%
10% 6.00% 5.40% 5.00% 4.00% 3.00% 2.00%
5% 3.00% 2.70% 2.50% 2.00% 1.50% 1.00%
(0%) (0.00%) (0.00%) (0.00%) (0.00%) (0.00%) (0.00%)
(5%) (3.00%) (2.70%) (2.50%) (2.00%) (1.50%) (1.00%)
(10%) (6.00%) (5.40%) (5.00%) (4.00%) (3.00%) (2.00%)
(15%) (9.00%) (8.10%) (7.50%) (6.00%) (4.50%) (3.00%)
(20%) (12.00%) (10.80%) (10.00%) (8.00%) (6.00%) (4.00%)
(25%) (15.00%) (13.50%) (12.50%) (10.00%) (7.50%) (5.00%)
44
Eagle-FX System
The following is a capsule summary of the past performance for the
Eagle-FX System as of December 31, 1998.
As of December 31, 1998
Name of commodity trading
advisor: Eagle Trading
Program: Eagle-FX System
Start Date: August 1993 (All Trading for Eagle Trading)
August 1993 (Eagle-FX System traded
exclusively by Eagle Trading)
September 1991 (Trading of Eagle-FX
System under management of Tiverton)
No. Accounts: 13 (Eagle-FX System)
Aggregate $$:
All Programs: $ 567,214,536 (All Programs excluding Notional)
$ 617,889,207 (All Programs including
Notional)
$$ in This Program: $ 69,250,561 (Eagle-FX System Total Assets
excluding Notional)
$ 84,814,736 (Eagle-FX System Total Assets
including Notional)
Largest monthly draw-down: (16.13)% August 1994
"Largest monthly draw-down" means the
greatest percentage decline in
net asset value due to losses sustained
in the Eagle-FX system from the
beginning to the end of a calendar month.
Largest peak-to-valley
draw-down: (24.68)% May 1995 to December 1995
"Largest peak-to-valley draw-down" means
the greatest cumulative percentage
decline in month-end net asset value
due to losses sustained in
the Eagle-FX System during a period in
which the initial month-end net
asset value is not equaled or exceeded
by a subsequent month-end net
asset value.
Closed accounts: Profitable = 1
Unprofitable = 0
CAPSULE A(2) - EAGLE-FX MONTHLY/ANNUAL RATES OF RETURN
MONTH 1998 1997 1996 1995 1994
Jan (2.34)% 8.69% 10.94% (0.58)% (8.62)%
Feb 0.15 10.93 (5.10) 15.48 (6.15)
Mar (1.08) (0.67) 13.26 17.30 (0.37)
Apr (11.97) 4.49 4.75 2.08 1.08
May 3.20 0.32 (3.57) (10.96) (3.65)
Jun (4.32) (0.93) (1.22) (1.93) 11.48
Jul (0.15) 15.45 (3.63) (2.16) 4.02
Aug 1.92 (2.53) (0.92) 1.40 (16.13)
Sep 0.81 (1.72) 11.75 (0.96) 1.57
Oct (2.91) (2.38) 5.99 (0.30) 10.33
Nov (1.88) (0.61) 2.78 (2.54) (12.92)
Dec (1.81) 1.41 2.24 (9.66) 1.09
ANNUAL (19.30)% 35.34% 41.40% 3.54% (20.16)%
Past Performance Is Not Necessarily Indicative Of Future Results
45
Eagle Trading's Supplemental Performance Information
Eagle System
The following is a capsule summary of the past performance for the
Eagle System traded by Eagle Trading as of December 31, 1998, a
trading strategy not used on behalf of Series A.
As of December 31, 1998
Name of commodity trading
advisor: Eagle Trading
Program: Eagle System
Start Date: August 1993 (All Trading for Eagle Trading)
August 1993 (Eagle System traded exclusively
by Eagle Trading)
September 1989 (Trading of Eagle System
under management of Tiverton)
No. Accounts: 15 (Eagle System)
Aggregate $$:
All Programs: $ 567,214,536 (All Programs excluding Notional)
$ 617,889,207 (All Programs including Notional)
$$ in this Program: $ 227,600,746 (Eagle System Total Assets excluding
Notional)
$ 227,600,746 (Eagle System Total Assets including
Notional)
Largest monthly draw-down: (19.42)% February 1996
"Largest monthly draw-down" means the
greatest percentage decline in
net asset value due to losses
sustained in the Eagle System from the
beginning to the end of a calendar month.
Largest peak-to-
valley draw-down: (28.09)% February 1996 to July 1996
"Largest peak-to-valley draw-down" means
the greatest cumulative percentage decline
in month-end net asset value due to losses
sustained in the Eagle System during a
period in which the initial month-end net asset
value is not equaled or exceeded by a subsequent
month-end net asset value.
Closed accounts: Profitable = 8
Unprofitable = 1
CAPSULE A(3) - EAGLE SYSTEM ANNUAL RATES OF RETURN
(Based on Fully Funded Subset)
1998 1997 1996 1995 1994
ANNUAL/YTD 57.54% 26.59% 17.88% 72.74% 29.13%
Past Performance Is Not Necessarily Indicative Of Future Results
46
SERIES B
Eclipse Capital is allocated 100% of Series B assets. In its trading for
Series B, Eclipse Capital utilizes its trading strategy, the Global
Monetary Program.
Eclipse Capital And Its Principals
Eclipse Capital is a Delaware corporation initially incorporated in July
1983, with its main offices at 7700 Bonhomme, Suite 500, St. Louis,
Missouri 63105. Eclipse Capital was registered with the CFTC on
August 14, 1986 as a commodity trading advisor and is a member of the
National Futures Association.
Thomas W. Moller, the sole shareholder of Eclipse Capital, has served
as its President, Treasurer, and sole Director since founding the firm.
Mr. Moller received an undergraduate degree in Business and
Economics from Vanderbilt University and a graduate degree in
Accounting from the University of Kentucky. He is a Certified Public
Accountant and has a background in financial planning and investment
management. In 1980, as Chief Financial Officer of a privately held
company, he designed and implemented one of the first variable rate
loan hedge programs using interest rate futures contracts. In 1982, he
formed Interest Rate Management, Inc., another commodity trading
advisor that provided interest rate hedging advisory and management
services. Mr. Moller has devoted 100% of his time to Eclipse Capital
since September 1986, and is primarily involved in the areas of trading,
research, and product development.
James R. Klingler serves as Senior Vice President and Corporate
Secretary of Eclipse Capital, with responsibility for the areas of
administration and corporate management. Mr. Klingler has a B.A. in
Economics from Vanderbilt University and a JD from Vanderbilt
University School of Law. He previously worked as an associate with the
St. Louis law firm of Thompson Coburn (formerly Coburn & Croft) and
as a staff attorney with Mercantile Bancorporation, also in St. Louis.
From January 1991 until December 1997, he was Compliance Counsel
and subsequently Associate Vice President with A.G. Edwards & Sons,
Inc. Mr. Klingler joined Eclipse Capital in January 1998.
Thomas D. Kratky is Senior Vice President - Investor Relations and is
responsible for Eclipse Capital's investor services and business
development functions. Mr. Kratky has a B.A. in mathematics from the
University of California, Berkeley and an MBA from Columbia Business
School. He previously worked as a management consultant with both the
Wyatt Company and the Gartner Company and as a portfolio manager
in the non-traditional funds group at Evaluation Associates, Inc. From
October 1992 to October 1998, he was employed by Lehman Brothers in
various capacities and, upon leaving Lehman, was Senior Vice President
of the firm and President of Lehman Brothers Futures Asset
Management. Mr. Kratky joined Eclipse Capital in November 1998.
Ronald R. Breitigam is Vice President-Trading with responsibility for
the implementation of Eclipse Capital's trading strategies. After
graduating from Pacific Union College in 1982, Mr. Breitigam became
an independent floor trader at the Mid-America Commodity Exchange.
He served as an institutional broker with Thompson McKinnon (1984-
1985) and Paine Webber (1986), and in 1986 formed his own trading
company to work full time implementing various strategies. Mr.
Breitigam joined Eclipse Capital in May 1989.
James W. Dille is Vice President-Information Systems with
responsibility for computer-based research, development, and
operations. Dr. Dille has undergraduate and graduate engineering
degrees from the University of Virginia. He received his masters and
Ph.D. in Applied Sciences from Harvard University specializing in the
areas of Decision and Control Theory and Computer Science. From
1987 through 1993 he worked for The Boeing Company (formerly
McDonnell Douglas Corporation) in the Flight Simulation Training
Systems Division where he was responsible for research in the areas of
computer architectures and networking. He is an affiliate professor at
Washington University in St. Louis, teaching courses on numerical
analysis and the simulation and analysis of complex systems. Dr. Dille
joined Eclipse Capital in January 1994.
Eric S. Goodbar is Director-Research with responsibility for the
research, development, and maintenance of Eclipse Capital's
informational databases and programs. Mr. Goodbar has a BS degree
with a dual major in Financial Administration and Management of
Information Systems from the University of Nevada at Las Vegas and
47
an Executive MBA degree from the University of Chicago Graduate School
of Business. From August 1984 to April 1995, he was employed by
NationsBank CRT in several different capacities, the last of which was
as Vice President, Financial Engineering. From April 1995 to December
1997, he served as Executive Vice President of New Century Investment
Research and Management, Inc. From 1993-1997, Mr. Goodbar also
served as an adjunct faculty member for the Illinois Institute of
Technology. Mr. Goodbar joined Eclipse Capital in January 1998.
Eclipse Capital's Trading System
Eclipse Capital makes its trading decisions for Series B according to its
Global Monetary Program. The Global Monetary Program
incorporates quantitative trend analysis and technical trading principles.
The Global Monetary Program is systematic and trend-following in
nature, with the objective of capitalizing primarily on intermediate and
long-term price trends. Eclipse Capital makes all trading decisions
pursuant to its proprietary trend identification, capital allocation, and
risk management models, using multiple models to accentuate overall
diversification. Trend identification models use various technical and
statistical analysis techniques to identify and evaluate price trends.
Capital allocation models determine the percentage of trading capital
allocated to various markets and trading models.
Eclipse Capital's risk management models were developed with the
objective of limiting losses, capturing profits, and conserving capital in
choppy, "sideways markets." A market can be characterized as being
"sideways" when, over a certain period of time, it is trending neither
upward or downward. When viewed in a price/time chart, this type of
market will appear to be moving sideways along the time horizon with
relatively small upside and downside moves. Such markets typically
occur when investor sentiment towards the market is mixed, meaning
neither bullish nor bearish. The risk management principles that
Eclipse Capital employ include: (1) using stop orders to exit trades when
markets are moving against an established position; (2) diversifying
positions among several different futures and/or futures groups to limit
exposure in any one area; (3) using multiple entry and exit points; (4)
limiting the assets committed as margin, generally within a range of 5%
to 25% of assets managed, at minimum exchange margin requirements,
but possibly above or below that range at certain times; and
(5) prohibiting the use of unrealized profits in a particular futures
contract as margin for additional contracts in the same or a related
futures contract.
Decisions whether to trade a particular futures contract are based upon
various factors, including liquidity, significance in terms of desired
degrees of concentration, diversification, and profit potential, both
historical and at a given time. These decisions are based upon output
generated by a proprietary risk management program but require the
exercise of judgment by principals of Eclipse Capital. The specific
contracts traded have been selected based on liquidity, historical
volatility, and the degree of past directional movement. The actual
number of contracts held at any particular point depends on a number of
factors, including evaluation of market volatility and potential risk
versus return. There are occasions when a trading model may indicate
that no position is appropriate in a particular contract or contract group.
In addition to technical trading in futures contracts, Eclipse Capital also
may employ trading techniques such as "spreads" and "straddles," and
buying or selling futures options. A "spread" typically refers to the
actual position taken by a trader who is simultaneously long one futures
position and short another in the same or a related futures product. In
the futures markets, the terms "spread" and "straddle" are
interchangeable. When trading options on futures, a straddle generally
occurs when a trader employs a combination of either (i) buying a call
(the right to purchase a specific futures contract at a specified price and
date) and a put (the right to sell a specific futures contract at a specified
price and date) or (ii) selling both a call and a put of the same strike
price and month. Eclipse Capital makes non-material alterations to its
trading programs without approval from the managing owner if Eclipse
Capital determines that such changes are in the best interest of the series
limited owners.
Series B assets, traded pursuant to the Global Monetary Program, are
invested in futures markets utilizing leverage, or margin. The margin-
to-equity ratio tends to fluctuate between 5-25%, typically being in the
range of 10-15%. See "RISK FACTORS - Futures, Forward, And
Options Trading Is Volatile And Highly Leveraged."
48
The Global Monetary Program
The Global Monetary Program is a financial, metals, and energy
program that trades a global portfolio of futures, options on futures, and
exchanges-of-futures-for-physical ("EFP") contracts on interest rate
instruments, currencies, stock indices, precious and base metals, and
energy products. The foreign currency portion of the portfolio may be
traded in the interbank foreign exchange market. A key component of
this program is the extensive diversification achieved by applying
multiple trading models to a wide variety of financial markets located
throughout the world.
Global Monetary Program Contracts And Markets
DTB German Bond
DTB German 5-Year Bond
EUREX DAX
EUREX Euribor
EUREX German Bund
EUREX Euro Bund
EUREX German Bobl
EUREX Euro Bobl
LIFFE Short Sterling
LIFFE Long Gilt
LIFFE Euroswiss
LIFFE FTSE 100
LIFFE EuroLibor
LIFFE EuroEuribor
LIFFE Japanese Government Bond
LIFFE Euro 10-year Bond
LME 3-months Copper
LME 3-months Aluminum
LME 3-months Zinc
MATIF CAC 40
MATIF Euro Notional
MATIF 30-year Euro
MONT Canadian Bond
MONT Canadian Bank Bills
MONT Canadian Bankers Acceptance
SFE Australian Bank Bills
SFE Australian 3-Year Bond
SFE Australian Ten Year Bond
SFE All-Ordinaries
SIMEX Euroyen
SIMEX Nikkei
SIMEX Japanese Bond
TIFFE Euroyen
TSE Japanese Bond
CBOT US Bond
CBOT US 10-Year
CBOT US 5-Year
CBOT US 2-Year
CME Eurodollar
CME S&P 500
CME E-Mini S&P 500
COMEX Gold
COMEX Silver
NYMEX Crude Oil
NYMEX Natural Gas
NYMEX Heating Oil
NYMEX Unleaded Gas
Australian Dollar*
British Pound*
Canadian Dollar*
Euro*
New Zealand Dollar*
Japanese Yen*
Swiss Franc*
British Pound/Japanese Yen*
British Pound/Swiss Franc*
Euro Swiss Franc*
Euro Yen*
Swiss Franc/Japanese Yen*
USD Index*
IPE Brent Crude Oil
* All currencies are executed in the interbank cash market and then
exchanged for physical (EFP) to the CME or FINEX for actual futures
contracts.
49
Volume of Trading for Eclipse Capital. Contracts and Markets
Following is a bar graph showing the sectors that are traded by Eclipse
Capital as of December 31, 1998. Investor funds are exposed to these
sectors in approximately the percentage allocations stated. Actual
allocations change as market conditions and trading opportunities
change, and it is likely that the targeted risk allocations may vary for
Series B during future periods, although the focus will remain on the
financial instruments markets.
Global Monetary Program Allocation:
Interest rate instruments: 40%
Currencies: 25%
Stock Indices: 15%
Precious & Base Metals: 10%
Energy Products 10%
100%
(GRAPH)
PLEASE TURN TO THE FOLLOWING PAGE
50
Eclipse Capital's Past Performance For All Of Its Clients
Capsule summaries B(1) through B(4) contain actual performance for
the periods indicated.
Global Monetary Program
The following is a capsule summary of the past performance for Eclipse
Capital's Global Monetary Program as of December 31, 1998.
As of December 31, 1998
Name of commodity trading
advisor: Eclipse Capital
Program: Global Monetary Program
Start Date: April 1986 (All trading by Eclipse Capital)
August 1990 (Eclipse Capital Global
Monetary Program)
No. Accounts: 21
Aggregate $$: $ 337,258,576 (All Programs excluding Notional)
All Programs $ 358,018,694 (All Programs including Notional)
$$ in this Program $ 335,171,151 (Global Monetary Program excluding
Notional)
$ 355,931,669 (Global Monetary Program
including Notional)
Largest monthly draw-down: (14.62)% July 1994
"Largest monthly draw-down" means the
greatest decline in month-end
net asset value due to losses
sustained by a global monetary program on
a composite basis or an individual account
for any particular month.
Largest peak-to-valley
draw-down: (26.97)% March 1994 to September 1994
"Largest peak-to-valley draw-down" means
the greatest cumulative percentage decline
in month-end net asset value due to
losses sustained by a global monetary
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 = 15
Unprofitable = 9
RATES OF RETURN INFORMATION IS ON THE FOLLOWING PAGE
51
CAPSULE B(1) - ECLIPSE CAPITAL GLOBAL MONETARY PROGRAM
MONTHLY/ANNUAL RATES OF RETURN
MONTH 1998 1997 1996 1995 1994
Jan 1.66% 2.07% 5.45% (2.28)% 1.34%
Feb (3.12) (0.41) (0.07) 1.19 3.00
Mar (0.63) 1.67 (0.30) 4.52 6.09
Apr (10.67) (4.93) 5.58 0.84 (3.43)
May 2.81 4.01 1.96 8.09 (2.91)
Jun (2.19) 0.34 0.11 (2.34) 0.28
Jul (3.46) 8.80 0.58 1.04 (11.70)
Aug 13.32 (2.21) 3.04 6.80 (5.12)
Sep 6.02 5.00 2.77 (0.57) (1.42)
Oct 1.78 (0.77) 3.51 0.34 0.90
Nov (2.33) (1.63) 7.03 2.16 4.50
Dec 3.79 3.66 (2.19) (0.64) (2.24)
ANNUAL 5.03% 15.93% 30.68% 20.21% (11.37)%
Past Performance Is Not Necessarily Indicative Of Future Results
52
Eclipse Capital's Supplemental Performance Information
Capsules B(2) through B(4) represent the customer accounts traded by
Eclipse Capital pursuant to different trading strategies from those to be
utilized by Series B.
Global Yield Program
This "sector" program trades a specialized portfolio comprised entirely
of domestic and foreign interest rate instruments. Global money
markets and bond futures contracts are traded on major exchanges
located throughout the world, including Chicago, Montreal, London,
Paris, Madrid, Tokyo, Singapore, and Sydney. The following is a capsule
summary of the past performance for the Global Yield Program traded
by Eclipse Capital as of December 31, 1998, a trading strategy not used
on behalf of Series B.
As of December 31, 1998
Name of commodity trading
advisor: Eclipse Capital
Program: Global Yield Program
Start Date: April 1986 (All trading by Eclipse Capital)
August 1992 (Eclipse Capital Global Yield Program)
No. Accounts: 1
Aggregate $$: $ 337,258,676 (All Programs excluding Notional)
All Programs: $ 358,018,694 (All Programs including Notional)
$$ in this Program: $ 2,087,025 (Global Yield Program excluding
Notional)
Largest monthly draw-down: (14.41)% July 1994
"Largest monthly draw-down" means the
greatest decline in month-end
net asset value due to losses sustained
by a global yield program on a
composite basis or an individual account
for any particular month.
Largest peak-to-valley
draw-down: (26.10)% March 1994 to January 1995
"Largest peak-to-valley draw-down" means the
greatest cumulative percentage decline
in month-end net asset value due to losses
sustained by a global yield 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 = 6
Unprofitable = 7
CAPSULE B(2) - ECLIPSE GLOBAL YIELD PROGRAM ANNUAL RATES OF RETURN
1998 1997 1996 1995 1994
ANNUAL (1.86)% 7.26% 15.21% 14.02% 0.02%
Past Performance Is Not Necessarily Indicative Of Future Results
53
Foreign Exchange Program
(Not open to new investment)
Name of commodity trading
advisor: Eclipse Capital
Program: Foreign Exchange Program
Start Date: April 1986 (Inception of trading by
commodity trading advisor)
March 1992 (Inception of trading in program)
No. Accounts: 0
Aggregate $$ In All
Programs: $337,258,676 (All Programs excluding
Notional)
$358,018,694 (All Programs including
Notional)
$$ in this Program: $0 (Foreign Exchange Program)
Largest monthly draw-down: (20.86)% September 1992
"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: (20.86)% August 1992 to September 1992
"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.
Closed Accounts: Profitable = 3
Unprofitable = 2
CAPSULE B(3) - FOREIGN EXCHANGE PROGRAM ANNUAL RATES OF RETURN
1995 1994 1993 1992
ANNUAL 10.20% (4.93)% 6.35% 13.18%
(3 Months) (10 Months)
Past Performance Is Not Necessarily Indicative Of Future Results
54
Financial Futures Account
(Not open to new investment)
Name of commodity trading
advisor: Eclipse Capital
Program: Financial Futures Account
Start Date: April 1986 (Inception of trading by
commodity trading advisor)
April 1986 (Inception of trading in program)
No. Accounts: 0
Aggregate $$ In All
Programs: $337,258,676 (All Programs excluding Notional)
$358,018,694 (All Programs including Notional)
$$ in this Program: $0 (Financial Futures Account)
Largest monthly draw-down: (20.91)% October 1994
"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: (69.20)% February 1989 to April 1992
"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.
Closed Accounts: Profitable = 99
Unprofitable = 314
CAPSULE B(4) - FINANCIAL FUTURES ACCOUNT ANNUAL RATES OF RETURN
1996 1995 1994 1993 1992 1991
ANNUAL 4.41% (7.33)% (18.16)% 60.35% (5.43)% (13.42)%
(6 Months)
Past Performance Is Not Necessarily Indicative Of Future Results
55
Notes to Eclipse Capital Performance Summaries
The following notes refer to Capsules B(1) through B(4).
In the preceding performance summaries, Assets Under Management
(excluding Notional) represent the total actual equity (including cash and
cash equivalents) deposited in the accounts at the carrying FCM plus
committed funds.
Assets Under Management (including Notional) represent the total
actual equity (including cash and cash equivalents) deposited in the
accounts at the carrying FCM plus committed funds plus Notional funds.
Largest Monthly Draw-Down is the largest monthly loss experienced by
any single account in the relevant program in any calendar month
expressed as a percentage of the total equity in such account in the
program and includes the month and year of such draw-down. Largest
Peak to Valley Draw-down is the largest calendar month-end to calendar
month-end loss experienced by any single account in the program
expressed as a percentage of total equity (including Notional equity) in
such account in the program.
Prior to August 1, 1996, Monthly Rate of Return is calculated by
dividing net performance by the sum total of the starting equity plus the
time-weighted additions minus the time-weighted withdrawals for the
period. Beginning in 1994, additions and withdrawals made other than
at the beginning of the month are time-weighted. Time weight is
calculated by multiplying an addition by the number of days in the
period it was available for trading and/or a withdrawal by the number of
days in the period it was not available for trading, and dividing by the
total number of days in the period. Prior to August 1, 1996, the time
weighting of additions and withdrawals method yields the same Rates of
Return as the Fully-Funded Subset Method (described below), because
Eclipse Capital did not manage Notional funds prior to August 1, 1996.
For the periods beginning after August 1, 1996, Eclipse Capital has
adopted a new method of computing rate-of-return and performance
disclosure, referred to as the Fully-Funded Subset method, pursuant to
an Advisory published by the CFTC. The Fully-Funded Subset refers to
that subset of accounts included in the applicable composite which is
funded entirely by Actual Funds (as defined in the Advisory). To qualify
for use of the Fully-Funded Subset method, the Advisory requires that
certain computations be made in order to arrive at the Fully-Funded
Subset and that the accounts for which performance is so reported meet
two tests which are designed to provide assurance that the Fully-Funded
Subset and the resultant Rates of Return are representative of the
trading program. Eclipse Capital has performed these computations for
periods subsequent to August 1, 1996.
Annual Rate of Return is calculated by dividing the change in the net
asset value of a hypothetical $1,000 investment (VAMI) during the
period by the VAMI at the beginning of the period or at the
commencement of trading. VAMI is calculated by multiplying (1 plus
the period rate of return %) times the prior period value of a
hypothetical $1,000 investment (VAMI).
56
SERIES C
Hyman Beck is allocated 100% of Series C assets. In its trading for
Series C, Hyman Beck utilizes its Asset Allocation Program. Hyman
Beck, at the request of the managing owner, trades Series C's Asset
Allocation Portfolio account at one and one-half times leverage. The
Asset Allocation Portfolio utilized on behalf of Series C's account is
comprised of Hyman Beck's Global, FX, Diversified, and Short-Term
Select Portfolios.
Hyman Beck And Its Principals
Hyman Beck is a Delaware corporation incorporated in February 1991,
with its principal offices at 100 Campus Drive, Florham Park, New
Jersey 07932. Effective March 1991, Hyman Beck became registered
with the CFTC as a commodity trading advisor and commodity pool
operator and became a member of the National Futures Association.
Alexander Hyman is the President and a principal of Hyman Beck and a
fifty percent shareholder of Hyman Beck. Mr. Hyman, along with Mr.
Beck, is directly responsible for all trading and money management
decisions made by Hyman Beck. From 1983 through February 1991,
Mr. Hyman was employed by Dean Witter Reynolds, Inc., a registered
futures commission merchant ("Dean Witter"), where, at the time of his
departure, he was First Vice President and Associate Director of the
Managed Futures Division and a Director and principal of Dean Witter
Futures & Currency Management Inc., a registered commodity trading
advisor ("Dean Witter Futures"). Mr. Hyman was also a Director of
Demeter Management Corporation, the sponsor of all of Dean Witter's
public futures funds. While at Dean Witter, Mr. Hyman also was
responsible for the development of managed futures products. Mr.
Hyman graduated from Hofstra University in May 1983 with a B.B.A.
degree in International Business and Economics.
Carl J. Beck is Vice President, Secretary, Treasurer, and a principal of
Hyman Beck and is also a fifty percent shareholder of Hyman Beck Mr.
Beck, along with Mr. Hyman, is directly responsible for all trading and
money management decisions made by Hyman Beck. From 1985
through February 1991, Mr. Beck was employed by Dean Witter, where,
at the time of his departure, he held the position of Vice President and
Senior Portfolio Manager. Mr. Beck was also a Vice President and
principal of Dean Witter Futures where he was responsible for day-to-
day management and trading activities. Prior to joining Dean Witter,
Mr. Beck was employed by J. Aron & Co., a commodity trading firm.
As of April 1994, Mr. Beck was appointed to and serves on the Board of
Managers of the New York Board of Trade. Mr. Beck graduated magna
cum laude from Fordham University in May 1983 with a B.A. degree in
Economics and received an MBA degree in Finance from New York
University in May 1989.
Troy W. Buckner is a principal of Hyman Beck. He is responsible for
product development and research activities at Hyman Beck. Prior to
joining Hyman Beck in June 1995, Mr. Buckner was a principal at
Classic Capital, Inc., an international investment management firm,
where he designed systematic trading programs from January 1994 to
June 1995. From December 1989 to January 1994, Mr. Buckner was
self employed as an independent trader while developing an advanced
architecture useful in the modeling of financial and commodity market
prices. From March 1989 to December 1989, Mr. Buckner traded
energy futures contracts for George E. Warren Corp., an energy trading
firm. From June 1986 to March 1989, Mr. Buckner was employed by
Salomon Brothers Inc., a securities brokerage and investment firm,
where he specialized in the sale of stock market portfolios as well as
futures and option strategies. Mr. Buckner graduated from the
University of Delaware with a BS in Finance in 1984 and received an
MBA from the University of Chicago in 1986.
David B. Fuller is a principal of Hyman Beck and is responsible for
accounting and administration for the firm. Prior to joining Hyman
Beck in March 1994, Mr. Fuller was employed by Link Strategic
Investors, Inc., an international investment management firm, where, at
the time of his departure, he held the position of Senior Financial
Officer. Prior to joining Link in January 1993, Mr. Fuller was the
Senior Financial Officer for Bearbull Investment Products (U.S.A.), an
international investment management firm. From January 1989 to July
1991, Mr. Fuller was Controller of Rayner & Stonington, L.P., a
registered commodity trading advisor, where he was responsible for
accounting and financial reporting. From October 1984 to December
1988 Mr. Fuller was Controller and Assistant Treasurer of Gill and
Duffus Inc., members of the Coffee, Sugar & Cocoa Exchange, Inc. Mr.
Fuller began his career in 1978 in public accounting and is a member of
the American Institute of Certified Public
57
Accountants, and the New York Society of Certified Public
Accountants. Mr. Fuller graduated from Lehigh University in
May 1978 with a BS degree in Accounting.
Richard A. DeFalco is a principal of Hyman Beck and is responsible for
marketing, client services, and support for the firm. Prior to joining
Hyman Beck in April 1997, Mr. DeFalco was employed by
PaineWebber, Inc. from May 1989 through March 1997 where, at the
time of his departure, he held the position of National Marketing
Manager. Mr. DeFalco's responsibilities included the marketing of
managed futures and hedge fund products in addition to being a member
of PaineWebber's Managed Futures Product selection committee. Mr.
DeFalco was also an advisory officer to PaineWebber Futures
Management Corporation, a registered commodity pool operator. Mr.
DeFalco began his career at PaineWebber in the Futures Credit
Department.
John J. McCormick is a principal of Hyman Beck and is directly
responsible for the implementation of trading decisions for all of Hyman
Beck's futures interest portfolios. Prior to joining Hyman Beck, Mr.
McCormick was employed by Dean Witter from December 1986
through February 1991 where, at the time of his departure, he held the
position of Assistant Vice President and Internal Accounts Manager.
Mr. McCormick is also responsible for generating most of the research
reports used by Messrs. Hyman and Beck in determining their trading
decisions. Mr. McCormick graduated from Fordham University in 1986
with a BS degree in Accounting and received an MBA degree in Finance
from Fordham University in May 1993.
John S. Ryan is a principal of Hyman Beck and is responsible for
systems management and program design at Hyman Beck. Prior to
joining Hyman Beck in March 1993, Mr. Ryan was employed by
International Business Machines Corporation from February 1988 to
March 1993, where he held various positions and, most recently, was
responsible for Corporate Networks Design and Implementation in the
New York metropolitan area. Mr. Ryan graduated from Baruch College
in May 1991 with a B.B.A. degree in Computer Information Systems.
Hyman Beck's Trading System
Introduction
Hyman Beck uses proprietary computerized trading models which
analyze market price changes. These models are the basis for its two
trading systems, a trend-following approach and a non-linear approach.
These two trading systems are applied to different portfolios of futures
and forward contracts, each of which represents a different mix of
markets. Hyman Beck trades its Asset Allocation Portfolio on behalf of
the Series C interests.
Trend-Following Approach
To be profitable, Hyman Beck's trend-following approach depends on
the occurrence in the future, as in the past, of sustained movements, or
price trends, in some markets. Hyman Beck's trend-following trading
approach seldom directs market entry or exit at the most favorable price
in the particular market trend. Rather, this trading style seeks to close
out losing positions quickly and to hold profitable positions, or portions
of profitable positions, for as long as the trading systems determine that
the particular market trend continues to exist. There can be no
assurance, however, that profitable positions can be liquidated at the
most favorable price in a particular trend. As a result, the number of
losing transactions can be expected to exceed the number of profitable
transactions. However, if the trading systems are successful, these losses
should be more than offset by a few large gains.
Hyman Beck's trend-following approach employs mathematical models
and price-charting. Risk management techniques which have been
developed by Mr. Beck and Mr. Hyman are used in connection with
these quantitative tools in an effort to limit losses, control market
exposure and capture profits. For example, Hyman Beck's trend-
following trading approach may indicate, at times, that no position is
appropriate in a particular contract or contract group. This neutral
mode helps to preserve capital in trendless markets. In addition, as
more fully described below, Hyman Beck may vary the size of positions
significantly from one trade to the next trade within each market. This
variation in position size represents an assessment of potential risk and
reward, based on Hyman Beck's evaluation of the volatility and strength
of the price trend in each market at the time particular trades are made.
58
Non-Linear Approach
Hyman Beck's second trading system is utilized in connection with its
Short-Term Portfolios. This trading system combines money
management principles with non-linear modeling techniques. These
models recognize current patterns and detect conditional relationships
between and among different market data based on historical
information. Unlike the trend-following approach, this system does not
depend on the occurrence of major price trends in order to be profitable.
Rather, trades are made under various market conditions and are
typically of short duration, averaging six days in length and enabling
Hyman Beck to trade correlated markets differently. The process of
generating trades begins with the selection of a price target for a
particular market, with respect to given conditions, that reflects the
likelihood that short-term reward will be substantially in excess of risk.
An assortment of time series variables are calculated as input to be used
in the modeling process. With each variable an attempt is made to
depict a different facet of a given market's historical price movement.
Positions may be initiated in markets which display major price trends
as well as trendless markets when the models indicate a high probability
of substantial reward relative to anticipated risk. Although positions are
established at frequent intervals, there is no position approximately 60%
of the time in any given market. This trading philosophy assumes that
there are many significant short-term moves, but that relatively few of
them offer the desired risk/reward ratio.
Other Aspects Of The Trading Approaches
Hyman Beck from time to time changes or refines the two trading
systems it currently uses to manage its accounts as a result of ongoing
research and development. Limited owners generally are not informed
of these changes as they occur. The principals of Hyman Beck review
and maintain discretion over their trading systems, and the models on
which they are based.
While Hyman Beck normally follows a disciplined systematic approach
to trading, consisting of fixed rules which can be applied manually or by
computer, on occasion it may override the signals generated by its
models. The decision to override the signals may be the result of Hyman
Beck's determination that the potential profit to be gained by acting on
the signals may not justify the risk involved.
Furthermore, these systems require certain subjective judgments and
decisions. For example, Mr. Beck and Mr. Hyman select the markets,
and individual contracts within a market, which are traded, and the
contract months in which positions are maintained. Mr. Beck and Mr.
Hyman also determine when to roll over a position, i.e., when to liquidate
a position which is about to expire and initiate a new position in a more
distant contract month. These types of decisions require consideration
of, among other things, the volatility of a particular market, the pattern
of price movements (both during a particular day and day-to-day), open
interest, trading volume, changes in spread relationships between
various contract months and between various contracts, and overall
portfolio balance and risk exposure. With respect to the timing and
execution of trades, Mr. Beck and Mr. Hyman may also rely to some
extent on the judgment of others, such as floor brokers. No assurance
can be made that consideration is given to any or all of the foregoing
factors by Mr. Beck and Mr. Hyman with respect to every trade for
Series C or that consideration of any of such factors in a particular
situation will lessen Series C's risk of loss.
Along with the subjective decision making authority reserved for Mr.
Beck and Mr. Hyman, Hyman Beck also maintains certain risk
management procedures for determining the appropriate quantity of
contracts to be traded for Series C. Hyman Beck may continually adjust
the position size of an order immediately prior to placement, and/or after
the initial position is established, based on such factors as past market
volatility, prices of commodities, amount of risk, potential return, and
margin requirements. The decision not to trade a certain futures
interest at certain times or to reduce the number of contracts traded in a
particular futures interest may result in missing significant profit
opportunities that otherwise might have been captured if Hyman Beck
depended solely on the computer-based aspects of its trading strategy or
on different trading strategies altogether.
Hyman Beck may, at its discretion, adjust leverage, or the margin-to-
equity ratio, in certain markets or the entire portfolio. Adjustments to
certain positions or the entire portfolio may positively or negatively
affect performance. Consistent with Hyman Beck's risk management
procedures, Asset Allocation Portfolio accounts, due to the greater
number of markets traded and strategy diversification, are more
aggressively leveraged (committing a larger percentage of account assets
to margin) from time to time than are accounts participating in the
individual Hyman Beck portfolios. The margin-to-equity ratio for the
Asset Allocation Program utilized on behalf of Series C
59
tends to fluctuate from 15% to 25%. For that portion of
the Asset Allocation Program invested in interbank currencies,
lines of credit in the interbank market can fluctuate
between 0 to 5 times equity, with the average being 3 times
equity. See "Futures, Forward, And Options Trading Is Volatile And
Highly Leveraged" under "RISK FACTORS." Any decision to adjust
leverage is based on several factors, including research data, portfolio
diversification, current market volatility, risk exposure, subjective
judgment, and evaluation of other general market conditions. No
assurance is given to Limited owners that such leverage adjustments are
to their financial benefit, and such leverage adjustments may actually
result in lost opportunities or substantial losses.
The Asset Allocation Portfolio
Hyman Beck commenced trading the Asset Allocation Portfolio in April
1992. This portfolio was created to optimize participation in the
different Hyman Beck portfolios. Each of these individual portfolios is
described below. The strategy employed by Mr. Beck and Mr. Hyman is
to allocate assets actively among the individual portfolios in order to
exploit opportunities in different risk/reward characteristics and
performance cycles of the individual portfolios. Hyman Beck believes,
based on its research to date, that the performance of the Short-Term
Select Portfolio exhibits a substantial degree of non-correlation with the
long-term, trend-following strategies also utilized in the Asset Allocation
Portfolio. Such non-correlation results in additional opportunities for
profit from shorter-term market movements, additional diversification
in Hyman Beck's trading strategies, and reduced volatility in the Asset
Allocation Portfolio's performance over time. The use of multiple
strategies also results in the taking of opposite positions from time to
time in respect of certain futures interest contracts, reducing or
eliminating profitable positions. Allocation and leverage decisions are
made by Mr. Beck and Mr. Hyman, with the aid of certain research
studies, and combined experience, in an effort to minimize risk and
maximize profit opportunities.
The Asset Allocation Portfolio represents accounts trading a
combination of each of the Global, FX, Diversified, Short-Term Original
and/or Short-Term Select Portfolios; therefore, the assets and rates of
return set forth in the summary performance information and chart are
also reflected in the assets and rates of return set forth in the individual
Global, FX, Diversified, and Short-Term Portfolio summaries. The first
account traded pursuant to the Asset Allocation Portfolio was
established in April 1992 with all of its assets allocated to Hyman Beck's
Diversified Portfolio. In August 1992 the assets of this account were
reallocated to the Global and Diversified Portfolios, and in January 1993
the assets of such account were allocated among the Global, FX, and
Diversified Portfolios. From January 1993 through November 1996, all
asset allocation portfolio accounts have at all times included allocations
among the Global, FX, and Diversified Portfolios. The Short-Term
Original Portfolio was added to the Asset Allocation Portfolio in
November 1996; and, commencing in February 1998, all Asset
Allocation Portfolio accounts began trading the Short-Term Select
Portfolio in lieu of the Short-Term Original Portfolio.
The Trust's account in respect of the Series C interests is an Asset
Allocation Portfolio account traded at one and one-half times leverage.
Prospective investors should understand that the trading approach used
in respect of the Series C interests constitutes a relatively new Hyman
Beck trading approach, with a limited past performance record.
Furthermore, the proceeds from additional subscriptions for Series C
will be allocated among the portfolios comprising the Trust's Asset
Allocation Portfolio account in the discretion of Hyman Beck and other
than on a pro rata basis.
The Global Portfolio
The Global Portfolio employs a technical trend following approach using
computerized trading models, emphasizing mathematical and charting
techniques to identify intermediate and long-term price trends. The
Global Portfolio trades over 30 futures and forward markets worldwide
with a concentration in world interest rate and other financial instruments.
The Global Portfolio participates in many of the internationally traded
futures and forward markets not necessarily represented in the
Diversified and FX Portfolios. These markets may include, but are not
limited to, Australian, British, Canadian, Euro, French, German, Italian,
Japanese, and U.S. fixed income instruments, precious and base metals,
foreign currencies, foreign and domestic stock indices, and other
internationally traded commodity markets.
60
The FX Portfolio
The FX Portfolio employs a technical trend following approach using
computerized trading models, emphasizing mathematical and charting
techniques to identify intermediate and long-term price trends in a
broad range of currencies. The FX Portfolio trades in both first tier and
second tier currencies in the interbank currency forward market. The
interbank dealer forward market offers the opportunity to trade
currencies for which there are no futures markets. The FX Portfolio
may participate in up to 40 foreign currency crossrates (trading foreign
currencies versus other foreign currencies) and outrights (trading
foreign currencies versus the U.S. dollar). The currencies traded may
include, but are not limited to, markets such as the Australian dollar,
British pound, Canadian dollar, ECU/Euro, Danish krone, German
mark, French franc, Italian lira, Japanese yen, Mexican peso, New
Zealand dollar, Norwegian krone, Singapore dollar, South African rand,
Spanish peseta, Swedish krona, Swiss franc, and the U.S. dollar.
The Diversified Portfolio
The Diversified Portfolio employs a technical trend following approach
using computerized trading models, emphasizing mathematical and
charting techniques to identify intermediate and long-term price trends
in a wide variety of futures, forward, and cash markets. The Diversified
Portfolio offers access to markets not typically represented in a
traditional investment portfolio. The Diversified Portfolio trades a
portfolio of over 40 diverse futures, forward, and cash markets and
offers diversification into select financial instruments, currencies, and
tangible commodities such as agricultural items, energy products,
precious and base metals, and other internationally traded commodities.
The Short-Term Original Portfolio
The Short-Term Original Portfolio is a systematic program that
combines money management principles with non-linear modeling
techniques. Unlike other Hyman Beck strategies, this portfolio may buy
or sell volatility depending on near-term market conditions. It is
common, for example, for this portfolio to be long soybeans and short
soybean meal or to be long heating oil and short crude oil. The Short-
Term Original Portfolio currently trades 44 markets, including but not
limited to foreign and domestic stock indices, foreign currencies, energy
products, precious and base metals, agricultural items, and foreign and
domestic fixed income instruments, with positions in an average of 20
futures and forward markets at any point in time.
The Short-Term Select Portfolio
The Short-Tern Select Portfolio utilizes the same technical, non-linear
approach currently employed in trading the Short-Term Original
Portfolio, but concentrates its trading in fewer markets. More
specifically, the Short-Tern Select Portfolio trades futures and forward
contracts in approximately 30 of the most liquid markets, including but
not limited to foreign and domestic stock indices, foreign currencies,
foreign and domestic fixed income instruments, precious and base
metals, and energy products. Hyman Beck expects, based on its
research, that the risk/reward characteristics of the Short-Term Select
Portfolio are not materially different than those of its Short-Term
Original Portfolio.
61
Contracts And Markets Expected To Be Traded Under Hyman Beck
Fixed Income CBT
Muni bonds (G,SO, SS,D) CBT, CE
Treasury bonds (G,SO,SS,D) CBT, CE
10-Year Treasury notes (G,D) CBT, CE
5-Year Treasury notes (G,D) CBT, CE
2-Year Treasury Note (G,D) CME, EUREX, SMEX
Eurodollars (G,SO,SS,D) ME
Canadian bankers acceptances (G) ME
Canadian bonds (G) LIFFE
Long gilts (G,SO.SS) LIFFE
Short sterling (G,SO,SS) EUREX
German bunds (D-marks) (G,SO,SS) EUREX
German bunds (Euro) (G,SO,SS) EUREX
Euro bunds ((G,SO,SS) LIFFE, EUREX, MATIF
Euribor (G,SO,SS) EUREX
Euro-BOBL (G) EUREX
Euroshatz (G LIFFE, EUREX
Eurolibor (G) LIFFE
Euroswiss (G) HKFE
3-month HIBOR (G) EUREX
COMI (G) EUREX
COMF (G) MATIF
Euro notional (G,SO,SS) MATIF
30-Year E-Bond (G) MATIF
5-Year E-Bond (G) MATIF
2 -Year E-Bond (G) MATIF
Euro All Sovereigns (G) MATIF
Italian bonds (lira) (G,SO,SS) LIFFE
Italian bonds (Euro) (G,SO,SS) LIFFE
Japanese bonds (G,SO,SS) TSE, SIMEX, LIFFE
Euroyen (G,SO) SIMEX, TIFFE
30-Year Australian bonds (G,SO,SS) SFE
10-Year Australian bonds (G,SO,SS) SFE
Australian 90-day Bank Bill (G) SFE
Metals (continued)
London Copper (G,SO,SS) LME
London Lead (G) LME
London Nickel (G) LME
London Tin (G) LME
London Zinc (G,SO) LME
Livestock
Feeder Cattle (D) CME
Live Cattle (SO,D) CME
Lean Hogs (D)] CME
Pork Bellies (D) CME
Agricultural
Corn (SO,D) CBT
Oats (SO,D) CBT
Soybeans (SO,D) CBT
Soybean Meal (SO,D) CBT
Soybean Oil (SO,D) CBT
Wheat (SO,D) CBT
Kansas City Wheat (SO,D) KCBT
Rough Rice (SO,D) CBT
FX (INTERBANK/IMM/FINEX)
U.S. dollar (F,G,SO,SS,D)
Euro (F,G,SO,SS,D)
Canadian dollar (F,G,SO,SS,D)
British pound (F,G,SO,SS,D)
German mark (F,G,SO,SS,D)
Swiss franc (F,G,SO,D)
Swedish krona (F,G)
Japanese yen (F,G,SO,SS,D)
Singapore dollar (F)
Australian dollar (F,G,D)
New Zealand dollar (F,G,D)
Select crosses involving the above (F,G,SO,SS)
Indonesian rupia (F)
Saudi Arabian riyal (F)
Austrian schilling (F)
Belgian franc (F)
Danish krone (F)
Hong Kong dollar (F)
Malaysian ringgitt (F)
Norwegian krone (F)
Mexican peso (F)
Brazilian real (F)
South African rand (F)
Thailand Baht (F)
- --------------------------------------------------------
Stock Indices
Dow Jones Industrial (G,D) CBOT
NYSE Composite (G,D) NYFE
S&P 500 (G,SO,SS,D) CME
E-MINI S&P 500 (G,SO,SS,D) CME
FTSE (G,SO,SS) LIFFE
CAC-40 (G,SO,SS) MATIF
DAX (G,SO,SS) EUREX
Nikkei (G,SO,SS) SIMEX
Australia All Ordinaries (SO) SFE
Hang Seng Index (SO, SS) HKFE
Russell 1000 (G) FINEX
Russell 2000 (G) CME, KCBT
Energy
Crude oil (SO,SS,D)
Heating oil (SO,SS,D)
Unleaded gasoline (SO,SS,D)
Natural gas (So,SS)
London Gasoil (D)
Brent Crude oil (D)
62
Goldman Sachs Value Line Index (G)
Metals
Gold (G,SO,SS,D) COMEX
Silver (G,SO,SS,D) COMEX
Copper (SO,D) COMEX
Palladium (G,D) NYMEX
Platinum (G,D) NYMEX
London Aluminum (G,SO,SS) LME
International Commodities
Coffee (G,SO,D) CSCE
Sugar (G,SO,D) CSCE
Cocoa (G,SO,D) CSCE
Cotton (G,SO,D) NYCE
Orange Juice (G,D) CEC
Lumber (G,D) CME
London coffee (G,D) LIFFE
London cocoa (G,D) LCE, LIFFE
London Sugar (G,D) LIFFE
Japanese Rubber (G,D) TOCOM
F=FX Portfolio; G=Global Portfolio; SO=Short Term
Portfolio; SS=Short Term Select; D=Diversified
Volume Of Trading For Hyman Beck Contracts And Markets
Set forth below is a bar graph showing the sectors that are traded by
Hyman Beck as of December 31, 1998. Investor funds are exposed to
these sectors in approximately the percentage allocations stated. Actual
allocations change as market conditions and trading opportunities
change, and it is likely that the targeted risk allocations may vary for
Series C during future periods, although the focus will remain on the
financial instruments markets.
The Asset Allocation Portfolio:
Financials 23%
Stock Indices 12%
Metals 9%
Meats 1%
Grains and Softs 5%
Currencies 44%
Energy Products 6%
100%
(GRAPH)
63
Hyman Beck's Past Performance For All Of Its Clients
Capsule summaries C(1) through C(6) contain actual performance for
the periods indicated.
The Asset Allocation Portfolio
The following summary performance information and Capsule C(1)
reflect the composite performance results of the Asset Allocation
Portfolio directed by Hyman Beck from January 1993 through
December 1998 for ten accounts ranging in size from $630,000 to $30
million. Three open accounts were profitable and no open accounts were
unprofitable as of December 31, 1998.
As of December 31, 1998
Name of commodity trading
advisor: Hyman Beck
Program: Asset Allocation Portfolio
Start Date: March 1991 (All trading by Hyman Beck)
April 1992 (Asset Allocation Program)
No. Accounts: 3
Aggregate $$ In All Programs:$ 266,590,473 (All Programs excluding Notional)
$ 319,127,925 (All Programs including Notional)
$$ in this Program $ 16,684,870 (Asset Allocation Portfolio
excluding Notional)
$ 42,897,124 (Asset Allocation Portfolio
including Notional)
Largest monthly draw-down: (9.38)% February 1996
"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: (18.30)% August 1993 to January 1995
"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 net asset value.
Closed Accounts: Profitable = 4
Unprofitable = 3
- ---------------
1 The Asset Allocation Portfolio represents accounts trading a
combination of each of the Global, FX, Diversified and/or
Short-Term Portfolios. Although Series C Assets are traded
pursuant to the foregoing program, the Asset Allocation
Portfolio employed on behalf of the Series C Assets is traded
at a higher level of leverage (1.5 times). Hyman Beck
manages only one Asset Allocation Portfolio account, the Series
C account, at one and one-half times leverage.
64
CAPSULE C(1) - ASSET ALLOCATION PORTFOLIO MONTHLY/ANNUAL RATES OF RETURN
MONTH 1998 1997 1996 1995 1994
Jan (0.87)% 7.39% 2.09% (9.02)% (0.59)%
Feb (4.19) 5.11 (9.22) 12.51 (5.96)
Mar (0.22) 1.48 0.74 26.39 8.30
Apr (5.27) (0.60) 6.04 3.79 (5.05)
May 1.66 0.81 (2.62) 1.19 2.69
Jun (0.93) 1.52 0.97 0.40 3.38
Jul (0.56) 4.70 (0.51) (2.60) (4.03)
Aug 8.25 (1.64) (4.53) 0.42 (2.97)
Sep 2.50 2.11 0.35 (2.07) (0.02)
Oct (0.46) (2.64) 11.94 (0.63) 5.52
Nov (5.02) (0.87) 4.65 (0.62) (1.42)
Dec 4.76 2.24 (6.45) 3.34 (0.13)
ANNUAL (1.20)% 20.91% 1.67% 33.35% (1.29)%
Series C assets are not traded pursuant to the foregoing program. The
Asset Allocation Portfolio employed on behalf of the Series C assets
are traded at a higher level of leverage (1.5 times).
Past Performance Is Not Necessarily Indicative Of Future Results
65
Global Portfolio
As of December 31, 1998
Name of commodity trading
advisor: Hyman Beck
Program: Global Portfolio
Start Date: March 1991 (All trading by Hyman Beck)
April 1991 (Global Portfolio)
No. Accounts: 17
Aggregate $$ In All Programs: $ 266,590,473 (All Programs excluding Notional)
$ 319,127,925 (All Programs including Notional)
$$ in this Program: $ 234,024,842 (Global Program excluding
Notional)
$ 254,005,720 (Global Program including
Notional)
Largest monthly draw-down: (12.77)% December 1996
"Largest monthly draw-down" means the
greatest decline in month-end
net asset value due to losses sustained
by a global portfolio on a
composite basis or an individual account
for any particular month.
Largest peak-to-valley
draw-down: (19.38)% July 1994 to February 1995
"Largest peak-to-valley draw-down" means
the greatest cumulative percentage
decline in month-end net asset value due
to losses sustained by a global 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 net asset value.
Closed Accounts: Profitable = 34
Unprofitable = 16
1998 1997 1996 1995 1994
ANNUAL 16.84% 24.38% 10.82% 29.12% 3.81%
Series C assets are not traded pursuant to the foregoing program
independently, but only as a component of the Asset Allocation Portfolio.
Past Performance Is Not Necessarily Indicative Of Future Results
66
FX Portfolio
As of December 31, 1998
Name of commodity trading
advisor: Hyman Beck
Program: FX Portfolio
Start Date: March 1991 (All trading by Hyman Beck)
March 1991 (FX Portfolio)
No. of Accounts: 3
Aggregate $$ In All Programs: $ 266,590,473 (All Programs excluding Notional)
$ 319,127,925 (All Programs including Notional)
$$ in this Program: $ 5,144,286 (FX Portfolio excluding Notional)
$ 12,868,829 (FX Portfolio including Notional)
Largest monthly draw-down: (18.72)% November 1994
"Largest monthly draw-down" means the greatest
decline in month-end net asset value due
to losses sustained by a foreign exchange
portfolio on a composite basis or an
individual account for any particular month.
Largest peak-to-valley
draw-down: (52.49)% August 1993 to January 1995
"Largest peak-to-valley draw-down" means
the greatest cumulative percentage
decline in month-end net asset value
due to losses sustained by a foreign
exchange 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 net asset value.
Closed Accounts: Profitable = 12
Unprofitable = 33
CAPSULE C(3) FX PORTFOLIO ANNUAL RATES OF RETURN
1998 1997 1996 1995 1994
ANNUAL (7.68)% 29.30% 6.65% 40.58% (20.63)%
Series C assets are not traded pursuant to the foregoing program
independently, but only as a component of the Asset Allocation Portfolio.
Past Performance Is Not Necessarily Indicative Of Future Results
67
Diversified Portfolio
As of December 31, 1998
Name of commodity trading
advisor: Hyman Beck
Program: Diversified Portfolio
Start Date: March 1991 (All trading by Hyman Beck)
March 1991 (Diversified Portfolio)
No. of Accounts: 3
Aggregate $$ In All
Programs: $ 266,590,473 (All Programs excluding Notional)
$ 319,127,925 (All Programs including Notional)
$$ in this Program: $ 673,502 (Diversified Portfolio excluding
Notional)
$ 2,147,987 (Diversified Portfolio including
Notional)
Largest monthly draw-down: (15.90)% February 1994
"Largest monthly draw-down" means the greatest
decline in month-end net asset value due to
losses sustained by a diversified portfolio on a
composite basis or an individual account for
any particular month.
Largest peak-to-valley
draw-down: (30.42)% August 1993 to December 1995
"Largest peak-to-valley draw-down" means
the greatest cumulative percentage decline
in month-end net asset value due to losses
sustained by a diversified 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 net asset value.
Closed Accounts: Profitable = 19
Unprofitable = 27
CAPSULE C(4) - DIVERSIFIED PORTFOLIO ANNUAL RATES OF RETURN
1998 1997 1996 1995 1994
ANNUAL 1.06% 11.88% (8.33)% (4.14)% (7.07)%
Series C assets are not traded pursuant to the foregoing Program
independently, but only as a Component of the Asset Allocation Portfolio.
Past Performance Is Not Necessarily Indicative Of Future Results
68
Short-Term Select Portfolio
As of December 31, 1998
Name of commodity trading
advisor: Hyman Beck
Program: Short-Term Select Portfolio
Start Date: March 1991 (All trading by Hyman Beck)
September 1997 (Short-Term Select Portfolio)
No. Accounts: 4
Aggregate $$ In All
Programs: $ 266,590,473 (All Programs excluding Notional)
$ 319,127,925 (All Programs including Notional)
$$ in this Program: $ 7,997,171 (Short-Term Select excluding Notional)
$ 20,951,071 (Short-Term Select including Notional)
Largest monthly draw-down: (10.15)% February 1998
"Largest monthly draw-down" means the
greatest decline in month-end
net asset value due to losses sustained
by a short-term select portfolio on
a composite basis or an individual account
for any particular month.
Largest peak-to-valley
draw-down: (20.20)% February 1998 to May 1998
"Largest peak-to-valley draw-down" means
the greatest cumulative percentage decline
in month-end net asset value due to losses
sustained by a short-term select 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 net asset value.
Closed Accounts: Profitable = 0
Unprofitable = 5
CAPSULE C(5) - SHORT-TERM SELECT PORTFOLIO ANNUAL RATES OF RETURN
1998 1997
ANNUAL/YTD (9.42)% 0.73%
(4 months)
Series C assets are not traded pursuant to the foregoing program
independently, but only as a component of the Asset Allocation Portfolio.
Past Performance Is Not Necessarily Indicative Of Future Results
69
Hyman Beck's Supplemental Performance Information
Short-Term Original Portfolio
Capsule C(6) represents the customer accounts traded by Hyman Beck
pursuant to a trading strategy that will not be utilized by Series C.
As of December 31, 1998
Name of commodity trading
advisor: Hyman Beck
Program: Short-Term Original Portfolio
Start Date: March 1991 (All trading by Hyman Beck)
April 1996 (Short-Term Original Portfolio)
No. Accounts: 5
Aggregate $$ In All
Programs: $ 266,590,473 (All Programs excluding Notional)
$ 319,127,925 (All Programs including Notional)
$$ in this Program: $ 18,750,672 (Short-Term Original excluding
Notional)
$ 29,154,318 (Short-Term Original including
Notional)
Largest monthly draw-down: (9.34)% April 1998
"Largest monthly draw-down" means the greatest
decline in month-end net asset value due
to losses sustained by a short-term original
portfolio on a composite basis or an
individual account for any particular month.
Largest peak-to-valley
draw-down: (20.78)% October 1997 to June 1998
"Largest peak-to-valley draw-down" means
the greatest cumulative percentage decline
in month-end net asset value due to losses
sustained by a short-term original 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 net asset value.
Closed Accounts: Profitable = 11
Unprofitable = 5
CAPSULE C(6) - SHORT-TERM ORIGINAL PORTFOLIO ANNUAL RATES OF RETURN
1998 1997 1996
ANNUAL/YTD (11.12)% 33.30% 0.58%
(9 months)
Series C assets are not traded pursuant to the foregoing program.
Past Performance Is Not Necessarily Indicative Of Future Results
70
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) are necessary to assure that
90% of the series' income is qualifying income or (ii) are 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 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.
71
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 sell 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 662/3% 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; 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
$100,000,000 and through other broker-dealer firms whose aggregate
balance in their capital, surplus, and related accounts is at least
$50,000,000. If transactions are effected for a series in the forward
markets, the only forward markets that will be permitted to be utilized
are the interbank foreign currency markets and the London Metal
Exchange. The utilization of other forward markets requires the consent
of the managing owner.
72
DESCRIPTION OF THE TRUST, TRUSTEE, MANAGING OWNER, AND AFFILIATES
(CHART)
The Trust was formed on December 17, 1997 under the Delaware
Business Trust Act. The sole trustee of the Trust is Wilmington Trust
Company, which delegated its duty and authority for the management of
the Trust to the managing owner. The managing owner is a
wholly-owned subsidiary of Prudential Securities, the Trust's commodity
broker and selling agent, which in turn is wholly-owned by Prudential
Securities Group Inc., an indirect wholly-owned subsidiary of The
Prudential Insurance Company of America.
Prudential Securities Group Inc., Prudential Securities, and the
managing owner may each be deemed to be, and the trustee is not
deemed to be, a "promoter" of the Trust within the meaning of the
Securities Act of 1933. None of the foregoing persons is an "affiliate" (as
that term is used for purposes of the Securities Act of 1933) of any of the
trading advisors. Prudential Securities Group Inc. and the managing
owner may each be deemed to be a "parent" of the Trust within the
meaning of the federal securities laws.
A brief description of the trustee, Prudential Securities Group Inc.,
Prudential Securities, the managing owner, and the officers and
directors of the managing owner, follows.
73
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. Limited owners will be notified by the
managing owner of any change of the trustee.
Prudential Securities Group Inc.
Prudential Securities Group Inc. acts solely as a holding company. Its
principal subsidiary is Prudential Securities, the Trust's selling agent
and commodity broker. Prudential Securities Group Inc. is an indirect
wholly owned subsidiary of The Prudential Insurance Company of
America, a major mutual insurance company.
Prudential-Bache Global Markets Inc.
Prudential-Bache Global Markets Inc. is a foreign exchange dealer
which engages in over-the-counter, spot, forward, and foreign exchange
transactions with, among others, Prudential Securities. It is an affiliate
of Prudential Securities, and it is wholly owned by Prudential Securities
Group Inc.
The Managing Owner
Prudential Securities Futures Management Inc., a Delaware corporation
formed in May 1973, is the managing owner of the Trust. The managing
owner has been registered under the Commodity Exchange Act as a
commodity pool operator since June 1989 and as a commodity trading
advisor since November 1990 and is a member of the National Futures
Association. The managing owner's main business office is located at
One New York Plaza, 13th floor, New York, New York 10292, telephone
(212) 778-7866. For a description of the managing owner's
responsibilities, see "DUTIES OF THE MANAGING OWNER."
The most recent statement of financial condition of the managing owner
and report of the independent accountants thereon is set forth under
"FINANCIAL STATEMENTS - The Managing Owner."
Directors And Officers Of The Managing Owner
The current officers and directors of the managing owner, described in
alphabetical order, are as follows:
Thomas T. Bales, born 1959, is a Vice President of the managing owner.
He is also a First Vice President of Futures Administration in the
Futures Division for Prudential Securities and serves in various
capacities for other affiliated companies. Prior to joining the Futures
Division, Mr. Bales served as in-house counsel in the Law Department
for Prudential Securities from October 1987 through May 1996.
Mr. Bales joined Prudential Securities in November 1981 as an Analyst
in the Credit Analysis Department and later served as a Section
Manager.
Barbara J. Brooks, born 1948, became the Treasurer and Chief
Financial Officer of the managing owner in May 1990, at which time she
also became the Treasurer and Chief Financial Officer of Seaport
Futures Management, Inc. (referred to as Seaport Futures). In 1998, she
relinquished her position as Treasurer of the managing owner and
Seaport Futures. She is a Senior Vice President of Prudential Securities
and is Vice President-Finance, Chief Financial Officer, and Director of
various entities affiliated with Prudential Securities. She has been
employed by Prudential Securities since 1983. Ms. Brooks is a certified
public accountant.
74
David Buchalter, born 1958, has been Secretary of both the managing
owner and Seaport Futures since October 1996. Mr. Buchalter is a
Senior Vice President and Senior Counsel in the Law Department of
Prudential Securities. Prior to joining Prudential Securities in January
1992, Mr. Buchalter was associated with the law firm of Rosenman &
Colin LLP from April 1988 to January 1992. Prior to that, from May
1983 though March 1988, Mr. Buchalter served as in-house counsel for
Shearson Lehman Hutton, Inc. and its predecessor firm,
E.F. Hutton, Inc.
Steven Carlino, born 1964, has been a Vice President and the Chief
Accounting Officer of the managing owner since June 1995 and also has
held such position with Seaport Futures since such date. In 1998, Mr.
Carlino also assumed the office of Treasurer of the managing owner and
Seaport Futures. Mr. Carlino is a First Vice President of Prudential
Securities and also serves in various capacities for other affiliated
companies. Prior to joining Prudential Securities in October 1992, he
was employed by Ernst & Young LLP for six years. Mr. Carlino is a
certified public accountant.
Joseph A. Filicetti, born 1962, has been a Vice President of the managing
owner since October 1998 and also has held such position with Seaport
Futures since such date. Mr. Filicetti is Vice President of Prudential
Securities and Director of Sales and Marketing in the Managed Futures
Department. Prior to joining Prudential Securities in September 1998,
he was with Rotella Capital Management as the Director of Sales and
Marketing from September 1996 through September 1998 and was
employed by Merrill Lynch from July 1992 through August 1996 trading
U.S. government bonds as a market maker.
Thomas M. Lane, Jr., born 1948, has been the President and a Director
of the managing owner and Seaport Futures since December 1997. Mr.
Lane has also been a Senior Vice President of Futures Sales and
Execution Services in the Futures Division, since joining Prudential
Securities in September 1995. Mr. Lane is responsible for the Futures
Floors in London, New York, Chicago, Kansas City, and Singapore. Mr.
Lane is also responsible for the inventory finance area and the Futures
Sales offices in London, Chicago, New York, and Kansas City. He is a
Director of the National Futures Association and is a member of
Prudential Securities' Operating Council. Prior to joining Prudential
Securities, Mr. Lane was employed by Merrill Lynch as the Vice
President of Group Future Sales and Marketing from November 1983
until September 1995, and prior to that Mr. Lane was employed by
Imperial Chemical as a Marketing Manager.
Pamela Morgan, born 1959, has been a Vice President of the managing
owner since October 1994. Ms. Morgan is a Managing Director for
Prudential-Bache International Bank and Senior Vice President of
Prudential Securities. She has managed a variety of departments with
increasing levels of responsibility within Prudential Securities, most
recently as First Vice President of Finance and Administration in the
Futures Division of Prudential Securities, with responsibility for Risk
Management, Credit, Finance, Compliance, and Audit. Ms. Morgan has
also been a Vice President of Seaport Futures since October 1994. Prior
to joining Prudential Securities in 1986, Ms. Morgan, a certified public
accountant, was employed by Arthur Andersen & Company for five
years.
A. Laurence Norton, Jr., born 1939, has been a Director of the managing
owner since October 1994. Mr. Norton has also been a Director of
Seaport Futures since March 1994. Mr. Norton has been an Executive
Vice President of Prudential Securities since October 1991 and currently
is the Director of its Futures and International Divisions, responsible for
managed futures, global strategy, international expansion, sales, trading
desk operations, and administration, and he also is a member of
Prudential Securities' Operating Committee. Prior to joining Prudential
Securities in October 1991, Mr. Norton was the branch manager of
Shearson Lehman Brothers' Greenwich, Connecticut branch. Mr.
Norton joined Shearson Lehman Brothers as a branch manager in 1972.
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 is currently a First Vice President of the Futures
Division.
75
Eleanor L. Thomas, born 1954, has been a Vice President of the
managing owner since April 1993 and a First Vice President since
October 1998, and she also has held such positions with Seaport Futures
since such dates. She is primarily responsible for origination, asset
allocation, and due diligence for Managed Futures. Ms. Thomas is a
First Vice President of Prudential Securities. Prior to joining Prudential
Securities in March 1993, she was with MC Balwin 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 MBA in Accounting. Ms Thomas is a
certified public accountant.
Tamara B. Wright, born 1959, has been 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 Chief Administrative Officer for the International and
Futures Group. 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 City.
76
Description And Past Performance Of Other Pools Sponsored By The
Managing Owner And Its Affiliate
Following is a description of the various funds sponsored by the
managing owner and its affiliate, Seaport Futures. The January 1994
through December 1998 trading record for the various funds is provided
on the following pages in Capsule D, along with the accompanying
explanatory notes.
Type of Fund
Public commodity funds for which the managing owner is the general
partner (or managing owner) and the commodity pool operator:
Name of Fund
Prudential-Bache Capital Return Futures Fund 2, L.P. (PBCRFF2)
Prudential Securities Optimax Fund 2 L.P. (PBOFF2) (g)
Prudential Securities Aggressive Growth Fund, L.P. (PSAGF)
Diversified Futures Trust I (DFT)
Prudential Securities Strategic Trust (PRUST) (h)
Type of Fund
Non-public commodity funds for which the managing owner is the
general partner (or the managing owner) and the commodity pool operator:
Name of Fund
Prudential Securities Financial Futures Fund L.P. (PSFNF)(e)
Signet Partners II, L.P. (SPLP2) (f)
Diversified Futures Trust II (DFTII)
Prudential Securities Foreign Financials Fund, L.P. (PSFFF) (i)
Type of Fund
Offshore investment funds for which the managing owner is investment
manager (j)
Name of Fund
Devonshire Multi-Strategy Fund (k)
Prudential-Bache International Futures Fund A, PLC (PBIFFA)
Prudential-Bache International Futures Fund B, PLC (PBIFFB)
Prudential-Bache International Futures Fund C, PLC (PBIFFC)
Prudential-Bache International Futures Fund D, PLC (PBIFFD)
Prudential-Bache International Futures Fund E, PLC (PBIFFE)
Prudential-Bache International Futures Fund F, PLC (PBIFFF)
Type of Fund
Public commodity funds for which Seaport Futures is general partner
and commodity pool operator:
Name of Fund
Prudential-Bache Futures Growth Fund, L.P. (PBFG) (d)
Prudential-Bache Diversified Futures Fund L.P. (PBDFF)
Prudential-Bache Capital Return Futures Fund L.P. (PBCRFF)
Prudential-Bache Capital Return Futures Fund 3 L.P. (PBCRFF3)
Prudential-Bache Optimax Fund L.P. (PBOFF)
See Notes to Capsule D on pages 79 to 80.
The past performance information in Capsule D has not been audited.
However, the managing owner represents and warrants that the capsule
is complete and accurate in all material respects.
77
CAPSULE D
CAPSULE PERFORMANCE OF OTHER POOLS OPERATED BY PRUDENTIAL SECURITIES
FUTURES MANAGEMENT INC. AND AFFILIATE [a]
ANNUAL RATE OF RETURN
(COMPUTED ON A COMPOUNDED DAILY
BASIS)
WORST WORST
MONTHLY PEAK TO
PERCENT VALLEY
TYPE INCEPTION AGGREGATE CURRENT DRAW- DRAW-
OF OF SUBSCRIPTIONS TOTAL NAV DOWN DOWN
NAME OF POOL POOL TRADING ($ X 1,000) ($ X 1,000) [b] [c] 1994 1995 1996 1997 1998
PRUDENTIAL-BACHE
FUTURES GROWTH
FUND, L.P. [d]
(PBFG) 3,5,6,8,10 3/88 24,961 --- -14.38% -24.48% 1.57% -9.54% --- --- ---
10/89 12/88-1/93
PRUDENTIAL-BACHE
DIVERSIFIED
FUTURES FUND
L.P. (PBDFF) 3,5,6,8,10 10/88 29,747 17,656 -18.37% -36.63% -10.05% 33.95% 24.81% 9.03% 1.96%
1/92 1/92-5/92
PRUDENTIAL-BACHE
CAPITAL RETURN
FUTURES FUND L.P.
(PBCRFF) 1a,3,5,7,8,10 5/89 137,705 14,737 -10.30% -24.43% -21.43% 23.97% 8.58% 7.93% -1.09%
11/98 9/93-1/95
PRUDENTIAL-BACHE
CAPITAL RETURN
FUTURES FUND 2
L.P. (PBCRFF2) 1a,3,5,7,8,9 10/89 100,000 24,032 -11.36% -24.24% -8.08% 27.26% 19.10% 11.40% -7.44%
1/92 1/92-5/92
PRUDENTIAL-BACHE
CAPITAL RETURN
FUTURES FUND 3
L.P. (PBCRFF3) 1a,3,5,7,8,10 5/90 64,863 12,692 -11.77% -17.84% 10.41% 16.64% 16.79% -7.97% -10.29%
4/98 9/90-6/91
PRUDENTIAL-BACHE
OPTIMAX FUND L.P.
- - OPTIMAX
(PBOFF) 3,5,7,8,10,11 4/96 69,603 16,283 -6.39% -11.32% --- --- 11.68% 17.49% 17.54%
8/97 5/96-8/96
PRUDENTIAL-BACHE
OPTIMAX FUND
L.P. - A
(PBOFF) 1,3,5,7,10,11 2/91 63,356 --- -6.00% -10.72% -6.42% 7.18% -0.41% --- ---
1/92 5/93-2/95
PRUDENTIAL-BACHE
OPTIMAX FUND L.P.
- B (PBOFF) 3,5,7,8,10,11 2/91 6,247 --- -9.90% -20.26% -10.66% 7.59% -1.59% --- ---
1/92 8/93-2/95
PRUDENTIAL
SECURITIES
OPTIMAX FUND
2 L.P. -
OPTIMAX 2 [g]
(PBOFF2) 3,5,7,8,9,12 4/97 17,416 --- -9.08% -16.58% --- --- --- -3.67% -9.97%
4/98 8/97-5/98
PRUDENTIAL
SECURITIES
OPTIMAX FUND
2 L.P. - A
(PBOFF2) 1,3,5,7,9,12 1/92 15,197 --- -5.82% -13.53% -5.51% 13.93% 3.88% 0.86% ---
9/93 9/93-1/95
PRUDENTIAL
SECURITIES
OPTIMAX FUND
2 L.P. - B
(PBOFF2) 3,5,7,8,9,12 1/92 2,219 --- -9.49% -20.94% -6.57% 18.44% 5.24% 0.68% ---
9/93 6/95-7/96
PRUDENTIAL
SECURITIES
FINANCIAL
FUTURES FUND
L.P. [e]
(PSFNF) 2,4,6,8,9 1/93 3,557 --- -8.39% -40.23% -24.46% -2.05% --- --- ---
11/94 8/93-1/95
PRUDENTIAL
SECURITIES
FOREIGN
FINANCIALS
FUND L.P.
(PSFFF) 2,4,6,8,9 1/93 4,198 1,861 -17.68% -25.96% 16.01% 20.38% 6.65% -1.35% 36.68%
9/93 9/93-1/94
PRUDENTIAL
SECURITIES
AGGRESSIVE
GROWTH FUND
L.P. (PSAGF) 3,5a,7,8,9 8/93 20,335 5,595 -9.71% -32.68% -13.51% 29.51% 7.89% -2.31% 13.11%
9/93 8/93-1/95
DIVERSIFIED
FUTURES
TRUST I
(DFT) 3,5a,6,8,9 1/95 65,908 58,938 -9.38% -12.88% --- 42.65% 23.49% 8.82% 4.80%
11/98 1/98-9/98
SIGNET
PARTNERS II,
LP [f] (SPLP2) 2,4,7,8,9 2/96 1,531 --- -6.37% -8.41% --- --- 9.70% 6.10% -0.70%
8/97 8/97-1/98
PRUDENTIAL
SECURITIES
STRATEGIC
TRUST [h]
(PRUST) 3,5a,6,8,9 5/96 63,403 45,014 -15.84% -33.98% --- --- 3.47% -0.49% 20.25%
4/98 8/97-7/98
DIVERSIFIED
FUTURES
TRUST II
(DFTII) 2,5,6,8,9 3/97 44,223 39,166 -9.66% -11.77% --- --- --- 6.26% 6.82%
11/98 1/98-7/98
PRUDENTIAL-
BACHE
INTERNATIONAL
FUTURES
FUND A PLC
(PBIFA) [j] 2,4,6,8,9,13 6/96 30,762 12,133 -15.39% -31.52% --- --- 12.30% -0.36% 34.14%
4/98 8/97-7/98
PRUDENTIAL-
BACHE
INTERNATIONAL
FUTURES
FUND C PLC
(PBIFC) [j] 2,4,6,8,9,13 6/96 24,379 8,039 -6.82% -20.08% --- --- 22.70% -3.59% 35.42%
8/97 12/96-4/97
PRUDENTIAL-
BACHE
INTERNATIONAL
FUTURES
FUND B PLC
(PBIFB) [j] 2,4,6,8,9,13 7/96 87,444 68,912 -8.84% -19.97% --- --- 28.50% 13.77% 3.49%
5/97 1/98-7/98
PRUDENTIAL-
BACHE
INTERNATIONAL
FUTURES
FUND D PLC
(PBIFD) [j] 2,4,6,8,9,13 10/96 19,617 13,221 -7.80% -10.31% --- --- -1.10% 14.36% 23.87%
4/98 2/98-4/98
PRUDENTIAL-
BACHE
INTERNATIONAL
FUTURES
FUND E PLC
(PBIFE) [j] 2,4,6,8,9,13 1/97 15,792 9,392 -9.41% -9.41% --- --- --- 2.20% 12.23%
8/97 8/97
PRUDENTIAL-
BACHE
INTERNATIONAL
FUTURES
FUND F PLC
(PBIFF) [j] 2,4,6,8,9,13 9/97 10,999 9,664 -9.50% -11.09% --- --- --- -4.60% 47.90%
10/97 10/97-11/97
DEVONSHIRE
MULTI-
STRATEGY
FUND
(DEVON)[j],[k] 2,4,8,9,14 2/98 13,552 12,011 -3.88% -8.55% --- --- --- --- -7.70%
4/98 4/98-8/98
PLEASE SEE FOLLOWING PAGE FOR ACCOMPANYING KEY AND NOTES
PAST PERFORMANCE IS NOT NECESSARILY INDICATIVE OF FUTURE RESULTS
78
Key And Notes To Capsule D
Key to type of pool
1 - Principal-protected pool currently
1a - Principal-protected pool initially, but not currently
2 - Privately offered pool
3 - Publicly offered pool
4 - Open ended pool
5 - Closed ended pool
5a - Initially open ended, currently closed ended
6 - Single advisor pool
7 - More than one advisor
8 - Non-principal protected pool
9 - CPO is Prudential Securities Futures Management Inc.
10 - CPO is Seaport Futures Management, Inc.
11 - Following the expiration of the principal-protected feature of the A
Units on March 31, 1996, the A & B Units merged into OptiMax Units
on April 1, 1996.
12 - Following the expiration of the principal-protected feature of the A
Units on March 31, 1997, the A & B Units merged into OptiMax 2
Units on April 1, 1997.
13 - Offshore pool offered to non-U.S. persons, authorized and
supervised by the Central Bank of Ireland.
14 - Offshore fund-of-funds offered to non-U.S. persons
Notes:
[a] All performance is presented as of December 1998.
[b] "Worst monthly percent draw-down" means greatest percentage
decline in net asset value due to losses sustained by a pool, account, or
other trading program from the beginning to the end of a calendar month.
[c] "Worst peak to valley draw-down" means greatest cumulative
percentage decline in month-end net asset value due to losses sustained
by a pool, account, or other trading program during a period in which
the initial month-end net asset value is not equaled or exceeded by a
subsequent month-end net asset value. "Draw-down" means losses
experienced by the pool over a specified period.
[d] Liquidated February 1995.
[e] Liquidated December 1995.
[f] Liquidated April 1998.
[g] Liquidated May 1998.
[h] Name change from Willowbridge Strategic Trust to Prudential
Securities Strategic Trust during August 1998.
[i] To be liquidated on March 19, 1999.
[j] These are non-U.S. investment funds which are available only to
non-U.S. residents. They are organized as investment companies
incorporated in non-U.S. jurisdictions. Eligibility notices under CFTC
Rule 4.7 have been filed in connection with these funds.
[k] Expected to be liquidated in 1999.
Notes To Capsule D Continued on Next Page
79
Notes To Capsule D Continued:
(1) Management Fees, Incentive Fees, And Brokerage Commissions
Name of Fund Management Fee Incentive Fee Brokerage Commission
PBFG 2% 18% 9%
PBDFF 4% 15% 8% (1)
PBCRFF 4% 15% 8%
PBCRFF2 2-4% 15-20% 8% (2)
PBCRFF3 2% 17% 7.5% (plus transaction costs)
PBOFF 2-3% 17-23% 8% (plus transaction costs)
PBOFF2 2-3% 15-20% 8% (plus transaction costs)
PSFNF 1.9-3% 20% (3)
PSFFF 1.9% 20% (4)
PSAGF 2% 15-23% 8% (plus transaction costs)
DFT 4% 15% 7.75%
DFTII 4% 15% 6.75%
SPLP2 2.5% 20% $10 per round-turn
PBIFA 3% 20% 5.75% (plus transaction costs)
PBIFB 4% 15% 5.75% (plus transaction costs)
PBIFC 2% 20% 5.75% (plus transaction costs)
PBIFD 2-3% 20% 5.75% (plus transaction costs)
PBIFE 2% 20% 5.75% (plus transaction costs)
PSIFF 2% 25% 5.75% (plus transaction costs)
PRUST .9756%-3% 20% 7.5% (5)
DEVON 1% (6) 3.75% (6) (6)
(1) Decreased from 9% to 8% during August 1998.
(2) Decreased from 8.5% to 8% during August 1998.
(3) Prior to April 1, 1994, PSFNF was charged on a per transaction
basis at the rate of $35 per round-turn. From April 1, 1994 until its
liquidation in December 1995, PSFNF was charged a flat annual 8%
brokerage fee.
(4) Prior to April 1, 1994, PSFFF was charged on a per transaction
basis at the rate of $35 per round-turn. From April 1, 1994 through July
25, 1997, PSFFF was charged a flat annual 8% fee, plus general and
administrative costs. Currently, PSFFF is charged a flat annual 8.8%
fee.
(5) Decreased from 7.75% to 7.5% during September 1998.
(6) DEVON only invests in other funds. Accordingly, it does not have a
direct brokerage commission expense. However, as an investor in other
funds, DEVON pays its pro rata share of management and incentive fees
and brokerage commissions paid by those funds. The management and
incentive fees shown in this chart only represent the fees paid directly to
the managing owner and do not reflect DEVON's pro rata portion of the
management and incentive fees in the funds in which it invests.
(2) Rate of return is calculated each week by dividing net
performance by beginning equity. The weekly returns are then
compounded to arrive at the rate of return for the month, which is in
turn compounded to arrive at the annual rate of return.
80
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 NFA. 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, 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 Partnership.
On March 10, 1994, Prudential Securities agreed to the entry of a
Consent Order issued by the State of Missouri, Commissioner of
Securities. The allegations against Prudential Securities were that the
firm failed to supervise a former registered representative, in violation
of Missouri securities laws. Without admitting or denying the
allegations, Prudential Securities agreed to the following: (a) to maintain
and make available to the Missouri Division of Securities all customer
and regulatory complaints concerning any Prudential Securities
employee working in a branch located in Missouri or any security sold
by such employees; (b) beginning 30 days from the date of the Consent
Order and continuing for a period of three years, to include at least one
public service information piece selected by the Commissioner of
Securities in all of Prudential Securities' new account packages mailed to
Missouri residents; (c) for a period of three years from the date of the
Consent Order, to annually provide a notice to Prudential Securities'
Missouri customers which details the procedures for filing a complaint
with Prudential Securities and the applicable regulatory authorities. In
addition, Prudential Securities agreed to pay a fine in the amount of
$175,000.
On June 8, 1994, the Business Conduct Committee of NYMEX accepted
an Offer of Settlement submitted by Prudential Securities concerning
allegations that Prudential Securities violated NYMEX rules regarding
pre-arranged trades and wash trades. Without admitting or denying the
allegations, Prudential Securities consented to a finding by NYMEX that
it had violated NYMEX Rule 8.55(A)(18) relating to conduct
substantially detrimental to the interest of the welfare of NYMEX,
agreed to cease and desist from future violations of Rule 8.55, and
agreed to pay a fine in the amount of $20,000.
On September 19, 1994, Prudential Securities consented to the entry of
an Agreement and Order issued by the State of Idaho, Department of
Finance, Securities Bureau. The allegations against Prudential
Securities were that the firm failed to supervise certain employees in
connection with securities and options trading activities entered into on
behalf of Idaho clients, in violation of the Idaho Securities Act. It was
further alleged that Prudential Securities failed to amend the Forms U-4
for certain employees. Prudential Securities agreed to a number of
sanctions and remedial measures including, but not limited to, the
following: (a) to install a new branch manager in the Prudential
Securities Boise branch office, who is to function in a supervisory
capacity only; (b) to designate a regional quality review officer to review
all securities options accounts and options trading activities of Idaho
customers in three Prudential Securities offices; (c) to implement
procedures reasonably designed to ensure compliance with regulations
concerning the timely delivery of prospectuses; and (d) to cooperate in
Idaho's ongoing investigation and to comply with all provisions of the
Act. In addition, Prudential Securities has agreed to pay a fine to the
State of Idaho in the amount of $300,000. In addition, Prudential
Securities has voluntarily reimbursed certain customers for losses
suffered in their accounts in the amount of $797,518.49.
81
On October 27, 1994, Prudential Securities and Prudential Securities
Group Inc. entered into an agreement with the Office of the U.S.
Attorney for the Southern District of New York deferring prosecution of
charges contained in a criminal complaint. The complaint alleged that
Prudential Securities committed fraud in connection with the sale of
certain oil and gas limited partnership interests between 1983 and 1990
in violation of federal securities laws. The terms of the agreement were
complied with in full and accordingly, the complaint was dismissed
without prejudice in October 1997.
On June 19, 1995, Prudential Securities entered into a settlement with
the CFTC in which, without admitting or denying the allegations of the
complaint, Prudential Securities consented to findings by the CFTC of
certain recordkeeping violations and failure to supervise in connection
with the commodity trading activities, in 1990 and early 1991, of a
former broker of Prudential Securities. Pursuant to the settlement,
Prudential Securities agreed to (i) pay a civil penalty of $725,000, (ii) the
entry of a cease and desist order with respect to the violations charged,
and (iii) an undertaking directing the Prudential Securities' Compliance
Committee directing that a review of certain of the firm's commodity
compliance and supervisory policies and procedures be conducted and a
report be submitted to the CFTC, as well as a report to the CFTC on the
actions taken as a result of the review.
On February 29, 1996, the State of New Mexico Securities Division
issued a final order, subject to a settlement whereby Prudential
Securities neither admitted nor denied any allegations that Prudential
Securities failed to supervise two former employees and a Branch Office
Manager of its Phoenix branch. The allegations included
misrepresentation, fraud, unsuitability, failure to properly register, and
failure to report a suspected forgery. Prudential Securities consented to
the imposition of a censure and paid a fine in the amount of $15,000 as
well as investigative fees in the amount of $2,000.
Stemming from final settlement agreements and consent orders in a U.S.
District Court for the Southern District of Florida, on December 10,
1996, the Department of Labor issued a final order imposing a statutory
civil penalty against Prudential Securities in the amount of $61,250. The
Department of Labor assessed the above referenced automatic penalty
under ERISA section 502(l) based upon allegations that Prudential
Securities acted as a fiduciary under ERISA with respect to the
Metacor, Inc. Profit Sharing and Retirement Savings Plan and
knowingly facilitated certain transfers of funds out of the Plan's account
to a corporate account that Metacor maintained in one or more banks.
Prudential Securities neither admitted nor denied the Department of
Labor's allegations.
On May 20, 1997, the CFTC filed a complaint against Prudential
Securities, Kevin Marshburn (a former Prudential Securities Financial
Advisor), and two of Marshburn's sales assistants. The complaint
alleges, in essence, that during the period from May 1993 through
March 1994: (i) Marshburn fraudulently allocated trades among his
personal account and certain customer accounts; (ii) Prudential
Securities did not properly supervise Marshburn by failing to have
policies and procedures in place to detect and deter the alleged allocation
scheme; and (iii) Prudential Securities failed to maintain and produce
records with respect to transactions during the period in issue. The
complaint seeks several forms of relief against Prudential Securities,
including a cease and desist order, suspension or revocation of
registration, restitution, and civil penalties of up to $100,000 for each
alleged violation. Prudential Securities has denied the operative
allegations against it and is vigorously defending the action.
On December 23, 1998, Prudential Securities was one of twenty-eight
market making firms that reached a settlement with the SEC in the
matter titled In the Matter of Certain Market Making Activities on
Nasdaq. As part of the global settlement of that matter, Prudential
Securities, without admitting or denying the factual allegations, agreed
to an order which requires that 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, pay a
civil penalty of $1,000,000 and disgorgement of $1,361 and submit
certain policies and procedures for review by an independent consultant.
82
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.
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 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.
83
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 has a term of
more than one year and which 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 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 as 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 conditionon page 153 and is significantly in
excess of the minimum net worth requirements under the NASAA
guidelines. The managing owner and Prudential Securities Group, Inc.,
the company which owns Prudential Securities, have each agreed that so
long as the managing owner remains the managing owner of the Trust,
they will not take or voluntarily permit to be taken any affirmative
action to reduce the managing owner's net worth below any regulatory-
required amounts.
84
FIDUCIARY RESPONSIBILITIES
Accountability
Pursuant to the Delaware Business Trust Act, the trustee delegated to
the managing owner responsibility for the management of the business
and affairs of the Trust and each series, and it has neither a duty to
supervise or monitor the managing owner's performance nor any
liability for the acts or omissions of the managing owner. The trustee
retains a statutory fiduciary duty to the Trust only for the performance
of the express obligations it retains under the Trust Agreement, which
are limited to the making of certain filings under the Delaware Business
Trust Act and to accepting service of process on behalf of the Trust in
the State of Delaware. It owes no other duties to the Trust, or any series,
or to you.
The managing owner is accountable to you as a fiduciary and must
exercise good faith and fairness in all dealings affecting the Trust.
Under the Delaware Business Trust Act, if you, the trustee, or the
managing owner has duties to the Trust or to you and liabilities relating
to those duties, (i) the trustee and the managing owner shall not be liable
for their good faith reliance on the provisions of the Trust Agreement,
and (ii) 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 to (i) recover damages from the managing
owner, (ii) require "accounting" - the right to specific and/or complete
financial information concerning the series; and (iii) 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, it violated the federal securities or commodity laws,
or 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 contains provisions which
will result in a trading advisor not being liable for certain conduct and/or
another party indemnifying a trading advisor, that 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
damaged 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.
85
THE OFFERING
The Initial Offering
On June 10, 1998, a sufficient number of subscriptions for each series
had been received and accepted by the managing owner to permit the
Trust to commence trading. The total amount of initial subscriptions
received on June 10, 1998 were as follows:
From Initial Investors From The Managing Owner
Series A $5,964,177 $75,000
Series B $5,634,093 $75,000
Series C $5,631,177 $75,000
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.
In order to subscribe for interests in any series, you must submit your
Subscription Agreement (Exhibit D) to the managing owner at its
principal office at least five business days before the dealing day on
which you want to be admitted to the Trust as a limited owner.
Sufficient funds must be in your Prudential Securities account on a
timely basis. After the five business day waiting period (two business
days if you are purchasing additional interests in a series you currently
own), and the managing owner's approval of your subscription, the net
asset value per interest will be determined at the next 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 is not fixed on the
date your subscription is submitted, and the net asset value of an interest
may fluctuate between the date you submit a subscription application
and the valuation date on which the subscription price for your
investment is finalized.
You will be admitted as a limited owner as of the same dealing day on
which your subscription becomes effective, and confirmation of each
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 the subscription in whole or in part. Funds
from accepted subscriptions are 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 the 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 the subscription for
additional interests, the net asset value per interest is determined at the
next occurring valuation point, and the subscription price per interest is
finalized. Your subscription becomes effective on the immediately
following dealing day. Because of this waiting period, the purchase price
of additional interests is not 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.
86
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, the net asset value per
interest for each applicable series (i.e., the series being exchanged from
and the series being exchanged into) is determined at the next occurring
valuation point, and the prices per interest are finalized. Your exchange
becomes effective on the immediately following dealing day. Because of
the five business day waiting period, the net asset value of the interests
being exchanged is not fixed on the date you submit your exchange
request, 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 is treated as a redemption of interests in one series (the
series you are exchanging from) and a simultaneous purchase of interests
in another series (the series you are exchanging into). Your exchange is
subject to satisfying the conditions governing redemption on the
applicable dealing day (see "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 is treated, in part,
as a redemption, you are not subject to any "exchange" or redemption
charges. An exchanging limited owner may, however, realize a taxable
gain or loss in connection with the exchange. See "FEDERAL INCOME
TAX CONSEQUENCES."
Effective Dates Of Subscriptions And Exchanges
Your subscription and exchange is effective on the first dealing day to
occur at least five business days after a subscription or exchange request
is submitted and approved by the managing owner. If you are an
existing limited owner who purchases additional interests in the same
series you currently own, the effective date of your subscription is the
first dealing day to occur at least two business days after a subscription
for additional interests is submitted and approved by the managing
owner. The effective date of your redemption of interests is the first
dealing day to occur at least two business days after your redemption
request is received and approved by the managing owner.
Redemption Of Interests
You may redeem all or any portion of your interests (including interests
held by assignees) on the first dealing day to occur at least two business
days after the date the managing owner receives your Redemption
Request 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 are 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 part of an exchange for interests in another
series offered hereby or invested in another commodity pool sponsored
by the managing owner. These redemption fees are paid to the
managing owner. If, at the time of redemption you have purchased at
least $5,000,000 in interests, the redemption fee, if applicable, may be
waived.
If your request for redemption 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 such redemptions. The
managing owner may suspend temporarily any redemption if the effect
of the redemption, either alone or in conjunction with other redemptions,
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 to the managing owner.
87
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 includes instructions on
the redemption of interests.
The net asset value per interest upon redemption of your interest on any
date also reflects all accrued expenses for which the applicable series is
responsible, including incentive fees, if any (including incentive fees
which may be due and owing other than at the end of a quarter), and is
reduced by your interest's pro rata portion of any expenses or losses
incurred by the series resulting from your actions, if unrelated to the
series' business, as well as your liabilities for certain series taxes, if any,
or for liabilities resulting from your violations of the transfer provisions
in the trust agreement. You will be notified in writing within ten
business days following the redemption date whether or not your
interests shall be redeemed, unless payment for the redeemed interests is
made within that ten-day period, in which case notice shall not be
required. Except as otherwise provided in the Trust Agreement, in the
case of extraordinary circumstances, payment generally shall 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 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 a potential limited owner 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 NASD (these
brokers or dealers are sometimes referred to as additional U.S. 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).
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 a limited owner (other than an
Individual Retirement Account of an employee of Prudential Securities).
From this sales credit, normally not more than 2.5% 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 will
be paid by Prudential Securities, at no cost to the Trust, at rates that will
not generally exceed 2.5% of the net asset value per interest. Aggregate
expenses incurred in connection with retail salaries, expenses,
reimbursement, sales seminars, bonus, and sales incentives do not exceed
the limitation imposed on such expenses by the NASD.
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 Individual Retirement Account
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 will not
generally exceed 2% of the net asset value of the applicable series per
annum.
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Prudential Securities will not compensate any individual with whom it no
longer associated 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 must have the appropriate
registrations and proficiency requirements. Any additional sellers
retained by the Trust also receive continuing compensation. Employees
of additional U.S. sellers receiving continuing compensation are required
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.
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. Except for that portion of any series' assets that is
deposited as margin to maintain forward currency contract positions,
each series' assets is maintained 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. Prudential Securities credits each series
with 100% of the interest earned on the average net assets of each series
on deposit at Prudential Securities. Assets are expected to earn interest
at the federal funds rate, currently approximately 5%, but that rate may
change from time to time. 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.
89
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 provided by you 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 investors 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 advisers as to the propriety of this investment in
light of your circumstances and 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, which 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.
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 Purchases $100 per series
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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 annexed as Exhibit D hereto 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
Individual, joint tenant, or entities (such as
corporations or trusts) must:
Requirements
Have a net worth (exclusive of home, home furnishings, and automobiles)
of at least $150,000
OR
Have a net worth (similarly calculated) of $45,000 and an annual gross
income of $45,000
AND
Invest no more than 10% of Subscriber's liquid net worth in all series
combined
Subscriber Category
Beneficiaries of individual retirement accounts or Keogh plans
covering no common law employees must:
Requirements
Have a net worth (exclusive of home, home furnishings, and
automobiles) of at least $150,000
OR
Have a net worth (similarly calculated) of at least $45,000 and an annual
gross income of at least $45,000
AND
Have an aggregate investment in any series or in all series combined that
does not exceed 10% of its assets
Subscriber Category
Group retirement plans (for example, qualified pension, profit
sharing plans, stock bonus plans, welfare benefit plans, such as group
insurance plans, or other fringe benefit plans, and government plans)
must:
Requirements
Have net assets of at least $150,000
AND
Have an aggregate investment in any series or in all series combined that
does not exceed 10% of its assets
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.
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Employee Benefit Plan Considerations
If you are a fiduciary of an "employee benefit plan" as defined in and
subject to ERISA or of a "plan" as defined in of the Internal Revenue
Code who has investment discretion, you should consider the following
consequences under ERISA and the Internal Revenue Code before
deciding to invest the plan's assets in any series of the Trust.
You must give appropriate consideration to the facts and circumstances
that are relevant to an investment in a series of the Trust, including the
role that an investment in a series of the Trust plays or would play in the
plan's overall investment portfolio. You must also give appropriate
consideration to the potential return on the proposed investment and the
effect on that return if any portion of a series' income constitutes
"unrelated business taxable income". In addition, before deciding to
invest in the Trust, you must be satisfied that such investment is prudent
for the plan, that the investments of the plan, including in a series of the
Trust, are diversified so as to minimize the risk of large losses and that
an investment in a series of the Trust complies with the terms of the plan
and related trust.
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" (referred to as the "publicly-offered security
exception"). If the underlying assets of a series of the Trust are
considered to be assets of any plan for purposes of ERISA or the
Internal Revenue Code, the operations of such series would be subject to
and, in some cases, limited by, the provisions of ERISA and the Internal
Revenue Code.
The publicly-offered security exception applies if the interest to be
purchased by a plan is an equity security that is:
- --"Freely transferable" (determined based on the applicable facts and
circumstances).
- --Part of a class of securities that is owned by 100 or more investors
independent of the issuer and of each other.
- --Either (i) part of a class of securities registered under the Securities
Exchange Act of 1934, or (ii) sold to the plan as part of a public offering
pursuant to an effective registration statement under the Securities Act
of 1933 and the class of which such security is a part is registered under
the Securities Exchange Act of 1934.
It appears that all of the conditions described above are satisfied with
respect to the interests and, therefore, the interests should constitute
publicly-offered securities and the underlying assets of the series in the
Trusts should not be considered to constitute assets of any plan which
purchases interests in the series.
92
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.
Special Purchases
If you purchase at least $5 million of interests in one or more series in
total, you may receive a discount on the purchase price. In addition, 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 subscriptions to all series were at least $5 million. For this
purpose, effective date of purchase is the applicable dealing day for the
interests being redeemed.
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.
93
HOW TO SUBSCRIBE FOR, REDEEM, AND EXCHANGE 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 additional selling agent) in a timely manner.
- --Meet established suitability standards.
Subscription Categories
- -- Individual or joint tenant
Individual accounts are owned by one person. Joint accounts
can have two or more owners.
- -- Gifts or transfers to a minor
An individual can gift up to $10,000
per year per person without paying federal gift tax.
Depending on state law, you can establish a custodial
account under the Uniform Gift to Minors Act or
the Uniform Transfers to Minors Act.
- -- Trust
The subscribing trust must be established before an account can be
opened.
- -- Business or other organization
Corporations, partnerships, limited liability companies or
partnerships, associations, or other groups.
- -- Benefit Plans
Individual Retirement Funds, Non-ERISA Plans, or ERISA Plans.
When A Subscription Becomes Final
- -- New subscribers
Your commitment to subscribe for interests is not final or
binding until at least five business days after the date you submit
your Subscription Agreement. You may revoke a subscription only
within five business days after you submit a Subscription Agreement to
Prudential Securities (or an Additional Seller). Thereafter, all
subscriptions are irrevocable by the subscriber.
- -- Existing limited owners in a series purchasing additional
interests in that same series
Your subscription is not final or binding until at least two
business days after the date you submit your Subscription
Agreement.
94
The managing owner may, at its discretion, reject any
subscription in whole or in part. If a subscription is rejected by the
managing owner, in whole or in part, for any reason, or if the subscriber
determines to revoke his or its subscription within five business days, the
subscription funds, or applicable portion thereof, are returned promptly
to the subscriber, as is any interest earned thereon. All accepted
subscribers will receive written confirmation of acceptance into the
applicable series of the Trust.
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; and
- --Send the Exchange Request to a Prudential Securities Financial Advisor
(or additional selling agent).
When An Exchange Becomes Final
- --Existing limited owners of a series exchanging interests in another
series for interests in the series currently owned.
Your exchange is effective on the dealing date that occurs at least
two business days after the date you submit your Exchange Request.
- --Existing limited owners in a series purchasing interests in
a series not currently owned.
Your exchange is effective on the dealing date that occurs five
days after the date you submit your Exchange Request.
To Redeem Interests You Must:
- --Complete a Redemption Request (Exhibit B).
- --Submit the Redemption Request to a Prudential Securities Financial
Advisor in a timely manner.
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FEES AND EXPENSES
Charges 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. The brokerage fee is
determined at the close of business each Friday, and the sum of the
amounts determined weekly is paid monthly. The brokerage fee equals,
on an annual basis, 7.75% of each series' net asset value. 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 of the limited owners of the affected series. During
1998, the fixed brokerage fee paid to Prudential Securities, equated to an
amount per round-turn transaction of $121 for Series A, $48 for Series
B, and $46 for Series C. The Managing Owner does not believe that the
round-turn rate for Series A will be the rate experienced in the future.
Eagle, the trading advisor for Series A, slowly adds positions when if
first begins trading an account. Eagle's trading volume is expected to
increase and to produce a round-turn rate of approximately $54 during
1999.
From its fixed brokerage fee, Prudential Securities is responsible for the
payment of the following:
Compensation To Prudential Securities Employees
Prudential Securities employees who hold all appropriate federal and
state securities registrations are eligible for compensation of up to 2.5%
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.
Out-Of-Pocket Execution Costs
Prudential Securities pays all of the floor brokerage expenses and
give-up charges, as well as the NFA, exchange, and clearing fees
incurred in connection with each series' futures trading activities. These
costs are approximately 1% per annum of each series' net asset value.
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. Prudential
Bache Global Markets attempts to earn a profit on such transactions.
Prudential Bache Global Markets keeps its prices on foreign currency
competitive with other interbank currency trading desks. All over-the-
counter currency transactions are conducted between Prudential
Securities and each series pursuant to a line of credit. Prudential
Securities may require that collateral be posted against the current
market value of any position of any series.
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.
96
Management Fee
Each series pays its trading advisor a management fee at an annual rate
of 2% of the series' net asset value. The management fee is determined
at the close of business each Friday, and the sum of the amounts
determined weekly are paid monthly. The amounts determined weekly
reflect profits and losses from trading activities. The management fee is
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 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) as follows:
- --Series A - 23%
- --Series B - 20%
- --Series C - 23%
The incentive fee is calculated weekly, but accrues quarterly.
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 calendar 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 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 adjusted (either increased or decreased, as the
case may be, to reflect extraordinary expenses (e.g., litigation, costs or
damages) paid during an incentive measurement period.
Effect of Fees. 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 below, net losses from prior quarters must be
recouped before new high net trading profits can again be generated.
Effect of Redemptions, Withdrawals, and Distributions. If a withdrawal
or distribution occurs at any date that is not an incentive measurement
date, the date of the withdrawal or distribution will be 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 shall be adjusted to exclude
capital contributions to a series in an incentive measurement period,
distributions or redemptions payable by a series during an incentive
measurement period, as well as losses, if any, associated with
withdrawals or redemptions during the incentive measurement period
and prior to the incentive measurement date.
97
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, so
that a trading advisor does not have to earn back its incentive fees before
it can generate additional new high net trading profits. All incentive fees
paid to a trading advisor are retained by it despite any subsequent losses
which is 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.
Example Of Incentive Fee
A simple numerical example with respect to the net asset value of the
interests illustrates how the quarterly incentive fee is calculated, as
follows:
A. Assumptions
(1) A series commences trading activities at the beginning of a quarter
with $10,000,000 in interests and the trading advisor is allocated 100%
of that amount.
(2) No redemptions are made during the quarter.
B. Quarterly Data
(1) Beginning NAV $10,000,000
(2) Gross Realized & Unrealized
Trading Profit (Loss) $ 1,200,000 ($600,000 realized and
$600,000 unrealized)
(3) Interest Income $ 125,000 (Assumes Annual Interest of
5% = 1.25% quarterly)
(4) NAV Subtotal 11,325,000
(5) Fees for Brokerage
Services and Related
Out-of-Pocket Costs <219,422> (NAV Subtotal Less Brokerage
Fee: 7.75% Annually = 1.9375%
quarterly)
(6) Advisory Management Fee <55,528> (Less the Management Fee: 2%
Annually = .5% quarterly)
(7) Ending NAV $11,050,050 (Item (4) less Items (5) and
(6), before computation of
advisory incentive fee)
(8) Net Trading Profit (Loss) $ 925,050 (Gross Profits in Item (2)
minus the sum of Brokerage
Fees in Item (5) and Advisory
Management Fees in Item (6))
C. Incentive Fee Calculation
The incentive fee is paid on Net Trading Profit (Loss) only, which is
calculated by deducting Brokerage commissions and Advisory
Management Fees from Gross Trading Profit (Loss). See Item (8)
above. Thus, using Series A as an example, Series A's incentive fees
would be determined as follows:
$925,050 [Item (8)] X 23% = $212,762
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If in the next quarter, the trading advisor experienced 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, the trading advisor must achieve Net
Trading Profits in excess of $500,000, and is then paid an incentive fee
only on the excess - that is, on the new high net trading profits.
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 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:
Routine Operational, Administrative, And Other Expenses.
All of the Trust's routine operational and administrative expenses
including, but not limited to, accounting and computer services, filing
fees, printing, mailing, and duplication costs for each series are paid by
Prudential Securities or one of its affiliates. These operational and
administrative expenses are approximately $80,000 per series per
annum. Prudential Securities or an affiliate also is responsible for all
routine legal, auditing, and other expenses of third-party service
providers to each series, including the trustee. Such fees and expenses
are approximately $60,000 per series per annum.
Organization And Offering Expenses
Expenses incurred in connection with the organization of the Trust and
the offering of interests were approximately $250,000 per series.
Ongoing offering expenses are estimated to be approximately $60,000
per series each year.
Charges Paid By Limited Owners
Redemption Fees
If you redeem an interest during the first 12 months following the
effective date of its purchase you are subject to the following redemption
fees: Interests redeemed on or before the end of the first full six months
after their effective date are charged a redemption fee of 4% of the net
asset value at which they are redeemed. Interests redeemed after six
months, but on or before the end of twelve full 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. If you acquire your interests at more than one closing
date, each interest but will be treated on a "first-in, first-out" basis for
redemption purposes (including determining the amount of any
applicable redemption charge). Redemption fees are not charged in
respect of interests that you exchange for interests in other series, or in
respect of redemption proceeds that are concurrently invested by you in
another Prudential Securities-sponsored futures fund. Redemption fees
do not reduce net asset value or new high net trading profit for any
purpose, only affect the amount you will receive upon your redemption
of an interest.
Projected Twelve-Month Break-Even Analysis
A projected twelve-month break-even analysis 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, is set forth at page 14 under the heading
"Projected Twelve-Month Break-Even Analysis" and is 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 is 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 are effective for one year
terms. They are renewable automatically for additional one-year terms
unless terminated. 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 33-1/3% 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 NFA 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 relating to the trading of the series' assets.
Each trading advisor also has the right to terminate the 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
independent 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 1940 Act and it is not so registered; (ii) 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 NFA is revoked, suspended, terminated, or not renewed; (iii) 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) if the assets
allocated to the trading advisor decrease, for any reason, to less than $4
million in the case of Series A, and to less than $3 million in the case of
Series B and C; (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; (vii) any assets of the series traded by
a trading advisor are allocated to a new trading advisor for that series;
or (viii) other good cause is shown and the written consent of the
managing owner is obtained (which consent shall not unreasonably be
withheld).
No trading advisor will accept additional capital for commodities
management from other clients if doing so have a reasonable likelihood
of resulting in the trading advisor's having to modify materially its
agreed upon trading approach in a manner that might reasonably be
expected to have an adverse material effect on the series for which it has
trading responsibility.
Each trading advisor will, upon reasonable request, permit the managing
owner to review its personal trading records for the purpose of
confirming that the Trust has been treated equitably with respect to
advice rendered by the trading advisor to other accounts managed by
the trading advisor.
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None of the trading advisors nor their employees or affiliates will be
liable to the managing owner, its employees, or its affiliates, except by
reason of acts or omissions in material breach of the advisory agreement
or due to their misconduct or negligence or by reason of not having acted
in good faith in the reasonable belief that such actions or omissions were
in, or not opposed to, the best interests of the Trust.
Each of the trading advisors and their employees and affiliates will be
indemnified by the managing owner against any losses, judgments,
liabilities, expenses (including, without limitation, reasonable attorneys'
fees), and amounts paid in settlement of any claims (collectively referred
to as losses) sustained by any one of the trading advisors in connection
with any acts or omissions of the trading advisors relating to their
management of a series or as a result of any material breach of the
advisory agreement by the Trust or the managing owner, provided, that
(i) such losses were not the result of negligence, misconduct, or a
material breach of the advisory agreement on the part of the trading
advisor; (ii) the trading advisor and its officers, directors, shareholders,
and employees, and each person controlling the trading advisor, acted or
omitted to act in good faith and in a manner reasonably believed by it
and them to be in, or not opposed to, the best interests of the series; and
(iii) any such indemnification will only be recoverable from the assets of
the series and the managing owner and not from the assets of any other
series.
Each trading advisor has also represented to the managing owner that
there will be no material interruption in their provision of advisory
services due to the advent of the "Year 2000 Problem." The managing
owner has made the same representation to each trading advisor that
there will be no material interruption in carrying out its obligations
under the advisory agreements due to the advent of the Year 2000
Problem. The Year 2000 Problem is a potential computer calculation
problem caused by software that processes years as only two digits,
rather than four. A computer program that has time-sensitive software
may recognize a date ending in "00" as the year 1900 rather than 2000,
resulting in miscalculations and interruptions of service.
Brokerage Agreement
Prudential Securities and the Trust entered into a brokerage agreement.
As a result, Prudential Securities (i) acts as the Trust's executing and
clearing broker, (ii) acts as custodian of the Trust's assets, (iii) assists
with foreign currency, (iv) assists the managing owner in the
performance of its administrative functions for the Trust, and
(v) performs such other services for the Trust as the managing owner
may from time to time request.
As executing and clearing broker for each of the Trust's series,
Prudential Securities receives each trading advisor's orders for trades.
An affiliate of Prudential Securities, Prudential-Bache Global Markets
Inc., 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 not 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, and 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 the 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.
As long as the brokerage agreement is in effect, Prudential Securities
will not charge the Trust a fee for any of the services it has agreed to
perform, except for the agreed-upon brokerage fee.
The brokerage agreement is not exclusive and runs for successive one-
year terms to be 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
Prudential Securities without penalty upon 60 days' prior written notice.
Prudential Securities and its stockholder, directors, officers, and
employees will not be liable to the Trust or to you for errors in judgment
or other acts or omissions except by reason of acts of or omissions due to
bad faith, misconduct, or negligence or for not having acted in good faith
in the reasonable belief that its actions were in, or not opposed to, the
best interests of the Trust, or by reason of any material breach of the
brokerage agreement.
Prudential Securities has represented to the Trust that there will be no
material interruption in their provision of brokerage services due to the
advent of the Year 2000 Problem.
Trust Agreement
The rights and duties of the trustee, the managing owner, and the limited
owners are governed by provisions of the Delaware Business Trust Act
and by the trust agreement (which is attached hereto as Exhibit A). 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.
Only the managing owner has signed the registration statement of which
this prospectus is a part, and the assets of the trustee are not subject to
issuer liability under the federal securities laws for the information
contained in this prospectus and under federal and state law with respect
to the issuance and sale of the interests. Under such laws, neither the
trustee, either in its capacity as trustee or in its individual capacity, nor
any director, officer, or controlling person of the trustee is, or has any
liability as, the issuer or a director, officer, or controlling person of the
issuer of the interests. The trustee's liability in connection with the
issuance and sale of the interests and with respect to the Trust's
obligations under the interests is limited solely to the express obligations
of the trustee set forth in the Trust agreement.
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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 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
a series' limited owners within seven days from the date of any material
change (a) in the series' advisory agreement, (b) in the calculation of the
incentive fee paid to the series' trading advisor, and (c) which affects the
compensation of any party compensated by the series.
Transfer Of 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, the 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 only if necessary, in its judgment, to maintain
the treatment of any series as a partnership for 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 Agreement, no assignment may be made 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 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 to (i) the ancestors or descendants of a limited owner,
(ii) the personal representative or heir of a deceased limited owner,
(iii) the trustee of a trust whose beneficiary is the limited owner or
another person to whom a transfer could otherwise be made, or (iv) the
shareholders, partners, or beneficiaries of a corporation, partnership, or
trust upon its termination or liquidation, are effective as of the dealing
day immediately following the week in which the managing owner
receives the written instrument of assignment. Assignments or transfers
of interests to any other person shall be effective on 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
business days.
Your assignee may become a substituted limited owner only with the
written consent of the managing owner, which consent may be withheld
in the managing owner's sole and absolute discretion as described above.
A permitted assignee who does not become a substituted limited owner
will be entitled to receive the share of the profits or the return of capital
to which his assignor would otherwise be entitled, but is not 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,
an assigning limited owner is not released from its liability to the Trust
for any amounts for which he may be liable under the Agreement
whether or not the assignee to whom he has assigned interests becomes a
substituted limited owner. Each limited owner is responsible for all costs
relating to the assignment or transfer of his own interests.
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Termination Unless earlier dissolved, the term of each series in the
Trust will expire on December 31, 2047. The Trust or, as the case may
be, any series, will also 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
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, as the case may be;
- --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, as the case may be, 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 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
series with 90 days' prior written notice to the managing owner; or
- --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.
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
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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 the death, legal disability,
bankruptcy, or withdrawal of a limited owner will not terminate or
dissolve the series (unless such limited owner is the sole limited owner of
the Trust) and that the legal representatives of such limited owner have
no right to withdraw or value his, her, or its 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
consistently applied under the accrual method of accounting (referred to
as GAAP). The financial statements of each series in the Trust are
audited at least annually in accordance with generally accepted auditing
standards by independent certified public 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 NFA require. Current monthly and
annual reports accompany this prospectus. 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 a limited owner's interest in the Trust, in
either case, as of the end of the year in question and the preceding year.
- --A statement of financial condition as of the close of the fiscal year and, if
applicable, the preceding fiscal year.
- --Statements of income (loss) and changes in limited owners' capital
during the fiscal year and, to the extent applicable, the previous two
fiscal years.
- --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 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 a limited owner's
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 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 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. 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 in 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 Agreement, the managing
owner has sole discretion in determining the amount and frequency of
distributions to you. However, you have the right to redeem a portion or
all of your interests in accordance with the redemption procedures
contained in the agreement. 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. Any
distribution shall become a liability of the series for purposes of
calculating net asset value as of the date of its declaration until it is paid.
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 will be
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 who 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 are 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 who were interest-holders during such week in
proportion to their respective book capital account balances for such
week. Notwithstanding the foregoing, loss will not be allocated to an
interest (and instead will be 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 is 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, and not against any other series or the
Trust generally or any of their respective assets. The assets of any
particular series include only those funds and other assets that are paid
to, held by, or distributed to the Trust on account of and for the benefit
of that series, including, without limitation, funds delivered to the Trust
for the purchase of interests in a series. This limitation on liability is
referred to as the "inter-series limitation on liability." The inter-series
limitation on liability is expressly provided for under the Delaware
Business Trust Act, which provides that if a trust has one or more series,
then the debts of any particular series will be 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 or similar agreement
and (b) claims against the Trust where recourse for the payment of such
claims was, by agreement, limited to the assets of a particular series, will
not be junior in right of repayment, but will receive repayment from the
assets of such particular series (but not from the assets of any other
series or the Trust generally) equal to the treatment received by all other
creditors and limited owners that dealt with such series, and (iii) a
waiver of certain rights that such party may have under the U.S.
Bankruptcy Code, if such party held collateral for its claims, in the event
that the Trust is a debtor in a chapter 11 case under the Bankruptcy
Code, to have any deficiency claim (i.e., the difference, if any, between
the amount of the claim and the value of the collateral) treated as an
unsecured claim against the Trust generally or any other series.
The Trust has obtained separate opinions of counsel regarding Delaware
law and federal bankruptcy law concerning the effectiveness of the inter-
series limitation on liability. Delaware state law counsel has opined that
if the Trust complies with Section 3804(a) of the Delaware Business
Trust Act, then the inter-series limitation on liability will be enforceable.
Delaware counsel's opinion does not express any opinion concerning the
enforceability of the inter-series limitation on liability if the Trust should
become a debtor in a case under the Bankruptcy Code. Relying on
Delaware counsel's opinion concerning the general enforceability under
state law of the inter-series limitation on liability, federal bankruptcy
law counsel has opined that, although the matter is not free from doubt,
in
107
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 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 the each series' trading and business. The Delaware Business
Trust Act provides that, except to the extent otherwise provided in the
Trust agreement, you will be entitled to the same limitation of personal
liability extended to shareholders of private Delaware corporations for
profit. No similar statutory or other authority limiting business trust
beneficial owner liability exists in many other states. As a result, to the
extent that the Trust or you as a limited owner is 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, as stated above, you, as a limited owner in the Trust,
generally cannot lose more than your investment and your share of the
Trust's profits, the Trust agreement provides that you as a limited
owners 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 such your
obligations or liabilities unrelated to the Trust's business, (iii) to
indemnify the Trust and you 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 will be entitled to redeem
108
its general interests in each series of the Trust at their net
asset value as of the next permissible redemption date. See "Management
Responsibilities of the Managing Owner" in this section.
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
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, which
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 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,
(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, and (vi) approve a material change in
the trading policies of the Trust or a series, and, in the case of (iii) and
(v) on 60 days' prior written notice.
Indemnification The Agreement provides that with respect to any action
in which the managing owner or any of its affiliates (including Prudential
Securities only when 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 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 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
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 may be permitted to the
managing owner or its affiliates, the managing owner has been
109
advised that in the opinion of the SEC such indemnification is against public
policy as expressed in the Securities Act of 1933, 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 securities law violations. The 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 ten percent 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 ten percent of the net asset
value of each affected series. Limited owners will be supplied with a
verbatim copy of any proposed amendment which potentially could
affect them and statements concerning the legality thereof. It is not
anticipated that the managing owner will call any annual meetings of the
limited owners.
The managing owner may, without your consent, make amendments to
the trust agreement which are necessary to (i) add to the representations,
duties, or obligations of the managing owner or to surrender any right or
power of the managing owner, for the benefit of the limited owners,
(ii) cure any ambiguity, (iii) correct or supplement any provision of the
trust agreement which may be inconsistent with any other provision of
the trust agreement or this prospectus, or (iv) make any other provisions
with respect to matters or questions arising under the trust agreement
that the managing owner deems advisable; provided, however, that no
such amendment will be adopted unless the amendment is not adverse to
the interests of the limited owners, is consistent with the managing
owner's management of the Trust pursuant to Section 3806 of the
Delaware Business Trust Act, does not affect the allocation of profits and
losses to them or among them, and does not adversely affect the limited
liability status of the limited owners or the status of each series as a
partnership for federal income tax purposes). The managing owner
further may, without the consent of the limited owners, amend the
provisions of the 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 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 ten percent of the net asset value of a series. Thereafter, the
managing owner shall give written notice to all limited owners, in person
or by certified mail within 15 days after such receipt, of such meeting
and its purpose. Such meeting must be held at least 30 but not more
than 60 days after the receipt of such notice. Any action permitted to be
taken at a meeting may be taken without a meeting on written approval
of the limited owners holding interests of the percentage required to
approve any such action if a meeting were held.
Fiscal Year The Trust's fiscal year begins on January 1 on each year
and ends on December 31 of each year, except that (i) the first fiscal year
of the Trust commenced on December 17, 1997, the date the Certificate
of Trust was filed, and (ii) the fiscal year in which the Trust terminates
will end on the date of termination of the Trust.
110
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 in the U.S. can be traded only on approved exchanges
and call for the future delivery of various commodities. These
contractual obligations may be satisfied either by taking or making
physical delivery or by making an offsetting sale or purchase of a futures
contract on the same exchange. In certain instances, the S&P 500
contract for example, delivery is made through a cash settlement.
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.
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.
111
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
involve 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 or (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.
Systematic And Discretionary Trading Approaches
A systematic trader relies on trading programs or models to generate
trading signals. Discretionary traders make trading decisions of 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 which would have been signaled by a system.
112
Trend Following
Trend-following advisors try to take advantage of major price
movements, in contrast with traders who 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 big losses.
Risk Control Techniques
Trading managers often adopt risk management principles. Such
principles typically restrict the size or positions taken as well as
establishing stop-loss points at which losing positions must be liquidated.
No risk control technique can assure that big 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.
Commodity Futures Trading Commission
The CFTC is an independent governmental agency that administers the
Commodity Exchange Act and is authorized to promulgate rules
thereunder. One function of the CFTC is to implement the objectives of
the Commodity Exchange Act in preventing price manipulation and
excessive speculation and to promote 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
("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.
The CFTC has adopted 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, require the giving of disclosure documents to new
customers and the retention of current trading and other records,
prohibit pool operators from commingling pool assets with those of the
operators or their other customers and require pool operators to provide
their customers with periodic account statements and an annual report.
Upon request by the CFTC, 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 has recently amended its regulations
relating to the disclosure, recordkeeping, and reporting obligations
affecting commodity pool operators. These regulations, as adopted,
among other things, streamline the disclosure documents and increase
from six to nine months the time period after which such documents
must be updated.
113
U.S. Commodity Exchanges
U.S. commodity exchanges 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. Except for those rules relating
to margins, all exchange rules and regulations relating to terms and
conditions of contracts of sale or to other trading requirements currently
must be reviewed and approved by the CFTC.
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.
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.
114
HOW MANAGED FUTURES FIT INTO A PORTFOLIO
"Managed futures" is a sector of the futures industry made up of
professionals, known as commodity trading advisors, who on behalf of
their clients manage portfolios made up of futures and forward contracts
traded on exchanges around the world. Utilizing extensive resources,
markets can be accessed and monitored around the world 24 hours a
day. For over 20 years, institutions and individuals have made managed
futures part of their well-diversified portfolios. In that time period, the
industry has grown to nearly $35 billion in assets under management.1
As the industry has grown, so has the number, liquidity, and efficiency of
the futures markets globally.
Managed futures encompass over 50 markets worldwide, and as a result
investors can gain global market exposure in their portfolios as well as
add non-financial investments. Thus, investing in a managed futures
fund can be an effective way to globally diversify a portfolio.
A managed futures fund provides three benefits to an investor's overall
portfolio:
- --Potential for both reduced volatility and enhanced returns.
- --Profit potential in any market environment.
- --Access to global and non-financial commodity markets.
Potential for both reduced volatility and enhanced returns. Futures and
forwards exhibit more risk than stocks or bonds. However, adding a
managed futures fund has the potential to reduce overall portfolio
volatility and enhance returns. This potential benefit was chiefly
demonstrated in two key academic works. First, Modern Portfolio
Theory, developed by the Nobel Prize Laureate economists Drs. Harry
M. Markowitz and William Sharpe, 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. In other words, a portfolio comprised of different investments,
which exhibit returns that are independent of each other (i.e. non-
correlated), can improve the risk profile of an investor's entire portfolio.
Second, in his landmark study, Dr. John Lintner of Harvard University
was the first of many to specifically demonstrate that adding a managed
futures component to a portfolio can potentially enhance returns. Dr.
Lintner concluded that a portfolio of judicious investments which include
stocks, bonds, and managed futures ". . . show substantially less risk at
every possible level of expected return than portfolios of stocks (or stocks
and bonds) alone."2
1 As of December 31, 1998, Managed Accounts Reports.
2 Lintner, John, "The Potential role of Managed Commodity Financial
futures Accounts (and/or Funds) in Portfolios of Stocks and Bonds."
Annual conference of Financial Analysts Federation, May 1983.
115
This diversification effect of managed futures is demonstrated by looking
at the performance of managed futures compared to that of U.S. stocks,
U.S. bonds, and international stocks during a major decline. When
measured against a decline in the stock and bond markets, the graph
below shows how managed futures would have provided the benefits of
portfolio diversification due to its non-correlation, or independent
performance, to stocks and bonds. However, this does not mean that the
returns of managed futures are negatively correlated (i.e. perform
opposite) to that of stocks and bonds, but that managed futures is not
correlated (i.e. performs independently) to stocks and bonds.
Managed Futures Performance Versus the Worst Declines of Stocks
and Bonds Since 1985
Managed Futures US Stocks US Bonds Int'l Stocks
9/87 - 11/87 8.46% -29.58%
7/98 - 8/98 5.82% -15.36%
3/87 - 9/87 16.24% -5.27%
2/94 - 6/94 5.59% -5.76%
9/87 - 10/87 -0.56% -15.33%
1/90 - 9/90 25.15% -30.58%
Profit potential in any market environment: With stocks and bonds,
investors typically buy securities which they believe will increase in
value, and they may have no strategy for 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, declining markets may also
represent opportunities for managed futures.
Access to global and non-financial markets: Finally, over the years the
futures markets have expanded globally to include investments in stock
and bond indices, currencies, precious and base metals, agricultural
products and so forth. Investors can gain access to over 50 financial and
non-financial markets around the globe.
116
Comparison Of Performance Among Asset Classes
The following table provides a comparison of U.S. stocks, U.S. bonds,
and international stocks to each series' performance.
Series A Series B Series C
Eagle Trading Eclipse Capital Hyman Beck
Allocation Global Monetary The Asset
50% Eagle-FX/ Program Allocation
50% Eagle-Global Portfolio US Stocks US Bonds Intl Stocks
June -1.12% -2.22% -3.42% 4.06% 1.02% 0.78%
July -3.19% -3.63% -2.43% -1.06% 0.08% 1.04%
August 5.64% 10.81% 9.29% -14.45% 1.95% -12.37%
September 1.58% 4.94% 2.84% 6.41% 2.86% -3.04%
October -2.65% 1.18% -0.80% 8.12% -0.71% 10.45%
November -0.89% -2.31% -6.70% 6.06% 0.60% 5.15%
December -0.82% 3.39% 6.33% 5.76% 0.25% 3.97%
June -
December 1998 -1.69% 11.98% 4.21% 13.67% 6.16% 4.47%
Past Performance Is Not Necessarily Indicative Of Future Results
Notes To Performance Chart
U.S. Stocks* - Standard & Poor's 500 Stock Index (dividends reinvested)
an unmanaged weighted index of 500 stocks.
International Stocks* - Morgan Stanley's EAFE Index (dividends
reinvested).
U.S. Bonds* - Lehman Brothers' Government/Corporate Bond Index
(coupons reinvested).
* These indices are representative of equity and debt securities and are
not to be construed as an actively managed portfolio.
Sources: Standard & Poor's, Lehman Brothers, and Lipper Analytical
Associates.
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,
forward, 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
117
FEDERAL INCOME TAX CONSEQUENCES
The following constitutes the opinion of Rosenman & Colin LLP and
briefly summarizes the material U.S. federal income tax consequences to
individual investors in the Trust.
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
various series in the Trust (or the Trust itself) would constitute so-called
"publicly traded partnerships," in which event such series (or the Trust
itself) generally would be subject to federal income tax as corporations,
and distributions to limited owners would be taxable as dividends.
However, because of the expected income to be earned by each series in
the Trust, it is likely, but not certain, that each series will be exempt
from taxation as a corporation for U.S. federal income tax purposes.
Taxation Of Limited Owners On Profits And Losses Of A Series Of The
Trust
Assuming that each series is treated as a partnership for federal income
tax purposes, each limited owner must pay tax on his share of the series'
annual income and gains, if any, even though the series does not intend to
make any cash distributions.
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 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, series'
income and gains will not be treated as passive activity income.
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.
Gain Or Loss On Section 1256 Contracts And Non-Section 1256
Contract
Section 1256 Contracts are futures contracts and 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 the position were closed at year-end. The gain or loss on
Section 1256 Contracts is characterized as 60% long-term capital gain or
loss and 40% short-term capital gain or loss regardless of how long the
position was open.
Non-Section 1256 Contracts include, among other things, certain foreign
currency transactions. A series' gain and loss from these Non-Section
1256 Contracts generally should be short-term capital gain or loss, but
certain of these transactions may generate ordinary income.
118
Tax On 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 rate of 20%, and short-term capital gains (i.e.,
net gain on capital assets held less than one year and 40% of the gain on
Section 1256 Contracts) are subject to tax at the same rates as ordinary
income, with a maximum rate of 39.6%. 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 incentive fees
and management fees as trade or business expenses, and as such not
subject to deductibility limitations applicable to investment advisory
expenses. The Internal Revenue Service could contend otherwise, and if
expenses are recharacterized as investment expenses, the deductible
amount of these expenses would be reduced accordingly (and would not
be deductible at all for alternative minimum tax purposes) to the extent
applicable 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 is taxed as ordinary income. Net capital
losses of non-corporate limited owners can offset ordinary income only to
the extent of $3,000 per year. See "Tax On Capital Gains And Losses"
in this section.
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 net investment income. Net investment income
does not include adjusted net capital gain absent an election by an
individual taxpayer to pay tax on such gains at regular income tax rates,
and not at the lower 20% rate.
Unrelated Business Taxable Income
It is anticipated 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
Although not free from doubt, 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.
Internal Revenue Service Audits Of The Trust And Its Limited Owners
The Internal Revenue Service audits series-related items 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.
119
Foreign, State And Local, And Other Taxes
In addition to the federal income tax consequences described above, a
series and the limited owners may be subject to various foreign, state
and local, and other taxes. Any such foreign taxes may be creditable
against a limited owner's U.S. federal income tax liability (if any).
Prospective investors are urged to consult their
own tax advisers before deciding whether to invest.
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 securities transactions are complex, and
certain of these consequences would vary significantly with the
particular situation of each limited owner. Accordingly, prospective
investors are strongly urged to consult their own tax advisors regarding
the possible tax consequences of an investment in the trust including, for
example, the alternative minimum tax.
120
LEGAL MATTERS
Legal matters in connection with this offering have been passed upon for
the Trust, the managing owner, and Prudential Securities by Rosenman
& Colin LLP, 575 Madison Avenue, New York, New York 10022.
Certain legal matters relating to Delaware law have been passed upon
for the Trust and the managing owner by Richards, Layton & Finger,
P.A., Wilmington, Delaware. Rosenman & Colin LLP acts as counsel
generally for the managing owner and advises the managing owner with
respect to its responsibilities as managing owner of, and with respect to
matters relating to, the Trust. Rosenman & Colin LLP also represents
Prudential Securities and certain of its affiliates from time to time in
various matters, and it is expected they 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, as amended (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. In addition, all of
the SEC's public filings, including the public filings of each series, are
available at the Commission's Web Site at http://www.sec.gov.
EXPERTS
The financial statements of Series A, Series B, and Series C of World
Monitor Trust as of December 31, 1998 and 1997, and for the period
from June 10, 1998 (commencement of operations) to December 31, 1998
and the statements of financial condition of the managing owner and
Diversified Futures Trust I as of December 31, 1998, 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 "FEDERAL INCOME TAX
CONSEQUENCES" have been reviewed by Rosenman & Colin LLP
and are included in reliance upon their authority as experts in tax law in
the U.S.
121
GLOSSARY OF TERMS
The following glossary may assist prospective investors in understanding
the 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 $$: (All Programs excluding Notional) and Aggregate $$:
(All Proforma 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 $$: (All programs including Notional) and Aggregate $$:
(All Proforma 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.
Annual Rate of Return. Is calculated by multiplying on a compound
basis each of the Monthly Rates of Return and not by adding or
averaging the Monthly Rates of Return.
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 other 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.
122
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.
Contract Month. The month in which a futures contract may be
satisfied by making or accepting delivery of the underlying commodity.
Contract round-turn. The initial purchase of a long or short contract
and the subsequent purchase of an offsetting contract.
Counter-trend liquidations. Closing out a position after significant price
move on the assumption that the market is due for a correction.
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. The first business day after a valuation point occurs.
Delivery. The process of satisfying a commodity futures contract, an
option on a physical commodity, or 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.
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 Plans. Employee benefit plans governed by the Employee
Retirement Income Security Act of 1974, usually referred to as ERISA.
Forward contract. 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. 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 on a linked exchange prior to
delivery.
Individual Retirement Fund. Means an Individual Retirement Account
or a Keogh Plan, both of which are vehicles to save money for use during
retirement.
123
IRA Accounts. Means Individual Retirement Accounts.
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 will not be represented by
certificates.
Internal Revenue Code. 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. A limited owner is 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. 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 (buy) a specified amount
of a commodity at a future date at a specified price.
Market order. A trading order to execute a trade at the most favorable
price as soon as possible.
Margin. 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. Prudential Securities Futures Management Inc. or
any substitute therefor as provided in the Trust agreement.
Margin call. 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.
Monthly Rate of Return. Means net performance for the month, in
general, computed on a weekly basis and then compounds.
NASD. Means the National Association of Securities Dealers, Inc.
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.
NFA. Means National Futures Association, the self-regulatory
organization for the futures industry.
Net Asset Value. (Sometimes referred to as NAV.) Total assets minus
total liabilities. (See Section 1.1 of the Trust agreement attached as
Exhibit A for a more complete definition.)
124
New High Net Trading Profits. See "FEE AND EXPENSES -
CHARGES TO BE PAID BY THE TRUST - Management and
Incentive Fees To The Trading Advisor."
Net Worth. See Section 4.3(i) of the Trust agreement for the definition
of "Net Worth." Insofar as Net Worth relates to investor suitability, see
the heading entitled "State Suitability Requirements" in the Subscription
Agreement (Exhibit D).
Notional Funds. The amount by which the nominal account size exceeds
the amount of actual funds. Performance summaries set forth herein
reflect the adoption of a method of presenting rate-of-return and
performance disclosure authorized by the CFTC, referred to as the
Fully-Funded Subset method. To qualify for the use of the Fully-Funded
Subset method, the CFTC's 1993 Fully-Funded Subset Advisory
requires that certain computations be made in order to arrive at the
Fully-Funded Subset and that the accounts for which performance is so
reported meet two tests which are designed to provide assurance that the
Fully-Funded Subset and the resultant rates of return are representative
of the trading program.
NYMEX. The New York Mercantile Exchange.
Open Position. 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. 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 attached as Exhibit A for a more
particular enumeration of such expenses, all of which will be paid by
Prudential Securities or an affiliate.
Parent. Means a company which owns all or the majority of the
outstanding equity of a trust, corporation, partnership, or a limited
liability company.
Parameters. A value which can be freely assigned in a trading system in
order to vary the timing of signals.
Pattern recognition. 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. 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 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.
Secular trend. Intermediate upswings and downswings in price that over
a long period of time constitutes a big move.
Series. Means a separate series of the Trust as provided in Sections
3806(b)(2) and 3804 of the Delaware Business Trust Act, the interests of
which shall be beneficial interests in the Trust Estate separately
identified with and belonging to such series.
125
Short contract. A contract to make delivery of (sell) a specified amount
of a commodity at a future date at a specified price.
Speculative Position Limit. 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. 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. 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. 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. 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. 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: A previous low. A price level under the market where buying
interest is sufficiently strong to overcome selling pressure.
Resistance: A previous high. A price level over the market where
selling pressure overcomes buying pressure and a price advance is
turned back.
Systematic technical charting systems. A system which is technical in
nature and based on chart patterns as opposed to pure mathematical
calculations.
Trading Approach. See "Eagle Trading's Trading Systems" under
"SERIES A," "Eclipse Capital's Trading Systems" under "SERIES B"
and "Hyman Beck's Trading Systems" under "SERIES C."
Trading Advisor. 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. Wilmington Trust Company or any substitute therefor as
provided in the Trust agreement.
Underwriter. Means a broker-dealer which 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. The profit or loss which 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. The close of business on Friday of each week, or such
other day as may be determined by the managing owner.
126
INDEX TO
CERTAIN FINANCIAL INFORMATION
Page
WORLD MONITOR TRUST - Series A
Report of Independent Accountants 128
Financial Statements as of December 31, 1998 and 1997
and for the period from June 10, 1998 (commencement of
operations) to December 31, 1998 129
Notes to Financial Statements 131
WORLD MONITOR TRUST - Series B
Report of Independent Accountants 136
Financial Statements as of December 31, 1998 and 1997
and for the period from June 10, 1998 (commencement of
operations) to December 31, 1998 137
Notes to Financial Statements 139
WORLD MONITOR TRUST - Series C
Report of Independent Accountants 144
Financial Statements as of December 31, 1998 and 1997
and for the period from June 10, 1998 (commencement of
operations) to December 31, 1998 145
Notes to Financial Statements 147
PRUDENTIAL SECURITIES FUTURES MANAGEMENT INC.
Report of Independent Accountants 152
Statement of Financial Condition as of December 31, 1998 153
Notes to Statement of Financial Condition 154
DIVERSIFIED FUTURES TRUST I
Report of Independent Accountants 157
Statement of Financial Condition as of December 31, 1998 158
Notes to Statement of Financial Condition 159
127
PricewaterhouseCoopers (LOGO)
PricewaterhouseCoopers LLP
1177 Avenue of the Americas
New York, NY 10036
Telephone (212) 596 8000
Facsimile (212) 596 8910
Report of Independent Accountants
January 26, 1999
To the Managing Owner and
Limited Owners of
World Monitor Trust--Series A
In our opinion, the accompanying statements of financial condition and the
related statements of operations and changes in trust capital present fairly, in
all material respects, the financial position of World Monitor Trust--Series A
at December 31, 1998 and 1997, and the results of its operations for the period
from June 10, 1998 (commencement of operations) to December 31, 1998 in
conformity with generally accepted accounting principles. 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 generally accepted
auditing standards which require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements, assessing the
accounting principles used and significant estimates made by the Managing Owner,
and evaluating the overall financial statement presentation. We believe that our
audits provide a reasonable basis for the opinion expressed above.
/s/ PricewaterhouseCoopers LLP
128
WORLD MONITOR TRUST--SERIES A
(a Delaware Business Trust)
STATEMENTS OF FINANCIAL CONDITION
December 31,
-------------------------
1998 1997
- ---------------------------------------------------------------------------------------------------
ASSETS
Equity in commodity trading accounts:
Cash $11,008,050 $ 1,000
Net unrealized loss on open commodity positions (103,243) --
------------- -------
Total assets $10,904,807 $ 1,000
------------- -------
------------- -------
LIABILITIES AND TRUST CAPITAL
Liabilities
Commissions payable $ 74,604 $ --
Management fee payable 19,457 --
------------- -------
Total liabilities 94,061 --
------------- -------
Commitments
Trust capital
Limited interests (108,568.155 and 0 interests outstanding) 10,673,116 --
General interests (1,400.000 and 10 interests outstanding) 137,630 1,000
------------- -------
Total trust capital 10,810,746 1,000
------------- -------
Total liabilities and trust capital $10,904,807 $ 1,000
------------- -------
------------- -------
Net asset value per limited and general interests ('Interests') $ 98.31 $100.00
------------- -------
------------- -------
- ---------------------------------------------------------------------------------------------------
The accompanying notes are an integral part of these statements.
129
WORLD MONITOR TRUST--SERIES A
(a Delaware Business Trust)
STATEMENT OF OPERATIONS
For the period from June 10, 1998
(commencement of operations)
through December 31, 1998
- ---------------------------------------------------------------------------------------------------
REVENUES
Net realized gain on commodity transactions $ 174,935
Net unrealized loss on open commodity positions (103,243)
Interest income 272,034
--------------------
343,726
--------------------
EXPENSES
Commissions 381,231
Management fees 98,289
Incentive fees 36,064
--------------------
515,584
--------------------
Net loss $ (171,858)
--------------------
--------------------
ALLOCATION OF NET LOSS
Limited interests $ (170,904)
--------------------
--------------------
General interests $ (954)
--------------------
--------------------
NET LOSS PER WEIGHTED AVERAGE LIMITED AND GENERAL INTEREST
Net loss per weighted average limited and general interest $ (1.96)
--------------------
--------------------
Weighted average number of limited and general interests outstanding 87,552
--------------------
--------------------
- ---------------------------------------------------------------------------------------------------
STATEMENT OF CHANGES IN TRUST CAPITAL
LIMITED GENERAL
INTERESTS INTERESTS INTERESTS TOTAL
- -----------------------------------------------------------------------------------------------------
Trust capital--December 31, 1997 10.000 $ -- $ 1,000 $ 1,000
Contributions 111,257.885 10,972,172 137,584 11,109,756
Net loss -- (170,904) (954 ) (171,858)
Redemptions (1,299.730) (128,152) -- (128,152)
----------- ----------- --------- -----------
Trust capital--December 31, 1998 109,968.155 $10,673,116 $137,630 $10,810,746
----------- ----------- --------- -----------
----------- ----------- --------- -----------
- -----------------------------------------------------------------------------------------------------
The accompanying notes are an integral part of these statements.
130
WORLD MONITOR TRUST--SERIES A
(a Delaware Business Trust)
NOTES TO FINANCIAL STATEMENTS
A. General
The Trust, Trustee, Managing Owner and Affiliates
World Monitor Trust (the 'Trust') is a business trust organized under the
laws of Delaware on December 17, 1997. The Trust commenced trading operations on
June 10, 1998 and will terminate on December 31, 2047 unless terminated sooner
as provided in the Second Amended and Restated Declaration of Trust and Trust
Agreement. The Trust was formed to engage in the speculative trading of a
diversified portfolio of futures, forward and options contracts and may, from
time to time, engage in cash and spot transactions. The trustee of the Trust is
Wilmington Trust Company. The managing owner is Prudential Securities Futures
Management Inc. (the 'Managing Owner'), a wholly owned subsidiary of Prudential
Securities Incorporated ('PSI') which, in turn, is a wholly owned subsidiary of
Prudential Securities Group Inc. PSI is the selling agent for the Trust as well
as the commodity broker ('Commodity Broker') of the Trust.
The Offering
Beneficial interests in the Trust ('Interests') are being offered pursuant to
Rule 415 of Regulation C under the Securities Act of 1933 in three separate and
distinct series ('Series'): Series A, B and C. The assets of each Series are
segregated from the other Series, separately valued and independently managed.
Up to $100,000,000 of Interests ('Subscription Maximum'), $34,000,000 for
Series A and $33,000,000 each for Series B and C, are being offered to investors
who meet certain established suitability standards, with a minimum initial
subscription of $5,000 per subscriber or, for any investment made on behalf of
an individual retirement account, the minimum initial subscription is $2,000. A
subscriber may purchase Interests in any one or a combination of Series although
the minimum purchase for any single Series is $1,000. On June 10, 1998, Series A
completed its initial offering with gross proceeds of $6,039,177 from the sale
of 59,631.775 limited interests and 760 general interests.
Thereafter, or until the Subscription Maximum for each Series is sold, each
Series' Interests will continue to be offered on a weekly basis at the net asset
value per Interest ('Continuous Offering Period'). Additional purchases may be
made in $100 increments.
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
such general interests) as are necessary to effect 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 the Trust, entered
into an advisory agreement with Eagle Trading Systems, Inc. ('Trading Advisor')
to make the trading decisions for Series A. The advisory agreement may be
terminated at the discretion of the Managing Owner. The Managing Owner has
allocated 100% of the proceeds from the initial and continuous offering of
Series A 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 A during the Continuous Offering Period.
Exchanges, Redemptions and Termination
Interests owned in one Series may be exchanged, without any charge, for
Interests of one or more other Series on a weekly basis for as long as 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 Series exchanged into.
Redemptions are permitted on a weekly basis. 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
131
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 terminate.
B. Summary of Significant Accounting Principles
Basis of accounting
The books and records of Series A are maintained on the accrual basis of
accounting in accordance with generally accepted accounting principles.
Commodity futures and forward transactions are reflected in the accompanying
statements of financial condition on trade date. The difference between the
original contract amount and market value is reflected as net unrealized gain or
loss. The market value of each contract is based upon the closing quotation on
the exchange, clearing firm or bank on, or through, which the contract is
traded.
The weighted average number of limited and general interests outstanding was
computed for purposes of disclosing net income per weighted average limited and
general interest. The weighted average limited 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 A has elected not to provide a Statement of Cash Flows as permitted by
Statement of Financial Accounting Standards No. 102, 'Statement of Cash
Flows--Exemption of Certain Enterprises and Classification of Cash Flows from
Certain Securities Acquired for Resale.'
Income taxes
Series A is treated as a partnership for Federal income tax purposes. As
such, Series A 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
A may be subject to other state and local taxes in jurisdictions in which it
operates.
Profit and loss allocations and distributions
Series A allocates profits and losses for both financial and tax reporting
purposes to its Interest holders weekly on a pro rata basis based on each
owner's Interests outstanding during the week. Distributions (other than
redemptions of Interests) may be made at the sole discretion of the Managing
Owner on a pro rata basis in accordance with the respective capital balances of
the Interest holders; however, the Managing Owner does not presently intend to
make any distributions.
New Accounting Guidance
In June 1998, the Financial Accounting Standards Board issued Statement No.
133, Accounting for Derivative Instruments and Hedging Activities ('SFAS 133'),
which Series A is required to adopt effective January 1, 2000. SFAS 133
establishes accounting and reporting standards for derivative instruments and
for hedging activities and requires that an entity recognize all derivatives as
assets or liabilities measured at fair value. Series A does not believe the
effect of adoption will be material.
C. Fees
Organizational, offering, general and administrative costs
PSI or its affiliates pay the costs of organizing Series A and offering its
Interests as well as administrative costs incurred by the Managing Owner or its
affiliates for services it performs for Series A. These costs include, but are
not limited to, those discussed in Note D below. Routine legal, audit, postage
and other routine third party administrative costs also are paid by PSI or its
affiliates.
Management and incentive fees
Series A pays its Trading Advisor a management fee at an annual rate of 2% of
Series A's net asset value allocated to its management. The management fee is
determined weekly and the sum of such weekly amounts is paid monthly. Series A
also pays its Trading Advisor a quarterly incentive fee equal to 23% of
132
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 (the
'Brokerage Agreement') with PSI to act as Commodity Broker for each Series
whereby Series A pays a fixed fee for brokerage services rendered at an annual
rate of 7.75% of Series A's net asset value. The fee is determined weekly and
the sum of such weekly amounts is paid monthly. From this fee, PSI pays
execution costs (including floor brokerage expenses, give-up charges and NFA,
clearing and exchange fees), as well as compensation to employees who sell
Interests.
D. Related Parties
The Managing Owner or its affiliates perform services for Series A which
include but are not limited to: brokerage services, accounting and financial
management, investor communications, printing and other administrative services.
As further described in Note C, except for costs related to brokerage services,
PSI or its affiliates pay the costs of these services in addition to costs of
organizing the Trust and offering its Interests as well as the routine
operational, administrative, legal and auditing fees.
The costs charged to Series A for brokerage services for the period from June
10, 1998 (commencement of operations) to December 31, 1998 were $381,231.
All of the proceeds of the offering of Series A are received in the name of
Series A and deposited and maintained in cash in segregated trading accounts
maintained for Series A at PSI. Except for that portion of Series A's assets
that is deposited as margin to maintain forward currency contract positions as
further discussed below, its assets are maintained either on deposit with PSI
or, for margin purposes, with the various exchanges on which Series A is
permitted to trade. PSI credits Series A monthly with 100% of the interest
earned on the average net assets on deposit at PSI.
Series A, 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 each Series pursuant to a line of credit. PSI may require that
collateral be posted against the marked-to-market position of Series A.
As of December 31, 1998, a non-U.S. affiliate of the Managing Owner owns
101.112 limited interests of Series A.
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. Credit and Market Risk
Since Series A's business is to trade futures, forward (including foreign
exchange transactions) and options 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).
Futures, forward and options contracts involve varying degrees of off-balance
sheet risk; and changes in the level or volatility of interest rates, foreign
currency exchange rates or the market values of the contracts (or commodities
underlying the contracts) frequently result in changes in unrealized gain (loss)
on open commodity positions reflected in the statements of financial condition.
Series A's exposure to market risk is influenced by a number of factors
including the relationships among the contracts held by Series A as well as the
liquidity of the markets in which the contracts are traded.
Futures and options contracts are traded on organized exchanges and are thus
distinguished from forward contracts which are entered into privately by the
parties. The credit risks associated with futures and options contracts are
typically perceived to be less than those associated with forward contracts
because exchanges typically provide clearinghouse arrangements in which the
collective credit (subject to certain limitations) of the members of the
exchanges is pledged to support the financial integrity of the exchange.
133
On the other hand, Series A must rely solely on the credit of its broker (PSI)
with respect to forward transactions. Series A presents unrealized gains and
losses on open forward positions as a net amount in the statements of financial
condition because it has a master netting agreement with PSI.
The Managing Owner attempts to minimize both credit and market risks by
requiring the 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 (currently, PSI is the sole counterparty
or broker); 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. The Managing Owner may impose additional restrictions
(through modifications of such trading limitations and policies) upon the
trading activities of the Trading Advisor as it, in good faith, deems to be in
the best interests of Series A.
PSI, when acting as the futures commission merchant in accepting orders for
the purchase or sale of domestic futures and options contracts, is required by
Commodity Futures Trading Commission ('CFTC') regulations to separately account
for and segregate as belonging to Series A all assets of Series A relating to
domestic futures and options trading and is not to commingle such assets with
other assets of PSI. At December 31, 1998, such segregated assets totalled
$9,423,047. Part 30.7 of the CFTC regulations also requires PSI to secure assets
of Series A related to foreign futures and options trading which totalled
$1,843,816 at December 31, 1998. There are no segregation requirements for
assets related to forward trading.
As of December 31, 1998, all open futures and forward contracts mature
generally within six months.
As of December 31, 1998, gross contract amounts of open futures and forward
contracts for Series A are:
Financial Futures Contracts:
Commitments to purchase $18,683,310
Commitments to sell 16,579,358
Currency Forward Contracts:
Commitments to purchase 362,056
Other Futures Contracts:
Commitments to sell 3,076,903
The gross contract amounts represent Series A's potential involvement in a
particular class of financial instrument (if it were to take or make delivery on
an underlying futures or forward contract). The gross contract amounts
significantly exceed the future cash requirements as Series A intends to close
out open positions prior to settlement and thus is generally subject only to the
risk of loss arising from the change in the value of the contracts. As such,
Series A considers the 'fair value' of its futures and forward contracts to be
the net unrealized gain or loss on the contracts. Thus, the amount at risk
associated with counterparty nonperformance of all contracts is the net
unrealized gain included in the statements of financial condition. The market
risk associated with Series A's commitments to purchase commodities is limited
to the gross contract amounts involved, while the market risk associated with
its commitments to sell is unlimited since its potential involvement is to make
delivery of an underlying commodity at the contract price; therefore, it must
repurchase the contract at prevailing market prices.
134
The following table presents the fair value of futures and forward contracts
at December 31, 1998, and also presents their average fair value and trading
revenues for the period from June 10, 1998 (commencement of operations) through
December 31, 1998.
Fair Value Average Fair Value
---------------------------- ------------------------ Trading
Assets Liabilities Assets Liabilities Revenues
------------ ----------- -------- ----------- ---------
Futures Contracts:
Domestic exchanges
Financial $ -- $ -- $ -- $ -- $ (44,325)
Currencies -- -- 16,840 2,196 (335,203)
Other 31,724 11,760 60,041 11,195 131,508
Foreign exchanges
Financial 204,523 -- 166,705 2,820 698,360
Currencies -- -- -- -- 75,919
Other 34,326 -- 5,085 83,278 (161,602)
Forward Contracts:
Currencies -- 362,056 245,765 356,962 (292,965)
------------ ----------- -------- ----------- ---------
$270,573 $ 373,816 $494,436 $ 456,451 $ 71,692
------------ ----------- -------- ----------- ---------
------------ ----------- -------- ----------- ---------
135
PricewaterhouseCoopers (LOGO)
PricewaterhouseCoopers LLP
1177 Avenue of the Americas
New York, NY 10036
Telephone (212) 596 8000
Facsimile (212) 596 8910
Report of Independent Accountants
January 26, 1999
To the Managing Owner and
Limited Owners of
World Monitor Trust--Series B
In our opinion, the accompanying statements of financial condition and the
related statements of operations and changes in trust capital present fairly, in
all material respects, the financial position of World Monitor Trust--Series B
at December 31, 1998 and 1997, and the results of its operations for the period
from June 10, 1998 (commencement of operations) to December 31, 1998 in
conformity with generally accepted accounting principles. 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 generally accepted
auditing standards which require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements, assessing the
accounting principles used and significant estimates made by the Managing Owner,
and evaluating the overall financial statement presentation. We believe that our
audits provide a reasonable basis for the opinion expressed above.
/s/ PricewaterhouseCoopers LLP
136
WORLD MONITOR TRUST--SERIES B
(a Delaware Business Trust)
STATEMENTS OF FINANCIAL CONDITION
December 31,
----------------------------
1998 1997
- ----------------------------------------------------------------------------------------------------
ASSETS
Equity in commodity trading accounts:
Cash $11,239,221 $ 1,000
Net unrealized gain on open commodity positions 318,838 --
------------ ------------
Total assets $11,558,059 $ 1,000
------------ ------------
------------ ------------
LIABILITIES AND TRUST CAPITAL
Liabilities
Incentive fees payable $ 60,812 $ --
Commissions payable 76,364 --
Management fees payable 20,626 --
------------ ------------
Total liabilities 157,802 --
------------ ------------
Commitments
Trust capital
Limited interests (100,451.891 and -0- interests outstanding) 11,249,078 --
General interests (1,350 and 10 interests outstanding) 151,179 1,000
------------ ------------
Total trust capital 11,400,257 1,000
------------ ------------
Total liabilities and trust capital $11,558,059 $ 1,000
------------ ------------
------------ ------------
Net asset value per limited and general interests ('Interests') $ 111.98 $ 100.00
------------ ------------
------------ ------------
- ----------------------------------------------------------------------------------------------------
The accompanying notes are an integral part of these statements.
137
WORLD MONITOR TRUST--SERIES B
(a Delaware Business Trust)
STATEMENT OF OPERATIONS
For the period from June 10, 1998
(commencement of operations)
to December 31, 1998
- ----------------------------------------------------------------------------------------------------
REVENUES
Net realized gain on commodity transactions $ 1,155,799
Net unrealized gain on open commodity positions 318,838
Interest income 257,456
---------------
1,732,093
---------------
EXPENSES
Commissions 374,878
Management fees 96,966
Incentive fees 200,596
---------------
672,440
---------------
Net income $ 1,059,653
---------------
---------------
ALLOCATION OF NET INCOME
Limited interests $ 1,044,906
---------------
---------------
General interests $ 14,747
---------------
---------------
NET INCOME PER WEIGHTED AVERAGE LIMITED AND GENERAL INTEREST
Net income per weighted average limited and general interest $ 13.06
---------------
---------------
Weighted average number of limited and general interests outstanding 81,115
---------------
---------------
- ----------------------------------------------------------------------------------------------------
STATEMENT OF CHANGES IN TRUST CAPITAL
LIMITED GENERAL
INTERESTS INTERESTS INTERESTS TOTAL
- -----------------------------------------------------------------------------------------------------
Trust capital--December 31, 1997 10.000 $ -- $ 1,000 $ 1,000
Contributions 104,078.948 10,450,494 135,432 10,585,926
Net income -- 1,044,906 14,747 1,059,653
Redemptions (2,287.057) (246,322) -- (246,322)
------------ ----------- --------- -----------
Trust capital--December 31, 1998 101,801.891 $11,249,078 $151,179 $11,400,257
------------ ----------- --------- -----------
------------ ----------- --------- -----------
- -----------------------------------------------------------------------------------------------------
The accompanying notes are an integral part of these statements.
138
WORLD MONITOR TRUST--SERIES B
(a Delaware Business Trust)
NOTES TO FINANCIAL STATEMENTS
A. General
The Trust, Trustee, Managing Owner and Affiliates
World Monitor Trust (the 'Trust') is a business trust organized under the
laws of Delaware on December 17, 1997. The Trust commenced trading operations on
June 10, 1998 and will terminate on December 31, 2047 unless terminated sooner
as provided in the Second Amended and Restated Declaration of Trust and Trust
Agreement. The Trust was formed to engage in the speculative trading of a
diversified portfolio of futures, forward and options contracts and may, from
time to time, engage in cash and spot transactions. The trustee of the Trust is
Wilmington Trust Company. The managing owner is Prudential Securities Futures
Management Inc. (the 'Managing Owner'), a wholly owned subsidiary of Prudential
Securities Incorporated ('PSI') which, in turn, is a wholly owned subsidiary of
Prudential Securities Group Inc. PSI is the selling agent for the Trust as well
as the commodity broker ('Commodity Broker') of the Trust.
The Offering
Beneficial interests in the Trust ('Interests') are being offered pursuant to
Rule 415 of Regulation C under the Securities Act of 1933 in three separate and
distinct series ('Series'): Series A, B and C. The assets of each Series are
segregated from the other Series, separately valued and independently managed.
Up to $100,000,000 of Interests ('Subscription Maximum'), $34,000,000 for
Series A and $33,000,000 each for Series B and C, are being offered to investors
who meet certain established suitability standards, with a minimum initial
subscription of $5,000 per subscriber or, for any investment made on behalf of
an individual retirement account, the minimum initial subscription is $2,000. A
subscriber may purchase Interests in any one or a combination of Series although
the minimum purchase for any single Series is $1,000. On June 10, 1998, Series B
completed its initial offering with gross proceeds of $5,709,093 from the sale
of 56,330.929 limited interests and 760 general interests.
Thereafter, or until the Subscription Maximum for each Series is sold, each
Series' Interests will continue to be offered on a weekly basis at the net asset
value per Interest ('Continuous Offering Period'). Additional purchases may be
made in $100 increments.
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
such general interests) as are necessary to effect 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 the Trust, entered
into an advisory agreement with Eclipse Capital Management, Inc. ('Trading
Advisor') to make the trading decisions for Series B. The advisory agreement may
be terminated at the discretion of the Managing Owner. The Managing Owner has
allocated 100% of the proceeds from the initial and continuous offering of
Series B 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 B during the Continuous Offering Period.
Exchanges, Redemptions and Termination
Interests owned in one Series may be exchanged, without any charge, for
Interests of one or more other Series on a weekly basis for as long as 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 Series exchanged into.
Redemptions are permitted on a weekly basis. 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.
139
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 terminate.
B. Summary of Significant Accounting Principles
Basis of accounting
The books and records of Series B are maintained on the accrual basis of
accounting in accordance with generally accepted accounting principles.
Commodity futures and forward transactions are reflected in the accompanying
statements of financial condition on trade date. The difference between the
original contract amount and market value is reflected as net unrealized gain or
loss. The market value of each contract is based upon the closing quotation on
the exchange, clearing firm or bank on, or through, which the contract is
traded.
The weighted average number of limited and general interests outstanding was
computed for purposes of disclosing net income per weighted average limited and
general interest. The weighted average limited 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 B has elected not to provide a Statement of Cash Flows as permitted by
Statement of Financial Accounting Standards No. 102, 'Statement of Cash
Flows--Exemption of Certain Enterprises and Classification of Cash Flows from
Certain Securities Acquired for Resale.'
Income taxes
Series B is treated as a partnership for Federal income tax purposes. As
such, Series B 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
B may be subject to other state and local taxes in jurisdictions in which it
operates.
Profit and loss allocations and distributions
Series B allocates profits and losses for both financial and tax reporting
purposes to its Interest holders weekly on a pro rata basis based on each
owner's Interests outstanding during the week. Distributions (other than
redemptions of Interests) may be made at the sole discretion of the Managing
Owner on a pro rata basis in accordance with the respective capital balances of
the Interest holders; however, the Managing Owner does not presently intend to
make any distributions.
New Accounting Guidance
In June 1998, the Financial Accounting Standards Board ('FASB') issued
Statement No. 133, Accounting for Derivative Instruments and Hedging Activities
('SFAS 133'), which Series B is required to adopt effective January 1, 2000.
SFAS 133 establishes accounting and reporting standards for derivative
instruments and for hedging activities and requires that an entity recognize all
derivatives as assets or liabilities measured at fair value. Series B does not
believe the effect of adoption will be material.
C. Fees
Organizational, offering, general and administrative costs
PSI or its affiliates pay the costs of organizing Series B and offering its
Interests as well as administrative costs incurred by the Managing Owner or its
affiliates for services it performs for Series B. These costs include, but are
not limited to, those discussed in Note D below. Routine legal, audit, postage
and other routine third party administrative costs also are paid by PSI or its
affiliates.
Management and incentive fees
Series B pays its Trading Advisor a management fee at an annual rate of 2% of
Series B's net asset value allocated to its management. The management fee is
determined weekly and the sum of such weekly amounts is paid monthly. Series B
also pays its Trading Advisor a quarterly incentive fee equal to 20% of such
Trading Advisor's 'New High Net Trading Profits' (as defined in the advisory
agreement). The incentive fee also accrues weekly.
140
Commissions
The Managing Owner and the Trust entered into a brokerage agreement (the
'Brokerage Agreement') with PSI to act as Commodity Broker for each Series
whereby Series B pays a fixed fee for brokerage services rendered at an annual
rate of 7.75% of Series B's net asset value. The fee is determined weekly and
the sum of such weekly amounts is paid monthly. From this fee, PSI pays
execution costs (including floor brokerage expenses, give-up charges and NFA,
clearing and exchange fees), as well as compensation to employees who sell
Interests.
D. Related Parties
The Managing Owner or its affiliates perform services for Series B which
include but are not limited to: brokerage services, accounting and financial
management, investor communications, printing and other administrative services.
As further described in Note C, except for costs related to brokerage services,
PSI or its affiliates pay the costs of these services in addition to costs of
organizing the Trust and offering its Interests as well as the routine
operational, administrative, legal and auditing fees.
The costs charged to Series B for brokerage services for the period from June
10, 1998 (commencement of operations) to December 31, 1998 were $374,878.
All of the proceeds of the offering of Series B are received in the name of
Series B and deposited and maintained in cash in segregated trading accounts
maintained for Series B at PSI. Except for that portion of Series B's assets
that is deposited as margin to maintain forward currency contract positions as
further discussed below, its assets are maintained either on deposit with PSI
or, for margin purposes, with the various exchanges on which Series B is
permitted to trade. PSI credits Series B monthly with 100% of the interest
earned on the average net assets on deposit at PSI.
Series B, 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 each Series pursuant to a line of credit. PSI may require that
collateral be posted against the marked-to-market position of Series B.
As of December 31, 1998, a non-U.S. affiliate of the Managing Owner owns
101.245 limited interests of Series B.
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. Credit and Market Risk
Since Series B's business is to trade futures, forward (including foreign
exchange transactions) and options 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).
Futures, forward and options contracts involve varying degrees of off-balance
sheet risk; and changes in the level or volatility of interest rates, foreign
currency exchange rates or the market values of the contracts (or commodities
underlying the contracts) frequently result in changes in unrealized gain (loss)
on open commodity positions reflected in the statements of financial condition.
Series B's exposure to market risk is influenced by a number of factors
including the relationships among the contracts held by Series B as well as the
liquidity of the markets in which the contracts are traded.
Futures and options contracts are traded on organized exchanges and are thus
distinguished from forward contracts which are entered into privately by the
parties. The credit risks associated with futures and options contracts are
typically perceived to be less than those associated with forward contracts
because exchanges typically provide clearinghouse arrangements in which the
collective credit (subject to certain limitations) of the members of the
exchanges is pledged to support the financial integrity of the exchange. On the
other hand, Series B must rely solely on the credit of its broker (PSI) with
respect to forward transactions. Series B presents unrealized gains and losses
on open forward positions, if any, as a net amount in the statements of
financial condition because it has a master netting agreement with PSI.
141
The Managing Owner attempts to minimize both credit and market risks by
requiring the 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 (currently, PSI is the sole counterparty
or broker); 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. The Managing Owner may impose additional restrictions
(through modifications of such trading limitations and policies) upon the
trading activities of the Trading Advisor as it, in good faith, deems to be in
the best interests of Series B.
PSI, when acting as the futures commission merchant in accepting orders for
the purchase or sale of domestic futures and options contracts, is required by
Commodity Futures Trading Commission ('CFTC') regulations to separately account
for and segregate as belonging to Series B all assets of Series B relating to
domestic futures and options trading and is not to commingle such assets with
other assets of PSI. At December 31, 1998, such segregated assets totalled
$9,927,959. Part 30.7 of the CFTC regulations also requires PSI to secure assets
of Series B related to foreign futures and options trading which totalled
$1,630,100 at December 31, 1998. There are no segregation requirements for
assets related to forward trading.
As of December 31, 1998, all open futures contracts mature within six months.
As of December 31, 1998, gross contract amounts of open futures contracts for
Series B are:
Financial Futures Contracts:
Commitments to purchase $20,828,796
Commitments to sell 33,695,952
Currency Futures Contracts:
Commitments to purchase 2,212,998
Commitments to sell 4,951,649
Other Futures Contracts:
Commitments to purchase 95,361
Commitments to sell 2,291,372
The gross contract amounts represent Series B's potential involvement in a
particular class of financial instrument (if it were to take or make delivery on
an underlying futures contract). The gross contract amounts significantly exceed
the future cash requirements as Series B intends to close out open positions
prior to settlement and thus is generally subject only to the risk of loss
arising from the change in the value of the contracts. As such, Series B
considers the 'fair value' of its futures contracts to be the net unrealized
gain or loss on the contracts. Thus, the amount at risk associated with
counterparty nonperformance of all contracts is the net unrealized gain included
in the statements of financial condition. The market risk associated with Series
B's commitments to purchase commodities is limited to the gross contract amounts
involved, while the market risk associated with its commitments to sell is
unlimited since its potential involvement is to make delivery of an underlying
commodity at the contract price; therefore, it must repurchase the contract at
prevailing market prices.
142
The following table presents the fair value of futures contracts at December
31, 1998, and also presents their average fair value and trading revenues for
the period from June 10, 1998 (commencement of operations) through December 31,
1998.
Fair Value Average Fair Value
---------------------------- ------------------------ Trading
Assets Liabilities Assets Liabilities Revenues
------------ ----------- -------- ----------- ----------
Domestic exchanges
Financial $ 25,309 $ -- $ 68,070 $ 2,508 $ 578,500
Currencies 156,861 4,900 134,149 14,868 661,699
Other 9,860 19,030 41,831 10,790 (290,729)
Foreign exchanges
Financial 230,845 45,758 176,001 25,427 743,517
Other 77,834 112,183 16,478 110,824 (218,350)
------------ ----------- -------- ----------- ----------
$500,709 $ 181,871 $436,529 $ 164,417 $1,474,637
------------ ----------- -------- ----------- ----------
------------ ----------- -------- ----------- ----------
143
PricewaterhouseCoopers (LOGO)
PricewaterhouseCoopers LLP
1177 Avenue of the Americas
New York, NY 10036
Telephone (212) 596 8000
Facsimile (212) 596 8910
Report of Independent Accountants
January 26, 1999
To the Managing Owner and
Limited Owners of
World Monitor Trust--Series C
In our opinion, the accompanying statements of financial condition and the
related statements of operations and changes in trust capital present fairly, in
all material respects, the financial position of World Monitor Trust--Series C
at December 31, 1998 and 1997, and the results of its operations for the period
from June 10, 1998 (commencement of operations) to December 31, 1998 in
conformity with generally accepted accounting principles. 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 generally accepted
auditing standards which require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements, assessing the
accounting principles used and significant estimates made by the Managing Owner,
and evaluating the overall financial statement presentation. We believe that our
audits provide a reasonable basis for the opinion expressed above.
/s/ PricewaterhouseCoopers LLP
144
WORLD MONITOR TRUST--SERIES C
(a Delaware Business Trust)
STATEMENTS OF FINANCIAL CONDITION
December 31,
-------------------------
1998 1997
- ---------------------------------------------------------------------------------------------------
ASSETS
Equity in commodity trading accounts:
Cash $10,653,709 $ 1,000
Net unrealized gain on open commodity positions 730,421 --
------------- -------
Total assets $11,384,130 $ 1,000
------------- -------
------------- -------
LIABILITIES AND TRUST CAPITAL
Liabilities
Commissions payable $ 71,305 $ --
Management fee payable 19,620 --
------------- -------
Total liabilities 90,925 --
------------- -------
Commitments
Trust capital
Limited interests (107,003.103 and 0 interests outstanding) 11,151,465 --
General interests (1,360 and 10 interests outstanding) 141,740 1,000
------------- -------
Total trust capital 11,293,205 1,000
------------- -------
Total liabilities and trust capital $11,384,130 $ 1,000
------------- -------
------------- -------
Net asset value per limited and general interests ('Interests') $ 104.22 $100.00
------------- -------
------------- -------
- ---------------------------------------------------------------------------------------------------
The accompanying notes are an integral part of these statements.
145
WORLD MONITOR TRUST--SERIES C
(a Delaware Business Trust)
STATEMENT OF OPERATIONS
For the period from June 10, 1998
(commencement of operations)
through December 31, 1998
- ---------------------------------------------------------------------------------------------------
REVENUES
Net realized gain on commodity transactions $ 26,790
Net unrealized gain on open commodity positions 730,421
Interest income 253,993
--------------------
1,011,204
--------------------
EXPENSES
Commissions 365,442
Management fees 94,417
Incentive fees 85,488
--------------------
545,347
--------------------
Net income $ 465,857
--------------------
--------------------
ALLOCATION OF NET INCOME
Limited interests $ 458,452
--------------------
--------------------
General interests $ 7,405
--------------------
--------------------
NET INCOME PER WEIGHTED AVERAGE LIMITED AND GENERAL INTEREST
Net income per weighted average limited and general interest $ 5.80
--------------------
--------------------
Weighted average number of limited and general interests outstanding 80,300
--------------------
--------------------
- ---------------------------------------------------------------------------------------------------
STATEMENT OF CHANGES IN TRUST CAPITAL
LIMITED GENERAL
INTERESTS INTERESTS INTERESTS TOTAL
- -----------------------------------------------------------------------------------------------------
Trust capital--December 31, 1997 10.000 $ -- $ 1,000 $ 1,000
Contributions 109,709.375 10,828,547 133,335 10,961,882
Net income -- 458,452 7,405 465,857
Redemptions (1,356.272) (135,534) -- (135,534)
----------- ----------- --------- -----------
Trust capital--December 31, 1998 108,363.103 $11,151,465 $141,740 $11,293,205
----------- ----------- --------- -----------
----------- ----------- --------- -----------
- -------------------------------------------------------
The accompanying notes are an integral part of these statements.
146
WORLD MONITOR TRUST--SERIES C
(a Delaware Business Trust)
NOTES TO FINANCIAL STATEMENTS
A. General
The Trust, Trustee, Managing Owner and Affiliates
World Monitor Trust (the 'Trust') is a business trust organized under the
laws of Delaware on December 17, 1997. The Trust commenced trading operations on
June 10, 1998 and will terminate on December 31, 2047 unless terminated sooner
as provided in the Second Amended and Restated Declaration of Trust and Trust
Agreement. The Trust was formed to engage in the speculative trading of a
diversified portfolio of futures, forward and options contracts and may, from
time to time, engage in cash and spot transactions. The trustee of the Trust is
Wilmington Trust Company. The managing owner is Prudential Securities Futures
Management Inc. (the 'Managing Owner'), a wholly owned subsidiary of Prudential
Securities Incorporated ('PSI') which, in turn, is a wholly owned subsidiary of
Prudential Securities Group Inc. PSI is the selling agent for the Trust as well
as the commodity broker ('Commodity Broker') of the Trust.
The Offering
Beneficial interests in the Trust ('Interests') are being offered pursuant to
Rule 415 of Regulation C under the Securities Act of 1933 in three separate and
distinct series ('Series'): Series A, B and C. The assets of each Series are
segregated from the other Series, separately valued and independently managed.
Up to $100,000,000 of Interests ('Subscription Maximum'), $34,000,000 for
Series A and $33,000,000 each for Series B and C, are being offered to investors
who meet certain established suitability standards, with a minimum initial
subscription of $5,000 per subscriber or, for any investment made on behalf of
an individual retirement account, the minimum initial subscription is $2,000. A
subscriber may purchase Interests in any one or a combination of Series although
the minimum purchase for any single Series is $1,000. On June 10, 1998, Series C
completed its initial offering with gross proceeds of $5,706,177 from the sale
of 56,301.77 limited interests and 760 general interests.
Thereafter, or until the Subscription Maximum for each Series is sold, each
Series' Interests will continue to be offered on a weekly basis at the net asset
value per Interest ('Continuous Offering Period'). Additional purchases may be
made in $100 increments.
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
such general interests) as are necessary to effect 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 the Trust, entered
into an advisory agreement with Hyman Beck & Company, Inc. ('Trading Advisor')
to make the trading decisions for Series C. The advisory agreement may be
terminated at the discretion of the Managing Owner. The Managing Owner has
allocated 100% of the proceeds from the initial and continuous offering of
Series C 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 C during the Continuous Offering Period.
Exchanges, Redemptions and Termination
Interests owned in one Series may be exchanged, without any charge, for
Interests of one or more other Series on a weekly basis for as long as 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 Series exchanged into.
Redemptions are permitted on a weekly basis. 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
147
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 terminate.
B. Summary of Significant Accounting Principles
Basis of accounting
The books and records of Series C are maintained on the accrual basis of
accounting in accordance with generally accepted accounting principles.
Commodity futures transactions are reflected in the accompanying statements
of financial condition on trade date. The difference between the original
contract amount and market value is reflected as net unrealized gain or loss.
The market value of each contract is based upon the closing quotation on the
exchange, clearing firm or bank on, or through, which the contract is traded.
The weighted average number of limited and general interests outstanding was
computed for purposes of disclosing net income per weighted average limited and
general interest. The weighted average limited 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 C has elected not to provide a Statement of Cash Flows as permitted by
Statement of Financial Accounting Standards No. 102, 'Statement of Cash
Flows--Exemption of Certain Enterprises and Classification of Cash Flows from
Certain Securities Acquired for Resale.'
Income taxes
Series C is treated as a partnership for Federal income tax purposes. As
such, Series C 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
C may be subject to other state and local taxes in jurisdictions in which it
operates.
Profit and loss allocations and distributions
Series C allocates profits and losses for both financial and tax reporting
purposes to its Interest holders weekly on a pro rata basis based on each
owner's Interests outstanding during the week. Distributions (other than
redemptions of Interests) may be made at the sole discretion of the Managing
Owner on a pro rata basis in accordance with the respective capital balances of
the Interest holders; however, the Managing Owner does not presently intend to
make any distributions.
New Accounting Guidance
In June 1998, the Financial Accounting Standards Board ('FASB') issued
Statement No. 133, Accounting for Derivative Instruments and Hedging Activities
('SFAS 133'), which Series C is required to adopt effective January 1, 2000.
SFAS 133 establishes accounting and reporting standards for derivative
instruments and for hedging activities and requires that an entity recognize all
derivatives as assets or liabilities measured at fair value. Series C does not
believe the effect of adoption will be material.
C. Fees
Organizational, offering, general and administrative costs
PSI or its affiliates pay the costs of organizing Series C and offering its
Interests as well as administrative costs incurred by the Managing Owner or its
affiliates for services it performs for Series C. These costs include, but are
not limited to, those discussed in Note D below. Routine legal, audit, postage
and other routine third party administrative costs also are paid by PSI or its
affiliates.
Management and incentive fees
Series C pays its Trading Advisor a management fee at an annual rate of 2% of
Series C's net asset value allocated to its management. The management fee is
determined weekly and the sum of such weekly amounts is paid monthly. Series C
also pays its Trading Advisor a quarterly incentive fee equal to 23% of
148
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 (the
'Brokerage Agreement') with PSI to act as Commodity Broker for each Series
whereby Series C pays a fixed fee for brokerage services rendered at an annual
rate of 7.75% of Series C's net asset value. The fee is determined weekly and
the sum of such weekly amounts is paid monthly. From this fee, PSI pays
execution costs (including floor brokerage expenses, give-up charges and NFA,
clearing and exchange fees), as well as compensation to employees who sell
Interests.
D. Related Parties
The Managing Owner or its affiliates perform services for Series C which
include but are not limited to: brokerage services, accounting and financial
management, investor communications, printing and other administrative services.
As further described in Note C, except for costs related to brokerage services,
PSI or its affiliates pay the costs of these services in addition to costs of
organizing the Trust and offering its Interests as well as the routine
operational, administrative, legal and auditing fees.
The costs charged to Series C for brokerage services for the period from June
10, 1998 (commencement of operations) to December 31, 1998 were $365,442.
All of the proceeds of the offering of Series C are received in the name of
Series C and deposited and maintained in cash in segregated trading accounts
maintained for Series C at PSI. Except for that portion of Series C's assets
that is deposited as margin to maintain forward currency contract positions as
further discussed below, its assets are maintained either on deposit with PSI
or, for margin purposes, with the various exchanges on which Series C is
permitted to trade. PSI credits Series C monthly with 100% of the interest
earned on the average net assets on deposit at PSI.
Series C, 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 each Series pursuant to a line of credit. PSI may require that
collateral be posted against the marked-to-market position of Series C.
As of December 31, 1998, a non-U.S. affiliate of the Managing Owner owns
103.156 limited interests of Series C.
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. Credit and Market Risk
Since Series C's business is to trade futures, forward (including foreign
exchange transactions) and options 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).
Futures, forward and options contracts involve varying degrees of off-balance
sheet risk; and changes in the level or volatility of interest rates, foreign
currency exchange rates or the market values of the contracts (or commodities
underlying the contracts) frequently result in changes in unrealized gain (loss)
on open commodity positions reflected in the statements of financial condition.
Series C's exposure to market risk is influenced by a number of factors
including the relationships among the contracts held by Series C as well as the
liquidity of the markets in which the contracts are traded.
Futures and options contracts are traded on organized exchanges and are thus
distinguished from forward contracts which are entered into privately by the
parties. The credit risks associated with futures and options contracts are
typically perceived to be less than those associated with forward contracts
because exchanges typically provide clearinghouse arrangements in which the
collective credit (subject to certain limitations) of the members of the
exchanges is pledged to support the financial integrity of the exchange.
149
On the other hand, Series C must rely solely on the credit of its broker (PSI)
with respect to forward transactions. Series C presents unrealized gains and
losses on open forward positions, if any, as a net amount in the statements of
financial condition because it has a master netting agreement with PSI.
The Managing Owner attempts to minimize both credit and market risks by
requiring the 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 (currently, PSI is the sole counterparty
or broker); 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. The Managing Owner may impose additional restrictions
(through modifications of such trading limitations and policies) upon the
trading activities of the Trading Advisor as it, in good faith, deems to be in
the best interests of Series C.
PSI, when acting as the futures commission merchant in accepting orders for
the purchase or sale of domestic futures and options contracts, is required by
Commodity Futures Trading Commission ('CFTC') regulations to separately account
for and segregate as belonging to Series C all assets of Series C relating to
domestic futures and options trading and is not to commingle such assets with
other assets of PSI. At December 31, 1998, such segregated assets totalled
$8,916,284. Part 30.7 of the CFTC regulations also requires PSI to secure assets
of Series C related to foreign futures and options trading which totalled
$2,467,846 at December 31, 1998. There are no segregation requirements for
assets related to forward trading.
As of December 31, 1998, all open futures contracts mature within one year.
As of December 31, 1998, gross contract amounts of open futures contracts for
Series C are:
Financial Futures Contracts:
Commitments to purchase $ 48,489,458
Commitments to sell 117,063,496
Currency Futures Contracts:
Commitments to purchase 4,412,265
Commitments to sell 7,040,770
Other Futures Contracts:
Commitments to purchase 414,073
Commitments to sell 6,486,721
The gross contract amounts represent Series C's potential involvement in a
particular class of financial instrument (if it were to take or make delivery on
an underlying futures contract). The gross contract amounts significantly exceed
the future cash requirements as Series C intends to close out open positions
prior to settlement and thus is generally subject only to the risk of loss
arising from the change in the value of the contracts. As such, Series C
considers the 'fair value' of its futures contracts to be the net unrealized
gain or loss on the contracts. Thus, the amount at risk associated with
counterparty nonperformance of all contracts is the net unrealized gain included
in the statements of financial condition. The market risk associated with Series
C's commitments to purchase commodities is limited to the gross contract amounts
involved, while the market risk associated with its commitments to sell is
unlimited since its potential involvement is to make delivery of an underlying
commodity at the contract price; therefore, it must repurchase the contract at
prevailing market prices.
150
The following table presents the fair value of futures and forward contracts
at December 31, 1998, and also presents their average fair value and trading
revenues for the period from June 10, 1998 (commencement of operations) through
December 31, 1998.
Fair Value Average Fair Value
---------------------------- ------------------------ Trading
Assets Liabilities Assets Liabilities Revenues
------------ ----------- -------- ----------- ----------
Futures Contracts:
Domestic exchanges
Financial $ 51,374 $ 7,494 $ 95,510 $ 55,272 $ 184,927
Currencies 101,585 76,033 136,249 31,162 (696,724)
Other 106,122 6,522 91,090 25,068 (35,884)
Foreign exchanges
Financial 525,504 26,524 278,286 32,296 1,459,486
Other 74,713 12,304 27,793 45,081 (18,197)
Forward Contracts:
Currencies -- -- 37,124 43,588 (136,397)
------------ ----------- -------- ----------- ----------
$859,298 $ 128,877 $666,052 $ 232,467 $ 757,211
------------ ----------- -------- ----------- ----------
------------ ----------- -------- ----------- ----------
151
PricewaterhouseCoopers (LOGO)
PricewaterhouseCoopers LLP
1177 Avenue of the Americas
New York, NY 10036
Telephone 212 596 8000
Facsimile 212 596 8910
Report of Independent Accountants
January 26, 1999
To the Board of Directors of
Prudential Securities Futures Management Inc.
In our opinion, the accompanying statement of financial condition
presents fairly, in all material respects, the financial position
of Prudential Securities Futures Management Inc. (the "Company") at
December 31, 1998 in conformity with generally accepted accounting
principles. 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 generally
accepted auditing standards 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 the opinion expressed above.
/s/ PricewaterhouseCoopers LLP
152
Prudential Securities Futures Management Inc.
(A wholly-owned subsidiary of
Prudential Securities Incorporated)
Statement of Financial Condition
December 31, 1998
Assets
Cash $ 5,096
Investments in partnerships 2,246,483
Receivables from partnerships 71,997
Other receivables 10,100
Total assets $ 2,333,676
Liabilities and Stockholder's Equity
Liabilities
Due to Parent and affiliates $ 2,279,360
Accrued expenses 14,375
Total liabilities 2,293,735
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 9,100,000
Retained earnings 39,841
9,139,941
Less: Noninterest-bearing demand
notes due from Prudential
Securities Group Inc. (9,100,000)
Total stockholder's equity 39,941
Total liabilities and stockholder's
equity $ 2,333,676
The accompanying notes are an integral part of this financial statement.
Purchasers of Limited Interests have no interest in this Trust.
153
Prudential Securities Futures Management Inc.
(A wholly-owned subsidiary of
Prudential Securities Incorporated)
Notes to statement of financial condition
December 31, 1998
A. General
Prudential Securities Futures Management Inc. (the "Company") is a
wholly-owned subsidiary of Prudential Securities Incorporated ("PSI" or
the "Parent"), which is a wholly-owned subsidiary of Prudential Securities
Group Inc. ("PSGI"). The Company is a general partner or managing
owner of 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 also serves as an investment advisor to a Cayman Islands
trust fund organized to invest in "hedge funds." 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.
B. 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 generally accepted accounting principles
which require management to make estimates and assumptions that affect
the reported amounts of assets and liabilities and disclosure of contingent
assets and liabilities at the date of the financial statement. Actual results
could differ from those estimates.
Income taxes
The Company is a member of a group of affiliated companies which join in
filing a consolidated federal income tax return and certain combined and
unitary state and local returns. Pursuant to the tax allocation
arrangements, total federal and state and local tax expense is determined on
a separate company basis. Members with losses record tax benefits to the
extent such losses are recognized in the consolidated federal and state and
local tax provisions.
At December 31, 1998, the Company's federal and state income tax
payables were $24,769 and $8,355, respectively, and were included in Due to
Parent and affiliates.
154
Prudential Securities Futures Management Inc.
(A wholly-owned subsidiary of
Prudential Securities Incorporated)
Notes to statement of financial condition
December 31, 1998
C. Investments in Partnerships
The Company's investments in partnerships are carried at its share of the
underlying equity in the Partnerships' net assets. The Company's
investments in partnerships and its percentage ownership in those
partnerships are as follows:
Diversified Futures Trust I $ 589,470 1.0%
Diversified Futures Trust II 458,394 1.2
Prudential Securities
Strategic Trust 450,172 1.0
Prudential-Bache Capital Return
Futures Fund 2, L.P. 240,340 1.0
World Monitor Trust - Series B 151,173 1.3
World Monitor Trust - Series C 141,739 1.3
World Monitor Trust - Series A 137,620 1.3
Prudential Securities Aggressive
Growth Fund L.P. 56,097 1.0
Prudential Securities Foreign
Financials Fund, L.P 21,478 1.2
$2,246,483
The following represents combined condensed financial information for the
Partnerships in which the Company has an investment:
Assets $216,537,082
Liabilities $ 8,427,987
Partners' Capital 208,109,095
Total $216,537,082
D. Related Parties
The Company has an interest-bearing loan payable to PSGI in the amount
of $2,196,411 at December 31, 1998 which bears interest at PSGI's effective
borrowing rate (5.7% at December 31, 1998) and is payable on demand.
The loan was 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
$104,403 and is included in Due to Parent and affiliates). The amount due
from the Partnerships related to these services ($20,467) is included in
Receivable from partnerships.
The Company's officers and directors are also officers of PSI.
155
Prudential Securities Futures Management Inc.
(A wholly-owned subsidiary of
Prudential Securities Incorporated)
Notes to statement of financial condition
December 31, 1998
E. Stockholder's Equity
The Company maintains a net worth in accordance with the limited
partnership and trust agreements of the Partnerships.
The Company has noninterest-bearing demand notes receivable from PSGI
in the amount of $9,100,000 at December 31, 1998. These notes receivable
are classified as a reduction of Stockholder's Equity as they represent
capital subscribed but not funded. The demand notes are partially
collateralized by U.S. Government security reverse repurchase agreements
which contract amounts plus accrued interest approximate $7,000,000 at
December 31, 1998.
F. Commitments and Contingencies
As a general partner or managing owner, the Company may be
contingently liable for costs and liabilities incurred by the Partnerships.
156
PricewaterhouseCoopers (LOGO)
PricewaterhouseCoopers LLP
1177 Avenue of the Americas
New York, NY 10036
Telephone (212) 596 8000
Facsimile (212) 596 8910
Report of Independent Accountants
January 26, 1999
To the Interest Holders of
Diversified Futures Trust I
In our opinion, the accompanying statement of financial condition presents
fairly, in all material respects, the financial position of Diversified Futures
Trust I at December 31, 1998 in conformity with generally accepted accounting
principles. This financial statement is the responsibility of the Managing
Owner; our responsibility is to express an opinion on this financial statement
based on our audit. We conducted our audit of this statement in accordance with
generally accepted auditing standards 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 the Managing Owner, and evaluating the overall statement of
financial condition presentation. We believe that our audit provides a
reasonable basis for the opinion expressed above.
/s/ PricewaterhouseCoopers LLP
157
DIVERSIFIED FUTURES TRUST I
(a Delaware Business Trust)
STATEMENT OF FINANCIAL CONDITION
December 31, 1998
- --------------------------------------------------------------------------------------------------
ASSETS
Equity in commodity trading accounts:
Cash $ 55,481,234
Net unrealized gain on open commodity positions 6,197,212
-------------
Net equity 61,678,446
Other receivable 8,874
-------------
Total assets $ 61,687,320
-------------
-------------
LIABILITIES AND TRUST CAPITAL
Liabilities
Redemptions payable $ 2,543,697
Management fee payable 205,624
-------------
Total liabilities 2,749,321
-------------
Commitments
Trust capital
Limited interests (290,423.624 interests outstanding) 58,348,534
General interests (2,934 interests outstanding) 589,465
-------------
Total trust capital 58,937,999
-------------
Total liabilities and trust capital $ 61,687,320
-------------
-------------
Net asset value per limited and general interests $ 200.91
-------------
-------------
- --------------------------------------------------------------------------------------------------
The accompanying notes are an integral part of this statement.
Purchasers of Limited Interests have no interest in this Trust.
DIVERSIFIED FUTURES TRUST I
(a Delaware Business Trust)
NOTES TO STATEMENT OF FINANCIAL CONDITION
A. General
Diversified Futures Trust I (the 'Trust') was organized under the Delaware
Business Trust Act on May 18, 1994 and will continue until December 31, 2014
unless terminated sooner under the provisions of the Amended and Restated
Declaration of Trust and Trust Agreement (the 'Trust Agreement'). On January 5,
1995, the Trust completed its initial offering having raised $25,262,800 from
the sale of 249,628 limited interests ('Limited Interests') and 3,000 general
interests ('General Interests') (collectively, the 'Interests') and commenced
operations. The Trust was formed to engage in the speculative trading of
commodity futures and forward contracts. The Trust's trustee is Wilmington Trust
Company. The managing owner of the Trust is Prudential Securities Futures
Management Inc. (the 'Managing Owner'), a wholly owned subsidiary of Prudential
Securities Incorporated ('PSI'), which, in turn, is a wholly owned subsidiary of
Prudential Securities Group Inc. ('PSGI'). PSI was the principal underwriter of
the Interests and is the commodity broker of the Trust. The Managing Owner is
required to maintain at least a 1% interest in the Trust so long as it is acting
as the Managing Owner.
The Trust was permitted to sell a maximum of $50,000,000 of Limited
Interests, plus $50,000,000 of additional Limited Interests when PSI and the
Managing Owner exercised the over-subscription option granted to them by the
Trust Agreement. Following the close of the initial offering period, additional
Interests were offered and sold monthly at their month-end net asset value
('NAV') per Interest during a continuous offering period which expired on August
31, 1996. Additional contributions raised during the continuous offering period
resulted in additional proceeds to the Trust of $41,129,100 from the sale of
299,640 Limited Interests and 1,628 General Interests.
All trading decisions are made for the Trust by John W. Henry & Company, Inc.
(the 'Trading Manager'), an independent commodity trading manager. The Trading
Manager trades the Trust's assets pursuant to four of its trading programs: the
Financial and Metals Portfolio; the Global Financial Portfolio; the Original
Investment Program; and the G-7 Currency Portfolio. The Managing Owner retains
the authority to override trading instructions that violate the Trust's trading
policies.
B. Summary of Significant Accounting Principles
Basis of accounting
The books and records of the Trust are maintained on the accrual basis of
accounting in accordance with generally accepted accounting principles.
Commodity futures and forward transactions are reflected in the accompanying
statement of financial condition on trade date. The difference between the
original contract amount and market value is reflected as net unrealized gain or
loss. The market value of each contract is based upon the closing quotation on
the exchange, clearing firm or bank on, or through, which the contract is
traded.
Income taxes
The Trust is treated as a partnership for Federal income tax purposes. As
such, the Trust is not required to provide for, or pay, any Federal or state
income taxes. Income tax attributes that arise from its operations are passed
directly to the individual Interest holders. The Trust may be subject to other
state and local taxes in jurisdictions in which it operates.
Profit and loss allocation, subscriptions, distributions and redemptions
Net realized profits or losses for tax purposes are allocated first to
Interest holders who redeem Interests to the extent the amounts received on
redemption are greater than or are less than the amounts paid for the redeemed
Interests by the Interest holders. Net realized profits or losses remaining
after these allocations are allocated to each Interest holder in proportion to
such Interest holder's capital account at month-end. Net income or loss for
financial reporting purposes is allocated monthly to all Interest holders on a
pro rata basis based on each Interest holder's number of Interests outstanding
during the month.
159
Distributions (other than on redemptions of Interests) are made at the sole
discretion of the Managing Owner on a pro rata basis in accordance with the
respective capital accounts of the Interest holders. No distributions have been
made since inception.
Additional Interests were offered monthly at their month-end NAV per Interest
until the continuous offering period expired on August 31, 1996 as further
discussed in Note A.
The Trust Agreement provides that an Interest holder may redeem its Interests
as of the last business day of any full calendar quarter at the then current NAV
per Interest.
New Accounting Guidance
In June 1998, the Financial Accounting Standards Board ('FASB') issued
Statement No. 133, Accounting for Derivative Instruments and Hedging Activities
('SFAS 133'), which the Trust is required to adopt effective January 1, 2000.
SFAS 133 establishes accounting and reporting standards for derivative
instruments and for hedging activities and requires that an entity recognize all
derivatives as assets or liabilities measured at fair value. The Trust does not
believe the effect of adoption will be material.
C. Fees
Organizational and general and administrative costs
PSI or its affiliates paid the costs of organizing the Trust and offering its
Interests and pay the routine operational, administrative, legal and auditing
expenses.
Management and incentive fees
The Trust pays the Trading Manager a monthly management fee equal to 1/3 of
1% (a 4% annual rate) of the Trust's NAV as of the end of each month.
In addition, the Trust pays the Trading Manager a quarterly incentive fee
equal to 15% of the New High Net Trading Profits (as defined in the Advisory
Agreement among the Trust, the Managing Owner and the Trading Manager).
Commissions
The Managing Owner, on behalf of the Trust, entered into an agreement with
PSI as commodity broker whereby the Trust pays a fixed monthly fee for brokerage
services rendered. The monthly fee equals .64583 of 1% (7.75% per annum) of the
Trust's NAV as of the first day of each month. From this fee, PSI pays all of
the Trust's execution (including floor brokerage expenses and NFA, clearing and
exchange fees) and account maintenance costs.
D. Related Parties
The Managing Owner and its affiliates perform services for the Trust which
include, but are not limited to: brokerage services, accounting and financial
management, registrar, transfer and assignment functions, investor
communications, printing and other administrative services. Except for costs
related to brokerage services, PSI or its affiliates pay the costs of these
services in addition to costs of organizing the Trust and offering its Interests
as well as the routine operational, administrative, legal and auditing fees.
The Trust maintains its trading and cash accounts at PSI, the Trust's
commodity broker. Except for the portion of assets that is deposited as margin
to maintain forward currency contract positions as further discussed below, the
Trust's assets are maintained either on deposit with PSI or, for margin
purposes, with the various exchanges on which the Trust is permitted to trade.
PSI credits the Trust monthly with 100% of the interest it earns on the net
assets in these accounts.
The Trust, acting through its Trading Manager, executes over-the-counter,
spot, forward and/or option foreign exchange transactions with PSI. PSI then
engages in back-to-back trading with an affiliate, Prudential-Bache Global
Markets, Inc. ('PBGM'). PBGM attempts to earn a profit on such transactions.
PBGM keeps its prices on foreign currency competitive with other interbank
currency trading desks. All over-the-counter currency transactions are conducted
between PSI and the Trust pursuant to a line of credit. PSI may require that
collateral be posted against the marked-to-market position of the Trust.
As of December 31, 1998, a non-U.S. affiliate of the Managing Owner owns
2,463.953 Limited Interests of the Trust.
160
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. Credit and Market Risk
Since the Trust's business is to trade futures and forward (including foreign
exchange transactions) 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).
Futures and forward contracts involve varying degrees of off-balance sheet
risk; and changes in the level or volatility of interest rates, foreign currency
exchange rates or the market values of the contracts (or commodities underlying
the contracts) frequently result in changes in the Trust's unrealized gain
(loss) on open commodity positions reflected in the statement of financial
condition. The Trust's exposure to market risk is influenced by a number of
factors including the relationships among the contracts held by the Trust as
well as the liquidity of the markets in which the contracts are traded.
Futures contracts are traded on organized exchanges and are thus
distinguished from forward contracts which are entered into privately by the
parties. The credit risks associated with futures contracts are typically
perceived to be less than those associated with forward contracts, because
exchanges typically provide clearinghouse arrangements in which the collective
credit (subject to certain limitations) of the members of the exchanges is
pledged to support the financial integrity of the exchange. On the other hand,
the Trust must rely solely on the credit of its broker (PSI) with respect to
forward transactions. The Trust presents unrealized gains and losses on open
forward positions as a net amount in the statement of financial condition
because it has a master netting agreement with PSI.
The Managing Owner attempts to minimize both credit and market risks by
requiring the Trust's Trading Manager to abide by various trading limitations
and policies. The Managing Owner monitors compliance with these trading
limitations and policies which include, but are not limited to, executing and
clearing all trades with creditworthy counterparties (currently, PSI is the sole
counterparty or broker); 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. The Managing Owner may impose additional
restrictions (through modifications of such trading limitations and policies)
upon the trading activities of the Trading Manager as it, in good faith, deems
to be in the best interests of the Trust.
PSI, when acting as the Trust's futures commission merchant in accepting
orders for the purchase or sale of domestic futures contracts, is required by
Commodity Futures Trading Commission ('CFTC') regulations to separately account
for and segregate as belonging to the Trust all assets of the Trust relating to
domestic futures trading and is not to commingle such assets with other assets
of PSI. At December 31, 1998, such segregated assets totalled $47,295,189. Part
30.7 of the CFTC regulations also requires PSI to secure assets of the Trust
related to foreign futures trading which totalled $14,585,018 at December 31,
1998. There are no segregation requirements for assets related to forward
trading.
As of December 31, 1998, the Trust's open futures and forward contracts
mature within one year.
161
At December 31, 1998, gross contract amounts of open futures and forward
contracts are:
Financial Futures Contracts:
Commitments to purchase $241,713,301
Commitments to sell $450,175,973
Currency Futures Contracts:
Commitments to purchase $29,926,525
Commitments to sell $22,716,988
Other Futures Contracts:
Commitments to purchase $ 2,666,083
Commitments to sell $15,300,056
Currency Forward Contracts:
Commitments to purchase $ 464,787
Commitments to sell $ 7,297,275
The gross contract amounts represent the Trust's potential involvement in a
particular class of financial instrument (if it were to take or make delivery on
an underlying futures or forward contract). The gross contract amounts
significantly exceed the future cash requirements as the Trust intends to close
out open positions prior to settlement and thus is generally subject only to the
risk of loss arising from the change in the value of the contracts. As such, the
Trust considers the 'fair value' of its futures and forward contracts to be the
net unrealized gain or loss on the contracts. Thus, the amount at risk
associated with counterparty nonperformance of all contracts is the net
unrealized gain included in the statement of financial condition. The market
risk associated with the Trust's commitments to purchase commodities is limited
to the gross contract amounts involved, while the market risk associated with
its commitments to sell is unlimited since the Trust's potential involvement is
to make delivery of an underlying commodity at the contract price; therefore, it
must repurchase the contract at prevailing market prices.
The following table presents the average fair value of futures and forward
contracts during the year ended December 31, 1998 and the related fair value at
December 31, 1998:
Average Fair Value Fair Value
------------------------------------- -------------------------------------
Assets Liabilities Assets Liabilities
----------------- ----------------- ----------------- -----------------
Futures Contracts:
Domestic exchanges
Financial $ 744,665 $ 152,149 $ 59,531 $ 607,294
Currencies 74,591 21,197 969,688 187,500
Other 832,436 231,205 589,283 134,120
Foreign exchanges
Financial 2,557,314 319,871 5,991,154 385,014
Other 74,156 26,229 114,259 11,014
Forward Contracts:
Currencies 1,813,641 1,709,484 5,365 207,126
----------------- ----------------- ----------------- -----------------
$ 6,096,803 $ 2,460,135 $ 7,729,280 $ 1,532,068
----------------- ----------------- ----------------- -----------------
----------------- ----------------- ----------------- -----------------
162
OTHER INFORMATION
Year 2000 Risk
Investment funds, like financial and business organizations and individuals
around the world, depend on the smooth functioning of computer systems. The year
2000, however, holds the potential for a significant disruption in the operation
of these systems. Many computer systems in use today cannot distinguish the year
2000 from the year 1900 because of the way in which dates are encoded. This is
commonly known as the 'Year 2000 Problem.' The Trust could be adversely affected
if computer systems used by it or any third party with whom it has a material
relationship do not properly perform date comparisons and calculations
concerning dates on or after January 1, 2000, which in turn could have a
negative impact on the handling or determination of trades and prices and the
services provided to the Trust.
The Trust has engaged third parties to perform primarily all of the services
it needs. Accordingly, the Trust's Year 2000 Problems, if any, are not its own
but those that center on the ability of the Managing Owner, Prudential
Securities Incorporated, its Trading Manager and any other third party with whom
the Trust has a material relationship (individually, a 'Service Provider,' and
collectively, the 'Service Providers') to address and correct problems that may
cause their systems not to function as intended as a result of the Year 2000
Problem.
The Trust has received assurances from its Managing Owner and Prudential
Securities Incorporated that they anticipate being able to continue their
operations without any material adverse impact from the Year 2000 Problem.
Although other Service Providers, such as the Trust's Trading Manager, have not
made similar representations to the Trust, the Trust has no reason to believe
that these Service Providers will not take steps necessary to avoid any material
adverse impact on the Trust, though there can be no assurance that this will be
the case. The costs or consequences of incomplete or untimely resolution of the
Year 2000 Problem by the Service Providers, or by governments, exchanges,
clearinghouses, regulators, banks and other third parties, are unknown to the
Trust at this time, but could have a material adverse impact on the operations
of Trust. The Managing Owner will promptly notify the Trust's limited owners in
the event it determines that the Year 2000 Problem will have a material adverse
impact on the Trust's operations.
The Trust has considered various alternatives as a contingency plan. If the
Year 2000 Problems are systemic, for example, the federal government, the
banking system, exchanges or utilities are affected materially, there may be no
adequate contingency plan for the Trust to follow other than to suspend
operations. If the Year 2000 Problems are related to one or more of the other
Service Providers selected by the Trust, the Trust believes that each such
Service Provider is prepared to address any Year 2000 Problems which arise that
could have a material adverse impact on the Trust's operations.
Round-Turn Equivalents
The actual round-turn equivalent of brokerage commissions paid per contract
for the year ended December 31, 1998 was $112.
163
WORLD MONITOR TRUST
The date of this prospectus is April __, 1999
The Trust files annual, quarterly, and current reports and other
information with the SEC. 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 http://www.sec.gov
[INSERT PRUDENTIAL LOGO HERE]
EXHIBIT A
AMENDED AND RESTATED
DECLARATION OF TRUST
AND
TRUST AGREEMENT
OF
WORLD MONITOR TRUST
Dated as of February 25, 1998
By and Among
PRUDENTIAL SECURITIES FUTURES MANAGEMENT INC.,
WILMINGTON TRUST COMPANY
and
THE INTERESTHOLDERS
from time to time hereunder
TABLE OF CONTENTS
Page
ARTICLE I
DEFINITIONS; THE TRUST . . . . . . . . . . . . . . . . . 1
SECTION 1.1 Definitions. . . . . . . . . . . . . . . 1
SECTION 1.2 Name . . . . . . . . . . . . . . . . . . 7
SECTION 1.3 Delaware Trustee; Business Offices . . . 7
SECTION 1.4 Declaration of Trust . . . . . . . . . . 7
SECTION 1.5 Purposes and Powers. . . . . . . . . . . 8
SECTION 1.6 Tax Treatment. . . . . . . . . . . . . . 8
SECTION 1.7 General Liability of the Managing Owner. 9
SECTION 1.8 Legal Title. . . . . . . . . . . . . . . 9
SECTION 1.9 Series Trust. . . . . . . . . . . . . . 9
ARTICLE II
THE TRUSTEE. . . . . . . . . . . . . . . . . . . . . . . 10
SECTION 2.1 Term; Resignation. . . . . . . . . . . . 10
SECTION 2.2 Powers . . . . . . . . . . . . . . . . . 10
SECTION 2.3 Compensation and Expenses of the Trustee 10
SECTION 2.4 Indemnification . . . . . . . . . . . . 11
SECTION 2.5 Successor Trustee. . . . . . . . . . . . 11
SECTION 2.6 Liability of Trustee . . . . . . . . . . 11
SECTION 2.7 Reliance; Advice of Counsel. . . . . . . 12
ARTICLE III
INTERESTS; CAPITAL CONTRIBUTIONS . . . . . . . . . . . 13
SECTION 3.1 General. . . . . . . . . . . . . . . . 13
SECTION 3.2 Limited Interests. . . . . . . . . . . 15
SECTION 3.3 Establishment of Series of Interests.. 23
SECTION 3.4 Establishment of Classes. . . . . . . 24
SECTION 3.5 Assets of Series. . . . . . . . . . . 24
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
(i)
ARTICLE IV
THE MANAGING OWNER . . . . . . . . . . . . . . . . . . 27
SECTION 4.1 Management of the Trust. . . . . . . . 27
SECTION 4.2 Authority of Managing Owner. . . . . . 28
SECTION 4.3 Obligations of the Managing Owner. . . 30
SECTION 4.4 General Prohibitions . . . . . . . . . 33
SECTION 4.5 Liability of Covered Persons . . . . . 34
SECTION 4.6 Indemnification of the Managing Owner. 34
SECTION 4.7 Expenses . . . . . . . . . . . . . . . 36
SECTION 4.8 Compensation to the Managing Owner . . 37
SECTION 4.9 Other Business of Interestholders. . . 37
SECTION 4.10 Voluntary Withdrawal of the Managing
Owner. . . . . . . . . . . . . . . . . . . 37
SECTION 4.11 Authorization of Registration Statement37
SECTION 4.12 Litigation. . . . . . . . . . . . . . 38
ARTICLE V
TRANSFERS OF INTERESTS . . . . . . . . . . . . . . . . 38
SECTION 5.1 General Prohibition. . . . . . . . . . 38
SECTION 5.2 Transfer of Managing Owner's General
Interests. . . . . . . . . . . . . . . . . 38
SECTION 5.3 Transfer of Limited Interests. . . . . 39
ARTICLE VI
DISTRIBUTION AND ALLOCATIONS . . . . . . . . . . . . . 43
SECTION 6.1 Capital Accounts . . . . . . . . . . . 43
SECTION 6.2 Weekly Allocations . . . . . . . . .. 43
SECTION 6.3 Allocation of Profit and Loss for United
States Federal Income
Tax Purposes. . . . . . . . . . . . . . . 44
SECTION 6.4 Allocation of Distributions. . . . . . 44
SECTION 6.5 Admissions of Interestholders; Transfers44
SECTION 6.6 Liability for State and Local and Other
Taxes. . . . . . . . . . . . . . . . . . . 44
ARTICLE VII
REDEMPTIONS. . . . . . . . . . . . . . . . . . . . . . 46
SECTION 7.1 Redemption of Interests. . . . . . . . 46
SECTION 7.2 Redemption by the Managing Owner . .. 48
SECTION 7.3 Redemption Fee . . . . . . . . . . . 48
SECTION 7.4 Exchange of Interests. . . . . . . . 48
(ii)
ARTICLE VIII
THE LIMITED OWNERS . . . . . . . . . . . . . . . . . . 48
SECTION 8.1 No Management or Control; Limited
Liability. . . . . . . . . . . . . . . . . 48
SECTION 8.2 Rights and Duties. . . . . . . . . . . 49
SECTION 8.3 Limitation on Liability. . . . . . . . 50
ARTICLE IX
BOOKS OF ACCOUNT AND REPORTS . . . . . . . . . . . . . 51
SECTION 9.1 Books of Account . . . . . . . . . . . 51
SECTION 9.2 Annual Reports and Monthly Statements. 51
SECTION 9.3 Tax Information. . . . . . . . . . . . 51
SECTION 9.4 Calculation of Net Asset Value of a
Series . . . . . . . . . . . . . . . . . 51
SECTION 9.5 Other Reports. . . . . . . . . . . . . 52
SECTION 9.6 Maintenance of Records . . . . . . . . 52
SECTION 9.7 Certificate of Trust . . . . . . . . . 52
SECTION 9.8 Registration of Interests. . . . . . . 52
ARTICLE X
FISCAL YEAR. . . . . . . . . . . . . . . . . . . . . . 53
SECTION 10.1 Fiscal Year . . . . . . . . . . . . . 53
ARTICLE XI
AMENDMENT OF TRUST AGREEMENT; MEETINGS . . . . . . . . 53
SECTION 11.1 Amendments to the Trust Agreement . . 53
SECTION 11.2 Meetings of the Trust . . . . . . . . 55
SECTION 11.3 Action Without a Meeting. . . . . . . 55
ARTICLE XII
TERM . . . . . . . . . . . . . . . . . . . . . . . . . 56
SECTION 12.1 Term. . . . . . . . . . . . . . . . . 56
ARTICLE XIII
TERMINATION. . . . . . . . . . . . . . . . . . . . . . 56
SECTION 13.1 Events Requiring Dissolution of the
Trust or any Series. . . . . . . . . . . . 56
SECTION 13.2 Distributions on Dissolution. . . . . 58
SECTION 13.3 Termination; Certificate of
Cancellation . . . . . . . . . . . . . . 58
(iii)
ARTICLE XIV
POWER OF ATTORNEY. . . . . . . . . . . . . . . . . . . 59
SECTION 14.1 Power of Attorney Executed Concurrently59
SECTION 14.2 Effect of Power of Attorney . . . . . 60
SECTION 14.3 Limitation on Power of Attorney . . . 60
ARTICLE XV
MISCELLANEOUS. . . . . . . . . . . . . . . . . . . . . . 60
SECTION 15.1 Governing Law . . . . . . . . . . . . . 60
SECTION 15.2 Provisions In Conflict With Law or
Regulations. . . . . . . . . . . . . . . . 61
SECTION 15.3 Construction. . . . . . . . . . . . . 61
SECTION 15.4 Notices . . . . . . . . . . . . . . . 61
SECTION 15.5 Counterparts. . . . . . . . . . . . . 62
SECTION 15.6 Binding Nature of Trust Agreement . . 62
SECTION 15.7 No Legal Title to Trust Estate. . . . 62
SECTION 15.8 Creditors . . . . . . . . . . . . . . 62
SECTION 15.9 Integration . . . . . . . . . . . . . 62
EXHIBIT A
CERTIFICATE OF TRUST
OF WORLD MONITOR TRUST. . . . . . . . . . . . . . . . 64
(iv)
WORLD MONITOR TRUST
AMENDED AND RESTATED DECLARATION OF TRUST AND TRUST
AGREEMENT
This AMENDED AND RESTATED DECLARATION OF TRUST AND
TRUST AGREEMENT of WORLD MONITOR TRUST ("Trust Agreement")
is made and entered into as of the 25th day of February
1998, 1998 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 December 17, 1997 (the
"Initial Trust Agreement");
WHEREAS, the parties hereto desire to amend
certain provisions of the Initial Trust Agreement related
to the governance of the Trust and to restate in detail
their respective rights and duties relating to the Trust.
NOW, THEREFORE, in consideration of the mutual
promises and agreements herein contained, the receipt and
sufficiency of which are hereby acknowledged, the parties,
intending to be legally bound, hereby agree as follows:
ARTICLE I
DEFINITIONS; THE TRUST
SECTION 1.1 Definitions. These definitions contain
certain provisions required by the NASAA Guidelines and,
except for minor exceptions, are included verbatim from
such Guidelines, and, accordingly, may not, in all cases,
be relevant. As used in this Trust Agreement, the
following terms shall have the following meanings unless
the context otherwise requires:
"Affiliate of the Managing Owner" means: (i) any
Person directly or indirectly owning, controlling or
holding with power to vote 10% or more of the outstanding
voting securities of the Managing Owner; (ii) any Person
10% or more of whose outstanding voting securities are
directly or indirectly owned, controlled or held with power
to vote, by the Managing Owner; (iii) any Person, directly
or indirectly, controlling, controlled by, or under common
control of the Managing Owner; (iv) any officer, director
or partner of the Managing Owner; or (v) if such Person is
an officer, director or partner of the Managing Owner, any
Person for which such Person acts in any such capacity.
"Business Day" means a day other than Saturday, Sunday
or other day when banks and/or securities exchanges in the
City of New York or the City of Wilmington are authorized
or obligated by law or executive order to close.
"Business Trust Statute" means Chapter 38 of Title 12
of the Delaware Code, 12 Del.C. S 3801 et seq., as the same
may be amended from time to time.
"Capital Contribution" means the amount contributed
and agreed to be contributed to the Trust or any Series in
the Trust by any subscriber or by the Managing Owner, as
applicable, in accordance with Article III hereof.
"CE Act" means the Commodity Exchange Act, as amended.
"Certificate of Trust" means the Certificate of Trust
of the Trust in the form attached hereto as Exhibit A,
filed with the Secretary of State of the State of Delaware
pursuant to Section 3810 of the Business Trust Statute.
"CFTC" means the Commodity Futures Trading Commission.
"Code" means the Internal Revenue Code of 1986, as
amended.
"Commodities" means positions in Commodity Contracts,
forward contracts, foreign exchange positions and traded
physical commodities, as well as cash commodities resulting
from any of the foregoing positions.
"Commodity Broker" means any person who engages in the
business of effecting transactions in Commodity Contracts
for the account of others or for his or her own account.
"Commodity Contract" means any contract or option
thereon providing for the delivery or receipt at a future
date of a specified amount and grade of a traded physical
commodity at a specified price and delivery point.
"Continuous Offering Period" means the period
following the conclusion of the Initial Offering Period and
ending on the date when the number of Interests permitted
to be sold pursuant to Section 3.2(f) are sold.
"Corporate Trust Office" means the principal office at
which at any particular time the corporate trust business
of the Trustee is administered, which office at the date
hereof is located at Rodney Square North, 1100 North Market
Street, Wilmington, Delaware 19890, Attention: Corporate
Trust Administration.
"Dealing Day" shall have the meaning set forth in the
Prospectus.
"Disposition Gain" means, for each Fiscal Year of the
Trust, the Series' aggregate recognized gain (including the
portion thereof, if any, treated as ordinary income)
resulting
A-2
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.
"Initial Offering Period" means the period with
respect to a Series commencing with the initial effective
date of the Prospectus and terminating no later than the
one hundred and twentieth (120th) day following such date
unless extended for up to an additional 60 days at the sole
discretion of the Managing Owner.
"Interestholders" means the Managing Owner and all
Limited Owners, as holders of Interests of a Series, where
no distinction is required by the context in which the term
is used.
"Interests" means the beneficial interest of each
Interestholder in the profits, losses, distributions,
capital and assets of a Series of the Trust. The Managing
Owner's Capital Contributions shall be represented by
"General" Interests and a Limited Owner's Capital
Contributions shall be represented by "Limited" Interests.
Interests need not be represented by certificates.
"Limited Owner" means any person or entity who becomes
a holder of Limited Interests (as defined in Article III)
and who is listed as such on the books and records of the
Trust, and may include the Managing Owner with respect to
the Limited Interests purchased by it.
"Losses" means, for each Fiscal Year of each Series of
the Trust, losses of the Series as determined for federal
income tax purposes, and each item of income, gain, loss or
deduction
A-3
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.
"Margin Call" means a demand for additional funds
after the initial good faith deposit required to maintain
a customer's account in compliance with the requirements of
a particular commodity exchange or of a commodity broker.
"NASAA Guidelines" means the North American Securities
Administrators Association, Inc. Guidelines for the
Registration of Commodity Pool Programs as last amended and
restated.
"Net Asset Value of a Series" means the total assets
in the Trust Estate of a Series including, but not limited
to, all cash and cash equivalents (valued at cost plus
accrued interest and amortization of original issue
discount) less total liabilities of the Series, each
determined on the basis of generally accepted accounting
principles in the United States, consistently applied under
the accrual method of accounting ("GAAP"), including, but
not limited to, the extent specifically set forth below:
(a) Net Asset Value of a Series shall include
any unrealized profit or loss on open Commodities
positions, and any other credit or debit accruing to
the Series but unpaid or not received by the Series.
(b) All open commodity futures contracts and
options traded on a United States exchange are
calculated at their then current market value, which
shall be based upon the settlement price for that
particular commodity futures contract and option
traded on the applicable United States exchange on the
date with respect to which Net Asset Value of a Series
is being determined; provided, that if a commodity
futures contract or option traded on a United States
exchange could not be liquidated on such day, due to
the operation of daily limits or other rules of the
exchange upon which that position is traded or
otherwise, the settlement price on the first
subsequent day on which the position could be
liquidated shall be the basis for determining the
market value of such position for such day. The
current market value of all open commodity futures
contracts and options traded on a non-United States
exchange shall be based upon the liquidating value for
that particular commodity futures contract and option
traded on the applicable non-United States exchange on
the date with respect to which Net Asset Value of a
Series is being determined; provided, that if a
commodity futures contract or option traded on
a non-United States exchange could not be liquidated on such
day, due to the operation of rules of the exchange
upon which that position is traded or otherwise, the
liquidating value on the first subsequent day on which
the position could be liquidated shall be the basis
for determining the market value of such position for
such day. The current market value of all open
forward contracts entered
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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 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.
"NFA" means the National Futures Association.
"Organization and Offering Expenses" shall have the
meaning set forth in Section 4.7 of this Trust Agreement.
"Person" means any natural person, partnership,
limited liability company, business trust, corporation,
association, "Benefit Plan Investor" (as defined in the
Prospectus) or other legal entity.
"Profits" means, for each Fiscal Year of each Series
of the Trust, as determined for Federal income tax
purposes, with each item of income, gain, loss or deduction
entering into the computation thereof, except that any gain
or loss taken into account in determining the Disposition
Gain or the Disposition Loss of a Series for such Fiscal
Year shall not enter into such computations.
"Prospectus" means the final prospectus and disclosure
document of the Trust and each Series thereof, constituting
a part of each Registration Statement, as filed with the
Securities and Exchange Commission and declared effective
thereby, as the same may at any time and from time to time
be amended or supplemented after the effective date(s) of
the Registration Statement(s).
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"PSI" means Prudential Securities Incorporated, the
Trust's Commodity Broker, selling agent and the parent of
the Managing Owner.
"Pyramiding" means the use of unrealized profits on
existing Commodities positions to provide margins for
additional Commodities positions of the same or a related
commodity.
"Redemption Date" means the Dealing Day upon which
Interests held by the Interestholders may be redeemed in
accordance with the provisions of Article VII hereof.
"Registration Statement" means a registration
statement on Form S-1, as amended, filed for a Series with
the Securities and Exchange Commission pursuant to which
the Trust registered 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 Eagle Trading
Systems Inc. for the Series A Interests, Eclipse Capital
Management, Inc. for the Series B Interests and Hyman Beck
& Company, Inc. for the Series C 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 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.
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"Trust Estate" means, with respect to a Series, any
cash, commodity futures, forward and option contracts, all
funds on deposit in the Series' accounts, and any other
property held by the Series, and all proceeds therefrom,
including any rights of the Series pursuant to any
Subscription Agreement and any other agreements to which
the Trust or a Series thereof is a party.
"Valuation Date" means the date as of which the Net
Asset Value of a Series is determined.
"Valuation Period" means a regular period of time
between Valuation Dates.
"Valuation Point" shall have the meaning set forth in
the Prospectus.
SECTION 1.2 Name.
The name of the Trust is "World Monitor Trust"
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
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the Code and
applicable state and local tax laws. Effective as of the
date hereof, the Trustee and the Managing Owner shall have
all of the rights, powers and duties set forth herein and
in the Business Trust Statute with respect to accomplishing
the purposes of the Trust. The Trustee has filed the
certificate of trust required by Section 3810 of the
Business Trust Statute in connection with the formation of
the Trust under the Business Trust Statute.
SECTION 1.5 Purposes and Powers. The purposes of the
Trust and each Series shall be (a) to trade, buy, sell,
spread or otherwise acquire, hold or dispose of commodity
futures, forward and option contracts, including foreign
futures, forward contracts and foreign exchange positions
worldwide; (b) to enter into any lawful transaction and
engage in any lawful activities in furtherance of or
incidental to the foregoing purposes; and (c) as determined
from time to time by the Managing Owner, to engage in any
other lawful business or activity for which a business
trust may be organized under the Business Trust Statute.
The Trust shall have all of the powers specified in Section
15.1 hereof, including, without limitation, all of the
powers which may be exercised by a Managing Owner on behalf
of the Trust under this Trust Agreement.
SECTION 1.6 Tax Treatment.
(a) Each of the parties hereto, by entering into
this Trust Agreement, (i) expresses its intention that the
Interests of each Series will qualify under applicable tax
law as interests in a partnership which holds the Trust
Estate of each Series for their benefit, (ii) agrees that
it will file its own federal, state and local income,
franchise and other tax returns in a manner that is
consistent with the treatment of each Series as a
partnership in which each of the Interestholders thereof is
a partner and (iii) agrees to use reasonable efforts to
notify the Managing Owner promptly upon a receipt of any
notice from any taxing authority having jurisdiction over
such holders of Interests of such Series with respect to
the treatment of the Interests as anything other than
interests in a partnership.
(b) The Tax Matters Partner (as defined in
Section 6231 of the Code and any corresponding state and
local tax law) of each Series shall initially be the
Managing Owner. The Tax Matters Partner, at the expense of
each Series, (i) shall prepare or cause to be prepared and
filed each Series' tax returns as a partnership for
federal, state and local tax purposes and (ii) shall be
authorized to perform all duties imposed by S 6221 et seq.
of the Code, including, without limitation, (A) the power
to conduct all audits and other administrative proceedings
with respect to the Series' tax items; (B) the power to
extend the statute of limitations for all Interestholders
with respect to the Series' tax items; (C) the power to
file a petition with an appropriate federal court for
review of a final administrative adjustment of a Series;
and (D) the power to enter into a settlement with the IRS
on behalf of, and binding upon, those Limited Owners having
less than one percent (1%) interest in the
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Series, unless
a Limited Owner shall have notified the IRS and the
Managing Owner that the Managing Owner shall not act on
such Limited Owner's behalf. The designation made by each
Interestholder of a Series in this Section 1.6(b) is hereby
approved by each Interestholder of such Series as an
express condition to becoming an Interestholder. Each
Interestholder agrees to take any further action as may be
required by regulation or otherwise to effectuate such
designation. Subject to Section 4.6, each Series hereby
indemnifies, to the full extent permitted by law, the
Managing Owner from and against any damages or losses
(including attorneys' fees) arising out of or incurred in
connection with any action taken or omitted to be taken by
it in carrying out its responsibilities as Tax Matters
Partner, provided such action taken or omitted to be taken
does not constitute fraud, negligence or misconduct.
(c) Each Interestholder shall furnish the
Managing Owner and the Trustee with information necessary
to enable the Managing Owner to comply with United States
federal income tax information reporting requirements in
respect of such Interestholder's Interests.
SECTION 1.7 General Liability of the Managing Owner.
(a) The Managing Owner shall be liable for the
acts, omissions, obligations and expenses of each Series of
the Trust, to the extent not paid out of the assets of the
Series, to 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
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the parties hereto that Articles IV, V,
VI, VII, VIII, IX, X and XIII of this Trust Agreement shall
apply also with respect to each such Series as if each such
Series were a separate business trust under the Business
Trust Act, and each reference to the term "Trust" in such
Articles shall be deemed to be a reference to each Series
to the extent necessary to give effect to the foregoing
intent. The use of the terms "Trust" or "Series" in this
Agreement shall in no event alter the intent of the parties
hereto that the Trust receive the full benefit of the
limitation on interseries liability as set forth in Section
3804 of the Business Trust Statute.
ARTICLE II
THE TRUSTEE
SECTION 2.1 Term; Resignation.
(a) Wilmington Trust Company has been appointed
and hereby agrees to continue to serve as the Trustee of
the Trust. The Trust shall have only one trustee unless
otherwise determined by the Managing Owner. The Trustee
shall serve until such time as the Managing Owner removes
the Trustee or the Trustee resigns and a successor Trustee
is appointed by the Managing Owner in accordance with the
terms of Section 2.5 hereof.
(b) The Trustee may resign at any time upon the
giving of at least sixty (60) days' advance written notice
to the Trust; provided, that such resignation shall not
become 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
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than the Trust) reasonable compensation for its services hereunder
as set forth in a separate fee agreement and shall be
entitled to be reimbursed by the Managing Owner or an
Affiliate of the Managing Owner for reasonable
out-of-pocket expenses incurred by it in the performance of
its duties hereunder, including without limitation, the
reasonable compensation, out-of-pocket expenses and
disbursements of counsel and such other agents as the
Trustee may employ in connection with the exercise and
performance of its rights and duties hereunder.
SECTION 2.4 Indemnification. The Managing Owner
agrees, whether or not any of the transactions contemplated
hereby shall be consummated, to assume liability for, and
does hereby indemnify, protect, save and keep harmless the
Trustee and its successors, assigns, legal representatives,
officers, directors, agents and servants (the "Indemnified
Parties") from and against any and all liabilities,
obligations, losses, damages, penalties, taxes (excluding
any taxes payable by the Trustee on or measured by any
compensation received by the Trustee for its services
hereunder or any indemnity payments received by the Trustee
pursuant to this Section 2.4), claims, actions, suits,
costs, expenses or disbursements (including legal fees and
expenses) of any kind and nature whatsoever (collectively,
"Expenses"), which may be imposed on, incurred by or
asserted against the Indemnified Parties in any way
relating to or arising out of the formation, operation or
termination of the Trust, the execution, delivery and
performance of any other agreements to which the Trust is
a party or the action or inaction of the Trustee hereunder
or thereunder, except for Expenses resulting from the gross
negligence or willful misconduct of the Indemnified
Parties. The indemnities contained in this Section 2.4
shall survive the termination of this Trust Agreement or
the removal or resignation of the Trustee. The Indemnified
Parties shall not be entitled to indemnification from the
Trust Estate.
SECTION 2.5 Successor Trustee. Upon the resignation
or removal of the Trustee, the Managing Owner shall appoint
a successor Trustee by delivering a written instrument to
the 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
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the Trust is a party, except for its own gross
negligence or willful misconduct.
In particular, but not by way of limitation:
(a) The Trustee shall have no liability or
responsibility for the validity or sufficiency of this
Trust Agreement or for the form, character, genuineness,
sufficiency, value or validity of the Trust Estate;
(b) The Trustee shall not be liable for any
actions taken or omitted to be taken by it in accordance
with the instructions of the Managing Owner;
(c) The Trustee shall not have any liability for
the acts or omissions of the Managing Owner;
(d) The Trustee shall not be liable for its
failure to supervise the performance of any obligations of
the Managing Owner, any commodity broker, selling agent or
any Trading Advisor(s);
(e) No provision of this Trust Agreement shall
require the Trustee to expend or risk funds or otherwise
incur any financial liability in the performance of any of
its rights or powers hereunder if the Trustee shall have
reasonable grounds for believing that repayment of such
funds or adequate indemnity against such risk or liability
is not reasonably assured or provided to it;
(f) Under no circumstances shall the Trustee be
liable for indebtedness evidenced by or other obligations
of the Trust arising under this Trust Agreement or any
other agreements to which the Trust is a party;
(g) The Trustee shall be under no obligation to
exercise any of the rights or powers vested in it by this
Trust Agreement, or to institute, conduct or defend any
litigation under this Trust Agreement or any other
agreements to which the Trust is a party, at the request,
order or direction of the Managing Owner or any
Interestholders unless the Managing Owner or such
Interestholders have offered to the Trustee security or
indemnity satisfactory to it against the costs, expenses
and liabilities that may be incurred by the Trustee
(including, without limitation, the reasonable fees and
expenses of its counsel) therein or thereby; and
(h) Notwithstanding anything contained herein to
the contrary, the Trustee shall not be required to take any
action in any jurisdiction other than in the State of
Delaware if the taking of such action will (i) require the
consent or approval or authorization or order of or the
giving of notice to, or the registration with or taking of
any action in respect of, any state or other governmental
authority or agency of any jurisdiction other than the
State of Delaware, (ii) result in any fee, tax or other
governmental charge under the laws of any jurisdiction or
any political subdivision thereof in existence as of the
date hereof other than the State of Delaware becoming
payable by the Trustee or (iii) subject the Trustee to
personal jurisdiction, other than
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in the State of Delaware, for causes of action arising
from personal acts unrelated
to the consummation of the transactions by the Trustee, as
the case may be, contemplated hereby.
SECTION 2.7 Reliance; Advice of Counsel.
(a) In the absence of bad faith, the Trustee may
conclusively rely upon certificates or opinions furnished
to the Trustee and conforming to the requirements of this
Trust Agreement in determining the truth of the statements
and the correctness of the opinions contained therein, and
shall incur no liability to anyone in acting on any
signature, instrument, notice, resolutions, request,
consent, order, certificate, report, opinion, bond or other
document or paper believed by it to be genuine and believed
by it to be signed by the proper party or parties and need
not investigate any fact or matter pertaining to or in any
such document; provided, however, that the Trustee shall
have examined any certificates or opinions so as to
determine compliance of the same with the requirements of
this Trust Agreement. The Trustee may accept a certified
copy of a resolution of the board of directors or other
governing body of any corporate party as conclusive
evidence that such resolution has been duly adopted by such
body and that the same is in full force and effect. As to
any fact or matter the method of the determination of which
is not specifically prescribed herein, the Trustee may for
all purposes hereof rely on a certificate, signed by the
president or any vice president or by the treasurer or
other authorized officers of the relevant party, as to such
fact or matter, and such certificate shall constitute full
protection to the Trustee for any action taken or omitted
to be taken by it in good faith in reliance thereon.
(b) In the exercise or administration of the
Trust hereunder and in the performance of its duties and
obligations under this Trust Agreement, the Trustee, at the
expense of the Managing Owner or an Affiliate of the
Managing Owner (other than the Trust) (i) may act directly
or through its agents, attorneys, custodians or nominees
pursuant to agreements entered into with any of them, and
the Trustee shall not be liable for the conduct or
misconduct of such agents, attorneys, custodians or
nominees if such agents, attorneys, custodians or nominees
shall have been selected by the Trustee with reasonable
care and (ii) may consult with counsel, accountants and
other skilled professionals to be selected with reasonable
care by it. The Trustee shall not be liable for anything
done, suffered or omitted in good faith by it in accordance
with the opinion or advice of any such counsel, accountant
or other such Persons.
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
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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 3.3,
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 3.4. The fact that a
Series shall have been initially established and designated
without any specific establishment or designation of
classes, shall not limit the authority of the Managing
Owner to divide a Series and establish and designate
separate classes thereof.
(c) The number of Interests authorized shall be
unlimited, and the Interests so authorized may be
represented in part by fractional Interests. From time to
time, the Managing Owner may divide or combine the
Interests of any Series or class into a greater or lesser
number without thereby changing the proportionate
beneficial interests in the Series or class. The Managing
Owner may issue Interests of any Series or class thereof
for such consideration and on such terms as it may
determine (or for no consideration if pursuant to an
Interest dividend or split-up), all without action or
approval of the Limited Owners. All Interests when so
issued on the terms determined by the Managing Owner shall
be fully paid and non-assessable. The Managing Owner may
classify or reclassify any unissued Interests or any
Interests previously issued and reacquired of any Series or
class thereof into one or more Series or classes thereof
that may be established and designated from time to time.
The Managing Owner may hold as treasury Interests, reissue
for such consideration and on such terms as it may
determine, or cancel, at its discretion from time to time,
any Interests of any Series or class thereof reacquired by
the Trust. The Interests of each Series shall initially be
divided into two classes: General Interests and Limited
Interests.
(d) Upon the initial contribution by the Managing
Owner to each initial Series of the Trust, the Managing
Owner became the holder of the General Interests of each
such Series. Upon the termination of the Initial Offering
Period pursuant to Section 3.2, the Managing Owner shall
receive additional General Interests (or fractions thereof)
in each Series in consideration for the required
contributions made to each Series as of such time by the
Managing Owner pursuant to Section 3.2. During the
Continuous Offering Period, if any, the Managing Owner
shall receive, from time to time, additional General
Interests (or fractions thereof) in consideration for the
required contributions made by the Managing Owner pursuant
to Section 3.2 in any week during the Continuous Offering
Period in an amount equal to such contributions divided by
the Net Asset Value of a Series per Interest calculated as
of the Valuation Point of the week in which such
contributions were made.
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(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 Limited Interests.
(a) Offer of Series A Limited Interests.
(i) Series A 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 A
Limited Interest, a maximum of 340,000 Limited
Interests ($34,000,000). The offering shall be made
pursuant to and on the terms and conditions set forth
in the Prospectus. The Managing Owner shall make such
arrangements for the sale of the Limited Interests as
it deems appropriate.
(ii) Effect of the Sale of at least
40,000 Series A Interests. In the event that at least
40,000 Series A Limited Interests are sold to at least
150 subscribers during the Initial Offering Period for
the Series A 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 A 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 A of the Trust reflecting
that such subscribers have been admitted as Limited
Owners of Series A Interests, as soon as practicable
after the termination of the Series A Initial Offering
Period. Such accepted subscribers will be deemed
Series A Limited Owners at such time as such admission
is reflected on the books and records of Series A of
the Trust.
(iii) Paid-In Capital if at least 40,000
Series A Interests Are Sold. In the event that at
least 40,000 Series A Limited Interests are sold
during the Initial Offering Period, Series A shall
have paid-in capital of not less than $4,080,400
(including the Managing Owner's contribution for the
General Interests as provided in Section 3.1(d) and in
Section 3.2(a)(v) hereof).
(iv) Effect of the Sale of Less than
40,000 Series A Interests. In the event that at least
40,000 Series A Limited Interests are not sold during
the Initial Offering Period for the Series A
Interests, all proceeds of the sale of Series A
Limited
A-15
Interests, together with any interest earned
thereon, will be returned to the subscribers on a pro
rata basis (taking into account the amount and time of
deposit), no later than ten (10) Business Days after
the conclusion of the Initial Offering Period for the
Series A Interests (or as soon thereafter as
practicable if payment cannot be made in such time
period). Such action will not terminate Series A.
(v) Managing Owner's Required Contribution.
In the event that 40,000 or more of the Series A
Limited Interests offered pursuant to the Prospectus
are sold during the Initial Offering Period for the
Series A Interests, the Managing Owner shall be
required to contribute in cash to the capital of
Series A an amount, which, when added to the total
contributions to Series A by all Series A
Interestholders, will be not less than one percent
(1%) of such total contributions, and in no event
shall such contribution be less than $40,000
(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 A an amount not less than 1.01% of any
additional Capital Contributions received from the
Series A Limited Owners. The Managing Owner may, but
is not obligated to, make additional Capital
Contributions at any time during the Series A Initial
or Continuous Offering Periods. The Managing Owner
will receive Series A General Interests as provided in
Section 3.1(d). The Managing Owner shall, with
respect to any Series A Interests owned by it, enjoy
all of the rights and privileges and be subject to all
of the obligations and duties of a Series A 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 A) in each material item of Series A income,
gain, loss and deduction shall be equal, in the
aggregate, to at least one percent (1%) of each such
item at all times during the term of this Trust
Agreement.
(vi) Offer of Series A Limited Interests
After Initial Offering Period. In the event that
40,000 or more of the Series A Limited Interests are
sold during the Initial Offering Period for the
Series A Interests, the Trust may continue to offer
Series A Limited Interests and admit additional Series
A Limited Owners and/or accept additional
contributions from existing Series A Limited Owners
pursuant to the Prospectus.
Each additional Capital Contribution to
Series A during the Series A Continuous Offering
Period by an existing Series A Limited Owner must be
in a denomination which is an even multiple of $100.
During the Series A Continuous Offering Period, each
newly admitted Series A Limited Owner, and each
existing Series A Limited Owner that makes an
additional Capital Contribution to Series A, shall
receive Series A Limited Interests in an amount equal
to such Capital Contribution or additional Capital
Contribution, as the case may be, divided by the
Series A 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.
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A Subscriber (including existing Series A
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 A Interests shall be admitted to the
Trust and deemed a Series A Limited Owner with respect
to that subscription on the Dealing Day which occurs
at least five (5) Business Days after the Subscriber's
Subscription Agreement or Exchange Request is received
by the Trust's selling agent, counting the day of
receipt by such selling agent as one Business Day.
(vii) Subscription Agreement. Each
Series A Limited Owner who purchases any Limited
Interests offered pursuant to the Prospectus shall
contribute to the capital of Series A 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 A Limited Interests offered
pursuant to the Prospectus shall be deposited in an
interest bearing escrow account at The Bank of New
York, in New York, N.Y. until the conclusion of the
Initial Offering Period for the Series A Interests.
In the event subscriptions for at least 40,000 of the
Series A Interests are received and accepted during
the Initial Offering for the Series A Interests, all
interest earned on the proceeds of subscriptions from
accepted subscribers for Series A Limited Interests
during its Initial Offering Period will be
contributed to Series A, for which the Series A
Limited Owners will receive additional Series A
Interests on a pro rata basis (taking into account
time and amount of deposit).
(ix) Optional Purchase of Series A
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 A Limited Interests and will be
treated as Series A Limited Owners with respect to
such Interests. In addition to the Series A Interests
required to be purchased by the Managing Owner under
Section 3.2(a)(v), the Managing Owner also may
purchase any number of Series A Limited Interests as
it determines in its discretion.
(b) Offer of Series B Limited Interests.
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(i) Series B 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 B
Limited Interest, a maximum of 330,000 Series B
Limited Interests ($33,000,000). The offering shall
be made pursuant to and on the terms and conditions
set forth in the Prospectus. The Managing Owner shall
make such arrangements for the sale of the Series B
Limited Interests as it deems appropriate.
(ii) Effect of the Sale of at least
30,000 Series B Interests. In the event that at least
30,000 Series B Limited Interests are sold to at least
150 subscribers during the Initial Offering Period for
the Series B 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 B 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 B of the Trust reflecting
that such subscribers have been admitted as Limited
Owners of Series B Interests, as soon as practicable
after the termination of the Series B Initial Offering
Period. Such accepted subscribers will be deemed
Series B Limited Owners at such time as such admission
is reflected on the books and records of Series B of
the Trust.
(iii) Paid-In Capital if at least 30,000
Series B Interests Are Sold. In the event that at
least 30,000 Series B Limited Interests are sold
during the Initial Offering Period, Series B shall
have paid-in capital of not less than $3,060,300
(including the Managing Owner's contribution for the
General Interests as provided in Section 3.1(d) and in
Section 3.2(b)(v) hereof).
(iv) Effect of the Sale of Less than
30,000 Series B Interests. In the event that at least
30,000 Series B Limited Interests are not sold during
the Initial Offering Period for the Series B
Interests, all proceeds of the sale of Series B
Limited Interests, together with any interest earned
thereon, will be returned to the subscribers on a pro
rata basis (taking into account the amount and time of
deposit), no later than ten (10) Business Days after
the conclusion of the Initial Offering Period for the
Series B Interests (or as soon thereafter as
practicable if payment cannot be made in such time
period). Such action will not terminate Series B.
(v) Managing Owner's Required Contribution.
In the event that 30,000 or more of the Series B
Limited Interests offered pursuant to the Prospectus
are sold during the Initial Offering Period for the
Series B Interests, the Managing Owner shall be
required to contribute in cash to the capital of
Series B an amount, which, when added to the total
contributions to Series B by all Series B
Interestholders, will be not less than one percent
(1%) of such total contributions, and in no event
shall such contribution be less than $30,000
(including the Managing Owner's Capital
A-18
Contribution pursuant to Section 3.1(d)). Thereafter, the Managing
Owner shall contribute in cash to the capital of
Series B an amount not less than 1.01% of any
additional Capital Contributions received from the
Series B Limited Owners. The Managing Owner may, but
is not obligated to, make additional Capital
Contributions at any time during the Series B Initial
or Continuous Offering Periods. The Managing Owner
will receive Series B General Interests as provided in
Section 3.1(b). The Managing Owner shall, with
respect to any Series B Interests owned by it, enjoy
all of the rights and privileges and be subject to all
of the obligations and duties of a Series B 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 B) in each material item of Series B income,
gain, loss and deduction shall be equal, in the
aggregate, to at least one percent (1%) of each such
item at all times during the term of this Trust
Agreement.
(vi) Offer of Series B Limited Interests
After Initial Offering Period. In the event that
30,000 or more of the Series B Limited Interests are
sold during the Initial Offering Period for the
Series B Interests, the Trust may continue to offer
Series B Limited Interests and admit additional Series
B Limited Owners and/or accept additional
contributions from existing Series B Limited Owners
pursuant to the Prospectus as amended or supplemented
from time to time.
Each additional Capital Contribution to
Series B during the Series B Continuous Offering
Period by an existing Series B Limited Owner must be
in a denomination which is an even multiple of $100.
During Series B Continuous Offering Period, each newly
admitted Series B Limited Owner, and each existing
Series B Limited Owner that makes an additional
Capital Contribution to Series B, shall receive Series
B Limited Interests in an amount equal to such Capital
Contribution or additional Capital Contribution, as
the case may be, divided by the Series B 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 B
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 B Interests shall be admitted to the
Trust and deemed a Series B Limited Owner with respect
to that subscription on the first Dealing Day which
occurs at least five (5) Business Days after the
Subscriber's Subscription Agreement or Exchange
Request is received by the Trust's selling agent,
counting the day of receipt by such selling agent as
one Business Day.
(vii) Subscription Agreement. Each
Series B Limited Owner who purchases any Limited
Interests offered pursuant to the Prospectus shall
contribute to the capital of Series B such amount as
he shall state in the Subscription Agreement
A-19
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 B Limited Interests offered
pursuant to the Prospectus shall be deposited in an
interest bearing escrow account at The Bank of New
York, in New York, N.Y. until the conclusion of the
Initial Offering Period for the Series B Interests.
In the event subscriptions for at least 30,000 of the
Series B Interests are received and accepted during
the Initial Offering for the Series B Interests, all
interest earned on the proceeds of subscriptions from
accepted subscribers for Series B Limited Interests
during its Initial Offering Period will be
contributed to Series B, for which the Series B
Limited Owners will receive additional Series B
Interests on a pro rata basis (taking into account
time and amount of deposit) .
(ix) Optional Purchase of Series B
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 B Limited Interests and will be
treated as Series B Limited Owners with respect to
such Interests. In addition to the Series B Interests
required to be purchased by the Managing Owner under
Section 3.2(b)(v), the Managing Owner also may
purchase any number of Series B Limited Interests as
it determines in its discretion.
(c) Offer of Series C Limited Interests.
(i) Series C 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 C
Limited Interest, a maximum of 330,000 Series C
Limited Interests ($33,000,000). No fractional
Limited Interests shall be issued during the Initial
Offering Period. The offering shall be made pursuant
to and on the terms and conditions set forth in the
Prospectus. The Managing Owner shall make such
arrangements for the sale of the Limited Interests as
it deems appropriate.
(ii) Effect of the Sale of at least
30,000 Series C Interests. In the event that at least
30,000 Series C Limited Interests are sold to at least
150 subscribers during the Initial Offering Period for
the Series C Interests (including both Limited
Interests offered pursuant to the Prospectus and
Limited Interests purchased by the
A-20
Managing Owner up
to $500,000), the Managing Owner will admit all
accepted subscribers pursuant to the Prospectus into
the Trust as Series C 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 C of the Trust reflecting
that such subscribers have been admitted as Limited
Owners of Series C Interests, as soon as practicable
after the termination of the Series C Initial Offering
Period. Such accepted subscribers will be deemed
Series C Limited Owners at such time as such admission
is reflected on the books and records of Series C of
the Trust.
(iii) Paid-In Capital if at least 30,000
Series C Interests Are Sold. In the event that at
least 30,000 Series C Limited Interests are sold
during the Initial Offering Period, Series C shall
have paid-in capital of not less than $3,060,300
(including the Managing Owner's contribution for the
General Interests as provided in Section 3.1(d) and in
Section 3.2(c)(v) hereof).
(iv) Effect of the Sale of Less than
30,000 Series C Interests. In the event that at least
30,000 Series C Limited Interests are not sold during
the Initial Offering Period for the Series C
Interests, all proceeds of the sale of Series C
Limited Interests, together with any interest earned
thereon, will be returned to the subscribers on a pro
rata basis (taking into account the amount and time of
deposit), no later than ten (10) Business Days after
the conclusion of the Initial Offering Period for the
Series C Interests (or as soon thereafter as
practicable if payment cannot be made in such time
period). Such action will not terminate Series C.
(v) Managing Owner's Required Contribution.
In the event that 30,000 or more of the Series C
Limited Interests offered pursuant to the Prospectus
are sold during the Initial Offering Period for the
Series C Interests, the Managing Owner shall be
required to contribute in cash to the capital of
Series C an amount, which, when added to the total
contributions to Series C by all Series C
Interestholders, will be not less than one percent
(1%) of such total contributions, and in no event
shall such contribution be less than $30,000
(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 C an amount not less than 1.01% of any
additional Capital Contributions received from the
Series C Limited Owners. The Managing Owner may, but
is not obligated to, make additional Capital
Contributions at any time during the Series C Initial
or Continuous Offering Periods. The Managing Owner
will receive Series C General Interests as provided in
Section 3.1(d). The Managing Owner shall, with
respect to any Series C Interests owned by it, enjoy
all of the rights and privileges and be subject to all
of the obligations and duties of a Series C 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 C) in each material item of Series C income,
A-21
gain, loss and deduction shall be equal, in the
aggregate, to at least one percent (1%) of each such
item at all times during the term of this Trust
Agreement.
(vi) Offer of Series C Limited Interests
After Initial Offering Period. In the event that
30,000 or more of the Series C Limited Interests are
sold during the Initial Offering Period for the
Series C Interests, the Trust may continue to offer
Series C Limited Interests and admit additional Series
C Limited Owners and/or accept additional
contributions from existing Series C Limited Owners
pursuant to the Prospectus as amended or supplemented
from time to time.
Each additional Capital Contribution to
Series C during the Series C Continuous Offering
Period by an existing Series C Limited Owner must be
in a denomination which is an even multiple of $100.
During Series C Continuous Offering Period, each newly
admitted Series C Limited Owner, and each existing
Series C Limited Owner that makes an additional
Capital Contribution to Series C, shall receive Series
C Limited Interests in an amount equal to such Capital
Contribution or additional Capital Contribution, as
the case may be, divided by the Series C 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 C
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 C Interests shall be admitted to the
Trust and deemed a Series C Limited Owner with respect
to that subscription on the first Dealing Day which
occurs at least five (5) Business Days after the
Subscriber's Subscription Agreement or Exchange
Request is received by the Trust's selling agent,
counting the day of receipt by such selling agent as
one Business Day.
(vii) Subscription Agreement. Each
Series C Limited Owner who purchases any Limited
Interests offered pursuant to the Prospectus shall
contribute to the capital of Series C 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 C Limited Interests offered
pursuant to the Prospectus shall be deposited in an
interest bearing escrow account at The Bank of New
York, in New York, N.Y. until the
A-22
conclusion of the
Initial Offering Period for the Series C Interests.
In the event subscriptions for at least 30,000 of the
Series C Interests are received and accepted during
the Initial Offering for the Series C Interests, all
interest earned on the proceeds of subscriptions from
accepted subscribers for Series C Limited Interests
during its Initial Offering Period will be
contributed to the Series C, for which the Series C
Limited Owners will receive additional Series C
Interests on a pro rata basis (taking into account
time and amount of deposit) .
(ix) Optional Purchase of Series C
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 C Limited Interests and will be
treated as Series C Limited Owners with respect to
such Interests. In addition to the Series C Interests
required to be purchased by the Managing Owner under
Section 3.2(c)(v), the Managing Owner also may
purchase any number of Series C 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 3.3 Establishment of Series of Interests.
(a) Without limiting the authority of the
Managing Owner set forth in Section 3.3(b) to establish and
designate any further Series, the Managing Owner hereby
establishes and designates three initial Series, as
follows:
Series A, Series B and Series C
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 3.3(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.
A-23
SECTION 3.4 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 3.5 Assets of Series. All consideration
received by the Trust for the issue or sale of Interests of
a particular Series together with all of the Trust Estate
in which such consideration is invested or reinvested, all
income, earnings, profits, and proceeds thereof, including
any proceeds derived from the sale, exchange or liquidation
of such assets, and any funds or payments derived from any
reinvestment of such proceeds in whatever form the same may
be, shall irrevocably belong to that Series for all
purposes, subject only to the rights of creditors of such
Series and except as may otherwise be required by
applicable tax laws, and shall be so recorded upon the
books of account of the Trust. Separate and distinct
records shall be maintained for each Series and the assets
associated with a Series shall be held and accounted for
separately from the other assets of the Trust, or any other
Series. In the event that there is any Trust Estate, or
any income, earnings, profits, and proceeds thereof, funds,
or payments which are not readily identifiable as belonging
to any particular Series, the Managing Owner shall allocate
them among any one or more of the Series established and
designated from time to time in such manner and on such
basis as the Managing Owner, in its sole discretion, deems
fair and equitable. Each such allocation by the Managing
Owner shall be conclusive and binding upon all
Interestholders for all purposes.
SECTION 3.6 Liabilities of Series.
(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
A-24
other undertaking made or issued by or on behalf of a
particular Series shall include a recitation limiting the
obligation or claim represented thereby to that Series and
its assets.
(b) Without limitation of the foregoing
provisions of this Section, but subject to the right of the
Managing Owner in its discretion to allocate general
liabilities, expenses, costs, charges or reserves as herein
provided, the debts, liabilities, obligations and expenses
incurred, contracted for or otherwise existing with respect
to a particular Series shall be enforceable against the
assets of such Series only and against the Managing Owner,
and not against the assets (i) of the Trust generally or
(ii) of any other Series. Notice of this limitation on
interseries liabilities shall be set forth in the
Certificate of Trust of the Trust (whether originally or by
amendment) as filed or to be filed in the Office of the
Secretary of State of the State of Delaware pursuant to the
Business Trust Statute, and upon the giving of such notice
in the Certificate of Trust, the statutory provisions of
Section 3804 of the Business Trust Statute relating to
limitations on interseries liabilities (and the statutory
effect under Section 3804 of setting forth such notice in
the Certificate of Trust) shall become applicable to the
Trust and each Series. Every Interest, note, bond,
contract, instrument, certificate or other undertaking made
or issued by or on behalf of a particular Series shall
include a recitation limiting the obligation on
Interests represented thereby to that Series and its
assets.
(c) (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 and (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;
(ii) 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;
A-25
(iii) If the Claims of the Managing Owner
or the Trustee against the Applicable Series or the
Trust are secured in whole or in part, each of the
Managing Owner and the Trustee hereby waives (under
section 1111(b) of the Bankruptcy Code (11 U.S.C. S
1111(b)) any right to have any deficiency Claims
(which deficiency Claims may arise in the event such
security is inadequate to satisfy such Claims) treated
as unsecured Claims against the Trust or any Series
(other than the Applicable Series), as the case may
be;
(iv) 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
(v) 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
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Series or in the case of a class,
belonging to such Series and allocable to such class. Each
Interestholder in a Series or a class shall be entitled to
receive its pro rata share of distributions of income and
capital gains made with respect to such Series or such
class. Upon reduction or withdrawal of its Interests or
indemnification for liabilities incurred by reason of being
or having been a holder of Interests in a Series or a
class, such Interestholder shall be paid solely out of the
funds and property of such Series or in the case of a
class, the funds and property of such Series and allocable
to such class of the Trust. Upon liquidation or
termination of a Series of the Trust, Interestholders in
such Series or class shall be entitled to receive a pro
rata share of the Trust Estate belonging to such Series or
in the case of a class, belonging to such Series and
allocable to such class.
SECTION 3.8 Voting Rights. Notwithstanding any other
provision hereof, on each matter submitted to a vote of the
Interestholders of a Series, each Interestholder shall be
entitled to a proportionate vote based upon the product of
the Net Asset Value of a Series per Interest multiplied by
the number of Interests, or fraction thereof, standing in
its name on the books of such Series. As to any matter
which affects the Interests of more than one Series, the
Interestholders of each affected Series shall be entitled
to vote, and each such Series shall vote as a separate
class.
SECTION 3.9 Equality. Except as provided herein or
in the instrument designating and establishing any class or
Series, all Interests of each particular Series shall
represent an equal proportionate beneficial interest in the
assets belonging to that Series subject to the liabilities
belonging to that Series, and each Interest of any
particular Series or classes shall be equal to each other
Interest of that Series or class; but the provisions of
this sentence shall not restrict any distinctions
permissible under Section 3.7 that may exist with respect
to dividends and distributions on Interests of the same
Series or class. The Managing Owner may from time to time
divide or combine the Interests of any particular Series or
class into a greater or lesser number of Interests of that
Series or class without thereby changing the proportionate
beneficial interest in the assets belonging to that Series
or in any way affecting the rights of Interestholders of
any other Series or class.
SECTION 3.10 Exchange of Interests. Subject to
compliance with the requirements of applicable law, the
Managing Owner shall have the authority to provide that
Interestholders of any Series shall have the right to
exchange said Interests into one or more other Series in
accordance with such requirements and procedures as may be
established by the Managing Owner. The Managing Owner
shall also have the authority to provide that
Interestholders of any class of a particular Series shall
have the right to exchange said Interests into one or more
other classes of that particular Series or any other Series
in accordance with such requirements and procedures as may
be established by the Managing Owner.
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
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Trust's business shall be controlled and conducted solely
by the Managing Owner in accordance with this Trust
Agreement.
SECTION 4.2 Authority of Managing Owner. In addition
to and not in limitation of any rights and powers conferred
by law or other provisions of this Trust Agreement, and
except as limited, restricted or prohibited by the express
provisions of this Trust Agreement or the Business Trust
Statute, the Managing Owner shall have and may exercise on
behalf of the Trust or any Series in the Trust, all powers
and rights necessary, proper, convenient or advisable to
effectuate and carry out the purposes, business and
objectives of the Trust, which shall include, without
limitation, the following:
(a) To enter into, execute, deliver and maintain
contracts, agreements and any or all other documents and
instruments, and to do and perform all such things, as may
be in furtherance of Trust purposes or necessary or
appropriate for the offer and sale of the Interests and the
conduct of Trust activities, including, but not limited to,
contracts with third parties for:
(i) commodity brokerage services, as well as
administrative services necessary to the prudent
operation of the Trust, provided, however, that in no
event shall the fees payable by the Trust for such
services exceed any limitations imposed by Section IV.
of the NASAA Guidelines on the date hereof, and
provided further, to the extent that such limitations
are amended to become more restrictive, in which event
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) 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 fees payable by the Trust
for such services exceed any limitations imposed by
Section IV. of the NASAA Guidelines on the date
hereof, provided, however, that to the extent that
such limitations are amended to become more
restrictive, in which event 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
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members of the NFA as a commodity
trading advisor), but shall not be performed by any
person affiliated with the Trust's Commodities broker.
(b) To establish, maintain, deposit into, sign
checks and/or otherwise draw upon accounts on behalf of
each Series of the Trust with appropriate banking and
savings institutions, and execute and/or accept any
instrument or agreement incidental to the Trust's business
and in furtherance of its purposes, any such instrument or
agreement so executed or accepted by the Managing Owner in
the Managing Owner's name shall be deemed executed and
accepted on behalf of the Trust by the Managing Owner;
(c) To deposit, withdraw, pay, retain and
distribute the Trust Estate or any portion thereof in any
manner consistent with the provisions of this Trust
Agreement;
(d) To supervise the preparation and filing of
the Registration Statement and supplements and amendments
thereto, and the Prospectus;
(e) To pay or authorize the payment of
distributions to the Interestholders and expenses of each
Series;
(f) To invest or direct the investment of funds
of any Series not then delegated to a Trading Advisor(s)
and prohibit any transactions contemplated hereunder which
may constitute prohibited transactions under ERISA or the
Code;
(g) To make any elections on behalf of each
Series under the Code, or any other applicable federal or
state tax law as the Managing Owner shall determine to be
in the best interests of the Series;
(h) To redeem mandatorily any Limited Interests
upon at least ten (10) days' prior written notice, if (i)
the Managing Owner determines that the continued
participation of such Limited Owner in the Trust might
cause the Trust, a Series in the Trust or any
Interestholder to be deemed to be managing Plan Assets
under ERISA, (ii) there is an unauthorized assignment
pursuant to the provisions of Article V, or (iii) in the
event that any transaction would or might violate any law
or constitute a prohibited transaction under ERISA or 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
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50%) of the
outstanding Interests of all Series (not including
Interests owned by the Managing Owner) is not obtained;
(j) To override any trading instructions: (i)
that the Managing Owner, in its sole discretion, determines
in good faith to be in violation of any trading policy or
limitation of the Trust, including as set forth in Section
4.2(k) below; (ii) as and to the extent necessary, upon the
failure of any Trading Advisor to comply with a request to
make the necessary amount of funds available to the Trust
within five (5) days of such request, to fund
distributions, redemptions (including special redemptions),
or reapportionments among Trading Advisors or to pay the
expenses of any Series in the Trust; and provided further,
that the Managing Owner may make Commodities trading
decisions at any time at which any Trading Advisor shall
become incapacitated or some other emergency shall arise as
a result of which such Trading Advisor shall be unable or
unwilling to act and a successor Trading Advisor has not
yet been retained;
(k) Monitor the trading activities of the Trading
Advisor so that:
(i) Any Series does not establish new
Commodities positions for any one contract month or
option if such additional Commodities positions would
result in a net long or short position for that
Commodities position requiring as margin or premium
more than fifteen percent (15%) of the Trust Estate of
a Series.
(ii) Any Series does not acquire
additional Commodities positions in any commodities
interest contract or option if such additional
Commodities positions would result in the aggregate
net long or short Commodities positions requiring as
margin or premium for all outstanding Commodities
positions more than sixty-six and two-thirds percent
(66 2/3%) of the Trust Estate of a Series. Under
certain market conditions, such as an abrupt increase
in margins required by a commodity exchange or its
clearinghouse or an inability to liquidate open
Commodities positions because of daily price
fluctuation limits or both, a Series may be required
to commit as margin in excess of the foregoing limit.
In such event the Managing Owner will cause each
Trading Advisor to reduce its open futures or options
positions to comply with the foregoing limit before
initiating new Commodities positions.
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;
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(c) Retain independent public accountants to
audit the accounts of each Series in the Trust;
(d) Employ attorneys to represent the Trust or a
Series thereof;
(e) Use its best efforts to maintain the status
of the Trust as a "business trust" for state law purposes,
and of each Series of the Trust as a "partnership" for
federal income tax purposes;
(f) Monitor the trading policies and limitations
of each Series, as set forth in the Prospectus, and the
activities of the Trust's Trading Advisor(s) in carrying
out those policies in compliance with the Prospectus;
(g) Monitor the brokerage fees charged to each
Series, and the services rendered by futures commission
merchants to each Series, to determine whether the fees
paid by, and the services rendered to, each Series for
futures brokerage are at competitive rates and are the best
price and services available under the circumstances, and
if necessary, renegotiate the brokerage fee structure to
obtain such rates and services for each Series. In making
this determination the Managing Owner shall not rely solely
on the brokerage rates paid by other major commodity pools.
No material change related to brokerage fees shall be made
except upon (i) twenty (20) Business Days' prior notice to
the Limited Owners, which notice shall include a
description of the Limited Owners' voting rights as set
forth in Section 8.2 hereof and a description of the
Limited Owners' redemption rights as set forth in Section
7.1 hereof, and (ii) consent of the Limited Owners holding
Interests representing at least a majority (over 50%) in
Net Asset Value of the Series affected (excluding Interests
held by the Managing Owner). No increase in such fees
shall take effect except at the beginning of a Fiscal
Quarter following consent of the Limited Owners as provided
in this subparagraph (g).
(h) Have fiduciary responsibility for the
safekeeping and use of the Trust Estate of each Series,
whether or not in the Managing Owner's immediate possession
or control, and the Managing Owner will not employ or
permit others to employ such funds or assets of each Series
(including any interest earned thereon as provided for in
the Prospectus) in any manner except as and to the extent
permitted by the NASAA Guidelines for the benefit of each
Series in the Trust, including, among other things, the
utilization of any portion of the Trust Estate as
compensating balances for the exclusive benefit of the
Managing Owner. The Managing Owner shall at all times act
with integrity and good faith and exercise due diligence in
all activities relating to the conduct of the business of
each Series and in resolving conflicts of interest. The
Trust shall not permit any Limited Owner to contract away
the fiduciary duty owed to the Limited Owners by the
Managing Owner under this Agreement or the Delaware
Business Trust Act. To the extent that, at law or in
equity, the Managing Owner or any officer, director,
employee or agent thereof or any Affiliate of the Managing
Owner (collectively, the "Covered Persons"), has duties
(including fiduciary duties) and liabilities relating
thereto to any Series, any other Interestholder or Covered
Person or the Trustee, such Covered Person acting under the
Trust Agreement shall not be liable to the Series, any
other Interestholder or Covered Person or the Trustee for
such Covered Person's good faith reliance on the provisions
of the Trust Agreement; and the
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duties and liabilities of
such Covered Person may be expanded or restricted by the
provisions of this Trust Agreement.
(i) Agree that, at all times from and after the
sale of at least the Subscription Minimum (as defined in
the Prospectus), for so long as it remains a Managing Owner
of the Trust, it shall have a minimum "net worth" (as
defined below) and not take any affirmative action to
reduce its "net worth" below an amount imposed by the
NASAA Guidelines as they may be amended from time to time.
The NASAA Guidelines define "Net Worth" as the excess of total
assets over total liabilities determined by generally
accepted accounting principles. As of the date of this
agreement, NASAA Guidelines require the Managing Owner
to maintain a minimum Net Worth of at least $1,000,000, based
on the Trust's anticipated registration of Interests in the amount
of $34,000,000 for Series A and $33,000,000 for each of
Series B and C.
(j) Admit substituted Limited Owners in
accordance with this Trust Agreement;
(k) Refuse to recognize any attempted transfer or
assignment of an Interest that is not made in accordance
with the provisions of Article V; and
(l) Maintain a current list in alphabetical
order, of the names and last known addresses and, if
available, business telephone numbers of, and number of
Interests owned by, each Interestholder (as provided in
Section 3.2 hereof) and the other Trust documents described
in Section 9.6 at the Trust's principal place of business,
which documents shall be made available thereat at
reasonable times during ordinary business hours for
inspection by any Limited Owner or his representative for
any purpose reasonably related to the Limited Owner's
interest as a beneficial owner of the Trust. Such list
shall be printed on white paper in clearly legible print
and shall be updated quarterly. Upon request, for any
purpose reasonably related to the Limited Owner's interest
as a beneficial owner of the Trust, including without
limitation, matters relating to an Interestholder's voting
rights hereunder or the exercise of a Limited Owner's
rights under federal proxy law, either in person or by
mail, the Managing Owner will furnish a copy of such list
to a Limited Owner or his representative within ten (10)
days of a request therefor, upon payment of the cost of
reproduction and mailing; provided, however, that the
Limited Owner requesting such list shall give written
assurance that the list will not, in any event, be used for
commercial purposes. Subject to applicable law, a Limited
Owner shall give the Managing Owner at least ten (10)
Business Days' prior written notice for any inspection and
copying permitted pursuant to this Section 4.3(l) by the
Limited Owner or his authorized attorney or agent.
(m) Notify the Interestholders within seven (7)
days from the date of:
(i) any material change in contracts with
any Series' Trading Advisor;
(ii) any material modification made in the
calculation of the Incentive Fee paid
to any Trading Advisor; and
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(iii) any material change affecting the
compensation of any person compensated
by a Series.
SECTION 4.4 General Prohibitions. The Trust or any
Series shall not:
(a) Borrow money from or loan money to any
Interestholder or other Person or any other Series, except
that the foregoing is not intended to prohibit (i) the
deposit on margin with respect to the initiation and
maintenance of each Series' Commodities positions or (ii)
obtaining lines of credit for the trading of forward
contracts; provided, however, that each Series is
prohibited from incurring any indebtedness on a non-recourse basis;
(b) Create, incur, assume or suffer to exist any
lien, mortgage, pledge conditional sales or other title
retention agreement, charge, security interest or
encumbrance, except (i) the right and/or obligation of a
commodity broker to close out sufficient commodities
positions of each Series so as to restore the Series'
account to proper margin status in the event that the
Series fails to meet a Margin Call, (ii) liens for taxes
not delinquent or being contested in good faith and by
appropriate proceedings and for which appropriate reserves
have been established, (iii) deposits or pledges to secure
obligations under workmen's compensation, social security
or similar laws or under unemployment insurance, (iv)
deposits or pledges to secure contracts (other than
contracts for the payment of money), leases, statutory
obligations, surety and appeal bonds and other obligations
of like nature arising in the ordinary course of business,
or (v) mechanic's, warehousemen's, carrier's, workmen's,
materialmen's or other like liens arising in the ordinary
course of business with respect to obligations which are
not due or which are being contested in good faith, and for
which appropriate reserves have been established if
required by generally accepted accounting principles, and
liens arising under ERISA;
(c) Commingle its assets with those of any other
Person, except to the extent permitted under the CE Act
and the regulations promulgated thereunder, or with those
of any other Series;
(d) Directly or indirectly pay or award any
finder's fees, commissions or other compensation to any
Persons engaged by a potential Limited Owner for investment
advice as an inducement to such advisor to advise the
potential Limited Owner to purchase Limited Interests in
the Trust;
(e) Engage in Pyramiding of its Commodities
positions; provided, however, that a Trading Advisor(s) may
take into account the Series' open trade equity on existing
positions in determining generally whether to acquire
additional Commodities positions on behalf of the Series;
(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;
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(g) Permit the Trading Advisor(s) to share in any
portion of brokerage fees related to commodity brokerage
services paid by a Series with respect to its commodity
trading activities;
(h) Enter into any contract with the Managing
Owner or an Affiliate of the Managing Owner (except for
selling agreements for the sale of Interests) (i) which has
a term of more than one year and which does not provide
that it may be canceled by the Trust without penalty on
sixty (60) days prior written notice or (ii) for the
provision of goods and services, except at rates and terms
at least as favorable as those which may be obtained from
third parties in arms-length negotiations;
(i) Permit churning of its Commodity trading
account(s) for the purpose of generating excess brokerage
commissions;
(j) Enter into any exclusive brokerage contract;
and
(k) operate the Trust in any manner so as to
contravene section 3804 of the Business Trust Statute.
SECTION 4.5 Liability of Covered Persons. A Covered
Person shall have no liability to the Trust or to any
Interestholder or other Covered Person for any loss
suffered by the Trust which arises out of any action or
inaction of such Covered Person if such Covered Person, in
good faith, determined that such course of conduct was in
the best interest of the Trust and such course of conduct
did not constitute negligence or misconduct of such Covered
Person. Subject to the foregoing, neither the Managing
Owner nor any other Covered Person shall be personally
liable for the return or repayment of all or any portion of
the capital or profits of any Limited Owner or assignee
thereof, it being expressly agreed that any such return of
capital or profits made pursuant to this Trust Agreement
shall be made solely from the assets of the Trust without
any rights of contribution from the Managing Owner or any
other Covered Person.
SECTION 4.6 Indemnification of the Managing Owner.
(a) The Managing Owner shall be indemnified by
the Trust or a Series thereof against any losses,
judgments, liabilities, expenses and amounts paid in
settlement of any claims sustained by it in connection with
its activities for a particular Series of the Trust,
provided that (i) the Managing Owner was acting on behalf
of or performing services for the relevant Series and has
determined, in good faith, that such course of conduct was
in the best interests of the Series and such liability
or loss was not the result of negligence, misconduct, or a
breach of this Trust Agreement on the part of the Managing
Owner and (ii) any such indemnification will only be
recoverable from the Trust Estate. All rights to
indemnification permitted herein and payment of associated
expenses shall not be affected by the dissolution or other
cessation to exist of the Managing Owner, or the
withdrawal, adjudication of bankruptcy or insolvency of the
Managing Owner, or the filing of a voluntary or involuntary
petition in bankruptcy under Title 11 of the U.S. Code by
or against the Managing Owner. Any indemnification under
this Section 4.6(a), unless ordered by a court, shall be
made by the Trust
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only as authorized in the specific case
and only upon a determination by independent legal counsel
in a written opinion that indemnification of the Managing
Owner is proper in the circumstances because it has met the
applicable standard of conduct set forth hereunder, it
being understood that the source of payments made in
respect of indemnification under this Trust Agreement shall
be the assets of each Series on a pro rata basis, as the
case may be.
(b) Notwithstanding the provisions of Section
4.6(a) above, the Managing Owner and any Person acting as
broker-dealer for each Series shall not be indemnified
for any losses, liabilities or expenses arising from or out
of an alleged violation of federal or state securities laws
unless (i) there has been a successful adjudication on the
merits of each count involving alleged securities law
violations as to the particular indemnitee and the court
approves the indemnification of such expenses (including,
without limitation, litigation costs), (ii) such claims
have been dismissed with prejudice on the merits by a court
of competent jurisdiction as to the particular indemnitee
and the court approves the indemnification of such expenses
(including, without limitation, litigation costs) or (iii)
a court of competent jurisdiction approves a settlement of
the claims against a particular indemnitee and finds that
indemnification of the settlement and related costs should
be made.
(c) In any claim for indemnification for federal
or state securities law violations, the party seeking
indemnification shall place before the court the position
of the Securities and Exchange Commission, the position of
the Massachusetts Securities Division, the Pennsylvania
Securities Commission, the Tennessee Securities Division
and the position of any other applicable state securities
division which requires disclosure with respect to the
issue of indemnification for securities law violations.
(d) The Trust shall not incur the cost of that
portion of any insurance which insures any party against
any liability, the indemnification of which is herein
prohibited.
(e) Expenses incurred in defending a threatened
or pending civil, administrative or criminal action suit or
proceeding against the Managing Owner shall be paid by the
Trust in advance of the final disposition of such action,
suit or proceeding, if (i) the legal action relates to the
performance of duties or services by the Managing Owner on
behalf of the Trust or a particular Series of the Trust;
(ii) the legal action is initiated by a third party who is
not a Limited Owner or the legal action is initiated by a
Limited Owner and a court of competent jurisdiction
specifically approves such advance; and (iii) the
Managing Owner undertakes to repay the advanced funds with
interest to the Trust in cases in which it is not entitled
to indemnification under this Section 4.6.
(f) The term "Managing Owner" as used only in
this Section 4.6 shall include, in addition to the Managing
Owner, any other Covered Person performing services on
behalf of the Trust or any Series thereof and acting within
the scope of the Managing Owner's authority as set forth in
this Trust Agreement.
(g) In the event the Trust or any Series is made
a party to any claim, dispute, demand or litigation or
otherwise incurs any loss, liability, damage, cost or
expense as a result
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of or in connection with any Limited
Owner's (or assignee's) obligations or liabilities
unrelated to Trust business, such Limited Owner (or
assignees cumulatively) shall indemnify, defend, hold
harmless, and reimburse the Trust for all such loss,
liability, damage, cost and expense incurred, including
attorneys' and accountants' fees.
(h) The payment of any amount pursuant to this
Section shall be subject to Section 3.6 with respect to the
allocation of liabilities and other amounts, as
appropriate, among the Series of the Trust.
SECTION 4.7 Expenses.
(a) The Managing Owner or an Affiliate of the
Managing Owner shall be responsible for the payment of all
Organization and Offering Expenses incurred in the creation
of the Trust and each Series thereof and sale of Interests.
Organization and Offering Expenses shall mean those
expenses incurred in connection with the formation,
qualification and registration of the Trust and the
Interests and in offering, distributing and processing the
Interests under applicable federal and state law, and any
other expenses actually incurred and, directly or
indirectly, related to the organization of the Trust or the
initial and continuous offering of the Interests,
including, but not limited to, expenses such as: (i)
initial and ongoing registration fees, filing fees, escrow
fees and taxes, (ii) costs of preparing, printing
(including typesetting), amending, supplementing, mailing
and distributing the Registration Statement, the Exhibits
thereto and the Prospectus during the Initial and
Continuous Offering Periods, (iii) the costs of qualifying,
printing, (including typesetting), amending, supplementing,
mailing and distributing sales materials used in connection
with the offering and issuance of the Interests during the
Initial and Continuous Offering Periods, (iv) travel,
telegraph, telephone and other expenses in connection with
the offering and issuance of the Interests during the
Initial and Continuous Offering Periods, (v) accounting,
auditing and legal fees (including disbursements related
thereto) incurred in connection therewith, and (vi) any
extraordinary expenses (including, but not limited to,
legal claims and liabilities and litigation costs and any
permitted indemnification associated therewith) related
thereto.
(b) 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, auditors and accountants, whether employed
directly or by Affiliates of the Managing Owner; (v)
postage, insurance and filing fees; (vi) client relations
and services and (vii) computer equipment and system
development shall be billed to and paid by the Managing
Owner or an Affiliate of the Managing Owner. All ongoing
expenses associated with (i) the fixed fee to be paid to
the Trust's Commodities broker, (ii) required payments to
the Trust's Trading Advisors and (iii) 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
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other limitations as are set forth herein concerning the
limitations on the Series' liability for the liabilities of
another Series.
(c) The Managing Owner or any Affiliate of the
Managing Owner may only be reimbursed for the actual cost
to the Managing Owner or such Affiliate of any expenses
which it advances on behalf of the Trust or any series
thereof for which payment one or more Series of the Trust
is responsible. In addition, payment to the Managing Owner
or such Affiliate for indirect expenses incurred in
performing services for the Trust or any Series thereof,
such as salaries and fringe benefits of officers and
directors, rent or depreciation, utilities and other
administrative items generally falling within the category
of the Managing Owner's "overhead," is prohibited.
SECTION 4.8 Compensation to the Managing Owner.
Except as provided in Section 7.1(c) with respect to the
payment of redemption charges, the Managing Owner shall
not, in its capacity as Managing Owner, receive any salary,
fees, profits or distributions. The Managing Owner shall,
in its capacity as an Interestholder, be entitled to
receive allocations and distributions pursuant to the
provisions of this Trust Agreement.
SECTION 4.9 Other Business of Interestholders.
Except as otherwise specifically provided herein, any of
the Interestholders and any shareholder, officer, director,
employee or other person holding a legal or beneficial
interest in an entity which is an Interestholder, may
engage in or possess an interest in other business ventures
of every nature and description, independently or with
others, and the pursuit of such ventures, even if
competitive with the business of the Trust, shall not be
deemed wrongful or improper. The Managing Owner and
Affiliates of the Managing Owner shall not engage in a
venture competitive with the Trust except as described in
the Prospectus.
SECTION 4.10 Voluntary Withdrawal of the Managing
Owner . The Managing Owner may withdraw voluntarily as the
Managing Owner of the Trust only upon one hundred and
twenty (120) days' prior written notice to all Limited
Owners and the Trustee and the prior approval of Limited
Owners holding Interests equal to at least a majority (over
50%) of the Net Asset Value of each Series (excluding
Interests held by the withdrawing Managing Owner). If the
withdrawing Managing Owner is the last remaining Managing
Owner, Limited Owners holding Interests equal to at least
a majority (over 50%) of the Net Asset Value of each Series
(not including Interests held by the Managing Owner) may
vote to elect and appoint, effective as of a date on or
prior to the withdrawal, a successor Managing Owner who
shall carry on the business of the Trust. If the Managing
Owner withdraws as Managing Owner and the Limited Owners or
remaining Managing Owner elect to continue the Trust, the
withdrawing Managing Owner shall pay all expenses incurred
as a result of its withdrawal. In the event of its removal
or withdrawal, the Managing Owner shall be entitled to a
redemption of its Interest at the Net Asset Value of a
Series thereof on the next Redemption Date following the
date of removal or withdrawal.
SECTION 4.11 Authorization of Registration
Statements . Each Limited Owner (or any permitted assignee
thereof) hereby agrees that the Managing Owner is
authorized to
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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, 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
statue, 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 of
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
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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 in the Managing Owner's sole
and absolute discretion. The parties hereto hereby agree
that such restrictions are necessary and desirable in order
to maintain each Series' tax classification as a
partnership, to avoid having any Series classified as a
publicly traded partnership or to avoid adverse legal
consequences to any Series in the Trust.
(i) A substituted Limited Owner is a
permitted assignee that has been admitted to any
Series as a Limited Owner with all the rights and
powers of a Limited Owner hereunder. If all of the
conditions provided in Section 5.3(b) below are
satisfied, the Managing Owner shall admit permitted
assignees into the Trust as Limited Owners by making
an entry on the books and records of the Series
reflecting that such permitted assignees have been
admitted as Limited Owners, and such permitted
assignees will be deemed Limited Owners at such time
as such admission is reflected on the books and
records of the Series.
(ii) A permitted assignee is a Person to
whom a Limited Owner has assigned his Limited
Interests with the consent of the Managing Owner, as
provided below in Section 5.3(d), but who has not
become a substituted Limited Owner. A permitted
assignee shall have no right to vote, to obtain any
information on or account of the Series'
transactions or to inspect the Series' books, but
shall only be entitled to receive the share of the
profits, or the return of the Capital Contribution, to
which his assignor would otherwise be entitled as set
forth in Section 5.3(d) below to the extent of the
Limited Interests assigned. Each Limited Owner agrees
that any permitted assignee may become a substituted
Limited Owner without the further act or consent of
any Limited Owner, regardless of whether his permitted
assignee becomes a substituted Limited Owner.
(iii) A Limited Owner shall bear all
extraordinary costs (including attorneys' and
accountants' fees), if any, related to any transfer,
assignment, pledge or encumbrance of his Limited
Interests.
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(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 assignments made under the foregoing
circumstances, and shall exercise such right by taking
any actions as it seems necessary
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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, five percent (5%) or more of the stock of
the Managing Owner or any related person as defined in
Sections 267(b) and 707(b)(1) of the Code. If any
such assignment or transfer would otherwise be made by
bequest, inheritance of operation of law, the Interest
transferred shall be deemed sold by the transferor to
the Series immediately prior to such transfer in the
same manner as provided in Section 5.3(e)(iii).
(ii) No assignment or transfer of an
interest in any Series may be made which would
contravene the NASAA Guidelines, as adopted in any
state in which the proposed transferor and transferee
reside including, without limitation, the restriction
set forth in Paragraph F(2) of Article V thereof,
which precludes any assignment (except for assignments
by gift, inheritance, intra family assignment, family
dissolutions and transfers to affiliates), which would
result in either the assignee or the
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assignor holding Interests in any combination of
Series valued at less than $5,000 (or $2,000
in the case of IRAs), provided,
however, that this limitation shall not apply in
respect of a Limited Owner wishing to assign its or
his entire interest in all Series of the Trust.
(iii) Anything else to the contrary
contained herein notwithstanding: (A) In any
particular twelve (12) consecutive month period no
assignment or transfer of an Interest may be made
which would result in increasing the aggregate total
of Interests previously assigned and/or transferred in
said period to forty-nine percent (49%) or more of the
outstanding Interests of any Series. This limitation
is hereinafter referred to as the "forty-nine percent
(49%) limitation"; (B) Clause (ii)(A) hereof shall
not apply to a transfer by gift, bequest or
inheritance, or a transfer to the Trust, and, for
purposes of the forty-nine percent (49%) limitation,
any such transfer shall not be treated as such; (C)
If, after the forty-nine percent (49%) limitation is
reached in any consecutive twelve (12) month period,
a transfer of an Interest would otherwise take place
by operation of law (but not including any transfer
referred to in clause (iii)(B) hereof) and would cause
a violation of the forty-nine percent (49%)
limitation, then said Interest(s) shall be deemed to
have been sold by the transferor to the Trust in
liquidation of said Interest(s) immediately prior to
such transfer for a liquidation price equal to the Net
Asset Value of a Series of said Interest(s) on such
date of transfer. The liquidation price shall be paid
within ninety (90) days after the date of the
transfer.
(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.
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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 Trust (such
account sometimes hereinafter referred to as a "book
capital account"). The initial balance of each
Interestholder's book capital account shall be the amount
of his initial Capital Contribution to a Series.
SECTION 6.2 Weekly Allocations. As of the close of
business (as determined by the Managing Owner) on the
Valuation Point of each week during each Fiscal Year of
the Trust, the following determinations and allocations
shall be made:
(a) First, any increase or decrease in the
Trust's Net Asset Value of a Series as of such date as
compared to the next previous determination of Net Asset
Value of a Series shall be credited or charged to the book
capital accounts of the Interestholders in the ratio that
the balance of each Interestholder's book capital account
bears to the balance of all Interestholders' book capital
accounts; and
(b) Next, the amount of any distribution to be
made to an Interestholder and any amount to be paid to an
Interestholder upon redemption of his Interests shall be
charged to that Interestholder's book capital account as of
the applicable record date and Redemption Date,
respectively.
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
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shall have been allocated to
the Interestholder who shall hold the Interest
pursuant to Section 6.3(a) above and Sections
6.3(b)(ii) and 6.3(b)(iii) below; (B) Each tax
capital account shall be decreased by the amount of
expense or loss (Losses or Disposition Losses) which
shall have been allocated to the Interestholder who
shall hold the Interest pursuant to Section 6.3(a)
above and Sections 6.3(b)(iv) and 6.3(b)(v) below and
by the amount of any distribution which shall have
been received by the Interestholder with respect to
the Interest (other than on redemption of Interests);
and (C) If an Interest is redeemed, the tax capital
account with respect to such Interest shall be
eliminated on the Redemption Date.
(ii) Disposition Gain realized during
any week shall be allocated first among all
Interestholders whose book capital accounts shall be
in excess of their Interests' tax capital accounts
(after making the adjustments, other than adjustments
resulting from the allocations to be made pursuant to
this Section 6.3(b)(ii) for the current week,
described in Section 6.3(b)(i) above) in the ratio
that each such Interestholder's excess shall bear to
all such Interestholder's excesses.
(iii) Disposition Gain realized during
any week that remains after the allocation pursuant
to Section 6.3(b)(ii) above shall be allocated to
those Interestholders who were Interestholders during
such week in the ratio that each such
Interestholder's book capital account bears to all
such Interestholders' book capital accounts for such
week.
(iv) Disposition Loss realized during
any week shall be allocated first among all
Interestholders whose Interests' tax capital accounts
shall be in excess of their book capital accounts
(after making the adjustments, other than adjustments
resulting from the allocations to be made pursuant to
this Section 6.3(b)(iv) for the current week,
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
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allocated to such Interestholders under Section 6.2 so as to
eliminate, to the extent possible, any disparity between an
Interestholder's book capital account and his tax capital
account, consistent with the principles set forth in
Sections 704(b) and (c)(2) of the Code.
(e) Notwithstanding this Section 6.3, if after
taking into account any distributions to be made with
respect to such Interest for the relevant period pursuant
to Section 6.4 herein, any allocation would produce a
deficit in the book capital account of an Interest, the
portion of such allocation that would create such a deficit
shall instead be allocated pro rata to the book capital
accounts of the other Interests held by the same
Interestholder (subject to the same limitation) and, as to
any balance, shall be allocated pro rata to the book
capital accounts of all the remaining Interestholders
(subject to the same limitation).
SECTION 6.4 Allocation of Distributions. Initially,
distributions shall be made by the Managing Owner, and the
Managing Owner shall have sole discretion in determining
the amount and frequency of distributions, other than
redemptions, which a Series shall make with respect to
the Interests; provided, however, that a Series shall not
make any distribution that violates the Business Trust
Statute. The aggregate distributions made in a Fiscal Year
(other than distributions on termination, which shall be
allocated in the manner described in Article VIII) shall be
allocated among the holders of record of Interests in the
ratio in which the number of Interests held of record by
each of them bears to the number of Interests held of
record by all of the Interestholders as of the record date
of such distribution; provided, further, however, that any
distribution made in respect of an Interest shall not
exceed the book capital account for such Interest.
SECTION 6.5 Admissions of Interestholders; Transfers.
For purposes of this Article VI, Interestholders shall be
deemed admitted, and a tax and book capital account shall
be established in respect of the Interests acquired by such
Interestholder or in respect of additional Interests
acquired by an existing Interestholder, as of the Dealing
Day following the week in which such Interestholder's
Subscription Agreement or Exchange Request, as the case may
be, is received, provided the Managing Owner shall have
been in receipt of such Subscription Agreement or Exchange
Request for at least five (5) Business Days, or in which
the transfer of Interests to such Interestholder is
recognized, except that persons accepted as subscribers to
the Trust pursuant to Section 3.2(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
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withheld and paid over by the Series
within ten (10) days after the Managing Owner's request
therefor. Such Interestholder shall also be liable for
(and the Managing Owner shall be entitled to redeem
additional Interests of the foreign Interestholder as
necessary to satisfy) interest on the amount of taxes paid
over by the Series to the IRS or other taxing authority,
from the date of the Managing Owner's request for payment
to the date of payment or the redemption, as the case may
be, at the rate of two percent (2%) over the prime rate
charged from time to time by Citibank, N.A. The amount, if
any, payable by the Series to the Interestholder in respect
of its Interests so redeemed, or in respect of any other
actual distribution by the Series to such Interestholder,
shall be reduced by any obligations owed to the Series by
the Interestholder, including, without limitation, the
amount of any taxes required to be paid over by the Series
to the IRS or other taxing authority and interest thereon
as aforesaid. Amounts, if any, deducted by the Series from
any actual distribution or redemption payment to such
Interestholder shall be treated as an actual distribution
to such Interestholder for all purposes of this Trust
Agreement.
ARTICLE VII
REDEMPTIONS
SECTION 7.1 Redemption of Interests. The
Interestholders recognize that the profitability of any
Series depends upon long-term and uninterrupted investment
of capital. It is agreed, therefore, that Series profits
and gains may be automatically reinvested, and that
distributions, if any, of profits and gains to the
Interestholders will be on a limited basis. Nevertheless,
the Interestholders contemplate the possibility that one or
more of the Limited Owners may elect to realize and
withdraw profits, or withdraw capital through the
redemption of Interests prior to the dissolution of a
Series. In that regard and subject to the provisions of
Section 4.2(h):
(a) Subject to the conditions set forth in this
Article VII, each Limited Owner (or any permitted assignee
thereof) shall have the right to redeem a Limited Interest
or portion thereof on the first Dealing Day following the
date the Managing Owner is in receipt of an acceptable form
of written notice of redemption for at least five (5)
Business Days (a "Redemption Date"). Interests will be
redeemed on a "first in, first out" basis based on time of
receipt of redemption requests at a redemption price equal
to the Net Asset Value of a Series per 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
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Redemption Date, less any amount owing by such Limited
Owner (and his permitted assignee, if any) to the Trust
pursuant to Sections 4.6(g), 5.3(h) or 6.6 of this Trust
Agreement. If redemption of an Interest shall be requested
by a permitted assignee, all amounts which shall be owed to
the Trust under Sections 4.6(g), 5.3(h) or 6.6 hereof by
the Interestholder of record, as well as all amounts which
shall be owed by all permitted assignees of such Interests,
shall be deducted from the Net Asset Value of a Series of
such Interests upon redemption.
(c) The effective date of redemption shall
be the Redemption Date, and payment of the value of the
redeemed Interests (except for Interests redeemed as part
of an Exchange as provided in Section 7.4) generally shall
be made within ten (10) Business Days following the
Redemption Date; provided, that all liabilities, contingent
or otherwise, of the Trust or any Series in the Trust,
except any liability to Interestholders on account of their
Capital Contributions, have been paid or there remains
property of the Series sufficient to pay them; and provided
further, that under extraordinary circumstances as may be
determined by the Managing Owner in its sole discretion,
including, but not limited to, the inability to liquidate
Commodity positions as of such Redemption Date, or default
or delay in payments due the Trust from commodity brokers,
banks or other Persons, or significant administrative
hardship, the Trust may in turn delay payment to Limited
Owners requesting redemption of Interests of the
proportionate part of the value of redeemed Interests
represented by the sums which are the subject of such
default or delay, in which event payment for redemption of
such Interests will be made to Limited Owners as soon
thereafter as is practicable. A Limited Owner may revoke
his notice of intent to redeem on or prior to the
Redemption Date by written instructions to the Managing
Owner. If a Limited Owner revokes his notice of intent to
redeem and thereafter wishes to redeem, such Limited Owner
will be required to submit written notice thereof in
accordance with Section 7.1(d) and will be redeemed on
the first Redemption Date to occur after the Managing Owner
shall have been in receipt of such written notice for at
least five (5) Business Days.
(d) A Limited Owner (or any permitted
assignee thereof) wishing to redeem Interests must provide
the Managing Owner with written notice of his intent to
redeem, which notice shall specify the name and address of
the redeeming Limited Owner and the amount of Limited
Interests sought to be redeemed. The notice of redemption
shall be in the form annexed to the Prospectus or in any
other form acceptable to the Managing Owner and shall be
mailed or delivered to the principal place of business of
the Managing Owner. Such notice must include
representations and warranties that the redeeming Limited
Owner (or any permitted assignee thereof) is the lawful and
beneficial owner of the Interests to be redeemed and that
such Interests are not subject to any pledge or otherwise
encumbered in any fashion. In certain circumstances, the
Trust may require additional documents, such as, but not
limited to, trust instruments, death certificates,
appointments as executor or administrator or certificates
of corporate authority. Limited Owners requesting
redemption shall be notified in writing within five (5)
Business Days following the Redemption Date whether or not
their Interests will be redeemed, unless payment for the
redeeming Interests is made within that five (5) Business
Day period, in which case the notice of acceptance of the
redemption shall not be required.
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(e) The Managing Owner may suspend
temporarily any redemption if the effect of such
redemption, either alone or in conjunction with other
redemptions, would be to impair the Trust's ability to
operate in pursuit of its objectives. In addition, the
Managing Owner may mandatorily redeem Interests pursuant to
Section 4.2(h).
(f) Interests that are redeemed shall be
extinguished and shall not be retained or reissued by the
Trust or any Series.
(g) Except as discussed above, all requests
for redemption in proper form will be honored, and the
Series' positions will be liquidated to the extent
necessary to discharge its liabilities on the Redemption
Date.
SECTION 7.2 Redemption by the Managing Owner.
Notwithstanding any provision in this Trust Agreement to
the contrary, for so long as it shall act as the Trust's
Managing Owner, the Managing Owner shall not transfer or
redeem any of its General Interests to the extent that any
such transfer or redemption would result in its having less
than a one percent (1%) interest in the Trust.
SECTION 7.3 Redemption Fee. The Managing Owner will
receive a redemption fee, as provided in the Prospectus, of
the Net Asset Value of an Interest of any Series redeemed
during the first and second successive six-month periods
following the effective date of its purchase. This
redemption fee will not be charged if you simultaneously
(i) exchange the redeemed Interest or portion thereof for
an Interest of equal value in another Series, or (ii)
invest your redemption proceeds in another futures fund
sponsored by Prudential Securities.
SECTION 7.4 Exchange of Interests. Interests in one
Series may be exchanged, without applicability of
redemption fees, for Interests of equivalent value of any
other Series (an "Exchange") on any Dealing Day, subject to
the conditions on Redemptions in this Article VII, except
that an Exchange will be made on the first Dealing Day
following the date the Managing Owner is in receipt of an
Exchange Request for at least five (5) Business Days.
ARTICLE VIII
THE LIMITED OWNERS
SECTION 8.1 No Management or Control; Limited
Liability . The Limited Owners shall not participate in
the management or control of the Trust's business nor shall
they transact any business for the Trust or any Series
thereof or have the power to sign for or bind the Trust or
any Series thereof, said power being vested solely and
exclusively in the Managing Owner. Except as provided in
Section 8.3 hereof, no Limited Owner shall be bound by, or
be personally liable for, the expenses, liabilities or
obligations of the Trust in excess of his Capital
Contribution plus his share of the Trust Estate of any
Series in which such Limited Owners owns an Interest and
profits remaining in the Series, if any. Except as
provided in Section
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8.3 hereof, each Limited Interest
owned by a Limited Owner shall be fully paid and no
assessment shall be made against any Limited Owner. No
salary shall be paid to any Limited Owner in his capacity
as a Limited Owner, nor shall any Limited Owner have a
drawing account or earn interest on his contribution.
SECTION 8.2 Rights and Duties. The Limited Owners
shall have the following rights, powers, privileges, duties
and liabilities:
(a) The Limited Owners shall have the right to
obtain information of all things affecting the Trust (or
any Series thereof in which it holds an Interest), provided
that such is for a purpose reasonably related to the
Limited Owner's interest as a beneficial owner of the
Trust, including, without limitation, such reports as are
set forth in Article IX and such information as is set
forth in Section 4.3(l) hereof. In the event that the
Managing Owner neglects or refuses to produce or mail to a
Limited Owner a copy of the information set forth in
Section 4.3(l) hereof, the Managing Owner shall be liable
to such Limited Owner for the costs, including reasonable
attorney's fees, incurred by such Limited Owner to compel
the production of such information, and for any actual
damages suffered by such Limited Owner as a result of such
refusal or neglect; provided, however, it shall be a
defense of the Managing Owner that the actual purpose of
the Limited Owner's request for such information was not
reasonably related to the Limited Owner's interest as a
beneficial owner in the Trust (e.g., to secure such
information in order to sell it, or to use the same for a
commercial purpose unrelated to the participation of such
Limited Owner in the Trust). The foregoing rights are in
addition to, and do not limit, other remedies available to
Limited Owners under federal or state law.
(b) The Limited Owners shall receive from the
Series in which they hold Interests, the share of the
distributions provided for in this Trust Agreement in the
manner and at the times provided for in this Trust
Agreement.
(c) Except for the Limited Owners' redemption
rights set forth in Article VII hereof or upon a mandatory
redemption effected by the Managing Owner pursuant to
Section 4.2(h) hereof, Limited Owners shall have the right
to demand the return of their capital account only upon the
dissolution and winding up of the Series in which they hold
Interests and only to the extent of funds available
therefor. In no event shall a Limited Owner be entitled to
demand or receive property other than cash. Except with
respect to Series or class differences, no Limited Owner
shall have priority over any other Limited Owner either as
to the return of capital or as to profits, losses or
distributions. No Limited Owner shall have the right to
bring an action for partition against the Trust.
(d) Limited Owners holding Interests representing
at least a majority (over 50%) in Net Asset Value of each
affected Series (not including Interests held by the
Managing Owner and its Affiliates, including the commodity
broker) voting separately as a class may vote to (i)
continue the Series as provided in Section 13.1(b), (ii)
approve the voluntary withdrawal of the Managing Owner and
elect a successor Managing Owner as provided in Section
4.10,
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(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 sixty (60) days' prior written notice.
Except as set forth above, the Limited Owners
shall have no voting or other rights with respect to the
Trust. Prior to the exercise by the Limited Owners of the
rights set forth in Section 8.2(d), the Trust will, if
practicable, provide the Limited Owners with an opinion of
independent legal counsel in each state where the Trust may
be deemed to be conducting its business with respect to
whether or not such exercise would constitute such
participation in the control of the Trust business as would
adversely affect the Limited Owners limited liability under
the laws of such state.
SECTION 8.3 Limitation on Liability.
(a) Except as provided in Sections 4.6(g), 5.3(h)
and 6.6 hereof, and as otherwise provided under Delaware
law, the Limited Owners shall be entitled to the same
limitation of personal liability extended to stockholders
of private corporations for profit organized under the
general corporation law of Delaware and no Limited Owner
shall be liable for claims against, or debts of any Series
of the Trust in excess of his Capital Contribution to that
Series and his share of the Trust Estate and undistributed
profits, except in the event that the liability is founded
upon misstatements or omissions contained in such Limited
Owner's Subscription Agreement delivered in connection with
his purchase of Interests. In addition, and subject to the
exceptions set forth in the immediately preceding sentence,
the Trust shall not make a claim against a Limited Owner
with respect to amounts distributed to such Limited Owner
or amounts received by such Limited Owner upon redemption
unless, under Delaware law, such Limited Owner is liable to
repay such amount.
(b) The Trust shall indemnify, on a pro rata
basis among Series, to the full extent permitted by law
and the other provisions of this Agreement, and to the
extent of the Trust Estate, each Limited Owner (excluding
the Managing Owner to the extent of its ownership of any
Limited Interests) against any claims of liability asserted
against such Limited Owner solely because he is a
beneficial owner of one or more Series' Interests (other
than for taxes for which such Limited Owner is liable under
Section 6.6 hereof).
(c) Every written note, bond, contract,
instrument, certificate or undertaking made or issued by
the Managing Owner shall give notice to the effect that the
same was executed or made by or on behalf of the Trust and
that the obligations of such instrument are not binding
upon the Limited Owners individually but are binding only
upon the assets and
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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 (a) such
reports (in such detail) as are required to be given to
Limited Owners by the CFTC and the NFA, (b) any other
reports (in such detail) required by any other governmental
authority which has jurisdiction over the activities of the
Trust and (c) any other reports or information which the
Managing Owner, in its discretion, determines to be
necessary or appropriate.
SECTION 9.3 Tax Information. Appropriate tax
information (adequate to enable each Limited Owner to
complete and file his federal tax return) shall be
delivered to each Limited Owner as soon as practicable
following the end of each Fiscal Year but generally no
later than March 15.
SECTION 9.4 Calculation of Net Asset Value of a
Series. Net Asset Value of a Series will be estimated as
required. Upon request, on any Business Day, the Managing
Owner shall make available to any Limited Owner the
estimated Net Asset Value of a Series per Interest. Each
Limited Owner shall be notified of any decline in the
estimated Net Asset Value of a Series per Interest to less
than 50% of the Net Asset Value of a Series per Interest as
of the last
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day of the preceding month within seven (7)
Business Days of such occurrence. Included in such
notification shall be a description of the Limited Owners'
voting rights as set forth in Section 8.2 hereof .
SECTION 9.5 Other Reports. The Managing Owner shall
send such other reports and information, if any, to the
Limited Owners as it may deem necessary or appropriate.
Each Limited Owner shall be notified of (a) any material
change in the terms of the Advisory Agreement, including
any change in the Trading Advisor or any modification in
connection with the method of calculating the incentive
fee; (b) any change of Trustee; (c) any other material
change affecting the compensation of any party within seven
(7) Business Days of such occurrence; and (d) a description
of any material effect on the Interests such changes may
have. Included in such notification shall be a description
of the Limited Owners' voting rights as set forth in
Section 8.2 hereof and redemption rights as set forth in
Section 7.1 hereof. In addition, the Managing Owner shall
submit to the Securities Administrator of any State having
jurisdiction over the Trust any information required to be
filed with such Administrator, including, but not limited
to, reports and statements required to be distributed to
the Limited Owners.
SECTION 9.6 Maintenance of Records. The Managing
Owner shall maintain (a) for a period of at least eight (8)
Fiscal Years all books of account required by Section 9.1
hereof; a list of the names and last known address of, and
number of Interests owned by, all Interestholders, a copy
of the Certificate of Trust and all certificates of
amendment thereto, together with executed copies of any
powers of attorney pursuant to which any certificate has
been executed; copies of the Series' federal, state and
local income tax returns and reports, if any; and a record
of the information obtained to indicate that a Limited
Owner meets the investor suitability standards set forth in
the Prospectus, and (b) for a period of at least six (6)
Fiscal Years copies of any effective written trust
agreements, subscription agreements and any financial
statements of the Trust.
SECTION 9.7 Certificate of Trust. Except as
otherwise provided in the Business Trust Statute or this
Trust Agreement, the Managing Owner shall not be required
to mail a copy of any Certificate of Trust filed with the
Secretary of State of the State of Delaware to each Limited
Owner; however, such certificates shall be maintained at
the principal office of the Trust and shall be available
for inspection and copying by the Limited Owners in
accordance with this Trust Agreement. The Certificate of
Trust shall not be amended in any respect if the effect of
such amendment is to diminish the limitation on interseries
liability under Section 3804 of the Business Trust Statute.
SECTION 9.8 Registration of Interests. Subject to
Section 4.3(l) hereof, the Managing Owner shall keep, at
the Trust's principal place of business, an Interest
Register in which, subject to such reasonable regulations
as it may provide, it shall provide for the registration of
Interests and of transfers of Interests. Subject to the
provisions of Article V, the Managing Owner may treat the
Person in whose name any Interest shall be registered in
the
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Interest Register as the Interestholder of such
Interest for the purpose of receiving distributions
pursuant to Article VI and for all other purposes
whatsoever.
ARTICLE X
FISCAL YEAR
SECTION 10.1 Fiscal Year. The Fiscal Year shall
begin on the 1st day of January and end on the 31st day of
December of each year. The first Fiscal Year of the Trust
shall commence on the date of filing of the Certificate of
Trust and end on the 31st day of December 1997. 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 ten percent (10%) of the Net
Asset Value of each Series of the Trust, unless the
proposed amendment affects only certain Series, in which
case such amendment may be proposed by Limited Owners
holding Interests equal to at least ten percent (10%) of
Net Asset Value of a Series of each affected Series.
Following such proposal, the Managing Owner shall submit to
the Limited Owners of each affected Series a verbatim
statement of any proposed amendment, and statements
concerning the legality of such amendment and the effect of
such amendment on the limited liability of the Limited
Owners. The Managing Owner shall include in any such
submission its recommendations as to the proposed
amendment. The amendment shall become effective only upon
the written approval or affirmative vote of Limited Owners
holding Interests equal to at least a majority (over 50%)
of the Net Asset Value of a Series (excluding Interests
held by the Managing Owner and its Affiliates) of the Trust
or, if the proposed amendment affects only certain Series,
of each affected Series, or such higher percentage as may
be required by applicable law, and upon receipt of an
opinion of independent legal counsel as set forth in
Section 8.2 hereof and to the effect that the amendment is
legal, valid and binding and will not adversely affect the
limitations on liability of the Limited Owners as described
in Section 8.3 of this Trust Agreement. Notwithstanding
the foregoing, where any action taken or authorized
pursuant to any provision of this Trust Agreement requires
the approval or affirmative vote of Limited Owners holding
a greater interest in Limited Interests than is required to
amend this Trust Agreement under this Section 11.1, and/or
the approval or affirmative vote of the Managing Owners, an
amendment to such provision(s) shall be effective only upon
the written approval or affirmative vote of the minimum
number of Interestholders which would be
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required to take
or authorize such action, or as may otherwise be required
by applicable law, and upon receipt of an opinion of
independent legal counsel as set forth above in this
Section 11.1. In addition, except as otherwise provided
below, reduction of the capital account of any assignee or
modification of the percentage of Profits, Losses or
distributions to which an assignee is entitled hereunder
shall not be affected by amendment to this Trust Agreement
without such assignee's approval.
(b) Notwithstanding any provision to the contrary
contained in Section 11.1(a) hereof, the Managing Owner
may, without the approval of the Limited Owners, make such
amendments to this Trust Agreement which (i) are necessary
to add to the representations, duties or obligations of the
Managing Owner or surrender any right or power granted to
the Managing Owner herein, for the benefit of the Limited
Owners, (ii) are necessary to cure any ambiguity, to
correct or supplement any provision herein which may be
inconsistent with any other provision herein or in the
Prospectus, or to make any other provisions with respect to
matters or questions arising under this Trust Agreement or
the Prospectus which will not be inconsistent with the
provisions of the Trust Agreement or the Prospectus, or
(iii) the Managing Owner deems advisable, provided,
however, that no amendment shall be adopted pursuant to
this clause (iii) unless the adoption thereof (A) is not
adverse to the interests of the Limited Owners; (B) is
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
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of the Trustee; provided, however, that the
Trustee may not withhold its consent for any action which
the Limited Owners are permitted to take under Section
8.2(d) above. The Trustee shall execute and file any
amendment to the Certificate of Trust if so directed by the
Managing Owner or if such amendment is required in the
opinion of the Trustee.
(f) No provision of this Agreement may be
amended, waived or otherwise modified orally but only by a
written instrument adopted in accordance with this Section
SECTION 11.2 Meetings of the Trust. Meetings of the
Interestholders of the Trust or any Series thereof may be
called by the Managing Owner and will be called by it upon
the written request of Limited Owners holding Interests
equal to at least ten percent (10%) of the Net Asset Value
of a Series of the Trust or any Series thereof. Such call
for a meeting shall be deemed to have been made upon the
receipt by the Managing Owner of a written request from the
requisite percentage of Limited Owners. The Managing Owner
shall deposit in the United States mails, within fifteen
(15) days after receipt of said request, written notice to
all Interestholders of the Trust or any Series thereof of
the meeting and the purpose of the meeting, which shall be
held on a date, not less than thirty (30) nor more than
sixty (60) days after the date of mailing of said notice,
at a reasonable time and place. Any notice of meeting
shall be accompanied by a description of the action to be
taken at the meeting and an opinion of independent counsel
as to the effect of such proposed action on the liability
of Limited Owners for the debts of the Trust.
Interestholders may vote in person or by proxy at any such
meeting.
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.
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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 expire on
December 31, 2047, unless sooner terminated pursuant to
the provisions of Article XIII hereof or as otherwise
provided by law.
ARTICLE XIII
TERMINATION
SECTION 13.1 Events Requiring Dissolution of the
Trust or any Series. The Trust or, as the case may be,
any Series thereof shall dissolve at any time upon the
happening of any of the following events:
(a) The expiration of the Trust term as
provided in Article XII hereof.
(b) The filing of a certificate of dissolution or
revocation of the Managing Owner's charter (and the
expiration of 90 days after the date of notice to the
Managing Owner of revocation without a reinstatement of its
charter) or upon the withdrawal, removal, adjudication or
admission of bankruptcy or insolvency of the Managing Owner
(each of the foregoing events an "Event of Withdrawal")
unless (i) at the time there is at least one remaining
Managing Owner and that remaining Managing Owner carries on
the business of the Trust and each Series or (ii) within
ninety (90) days of such Event of Withdrawal all the
remaining Interestholders agree in writing to continue the
business of the Trust and each Series and to select,
effective as of the date of such event, one or more
successor Managing Owners. If the Trust is terminated as
the result of an Event of Withdrawal and a failure of
all remaining Interestholders to continue the business of
the Trust and to appoint a successor Managing Owner as
provided in clause (b)(ii) above, within one hundred and
twenty (120) days of such Event of Withdrawal, Limited
Owners holding Interests representing at least a majority
(over 50%) of the Net Asset Value of each Series (not
including Interests held by the Managing Owner and its
Affiliates) may elect to continue the business of the Trust
and each Series thereof by forming a new business trust
(the "Reconstituted Trust") on the same terms and
provisions as set forth in this Trust Agreement (whereupon
the parties hereto shall execute and deliver any documents
or instruments as may be necessary to reform the Trust).
Any such election must also provide for the election of a
Managing Owner to the Reconstituted Trust. If such an
election is made, all Limited Owners of the Trust shall be
bound thereby and continue as Limited Owners of the
Reconstituted Trust.
(c) The occurrence of any event which would make
unlawful the continued existence of the Trust or any Series
thereof, as the case may be.
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(d) 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.
(e) 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.
(f) The Trust or, as the case may be, any Series
becomes insolvent or bankrupt.
(g) 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.
(h) The Limited Owners of each Series
holding Interests representing at least a majority (over
50%) of the Net Asset Value of the Series (which excludes
the Interests of the Managing Owner) vote to dissolve the
Trust, notice of which is sent to the Managing Owner not
less than ninety (90) Business Days prior to the effective
date of such terminations.
(i) The decline of the Net Asset Value of a
Series of the Trust Estate by fifty percent (50%) from the
Net Asset Value of a Series of the Trust Estate (i) at the
commencement of the Series' trading activities or (ii) on
the first day of a fiscal year, in each case after
appropriate adjustment for distributions, additional
capital contributions and redemptions.
(j) 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.
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SECTION 13.2 Distributions on Dissolution. Upon the
dissolution of the Trust or any Series, the Managing Owner
(or in the event there is no Managing Owner, such person
(the "Liquidating Trustee") as the majority in interest of
the Limited Owners may propose and approve) shall take full
charge of the Series assets and liabilities. Any
Liquidating Trustee so appointed shall have and may
exercise, without further authorization or approval of any
of the parties hereto, all of the powers conferred upon the
Managing Owner under the terms of this Trust Agreement,
subject to all of the applicable limitations, contractual
and otherwise, upon the exercise of such powers, and
provided that the Liquidating Trustee shall not have
general liability for the acts, omissions, obligations and
expenses of the Trust. Thereafter, the business and
affairs of the Trust or Series shall be wound up and all
assets shall be liquidated as promptly as is consistent
with obtaining the fair value thereof, and the proceeds
therefrom shall be applied and distributed in the following
order of priority: (a) to the expenses of liquidation and
termination and to creditors, including Interestholders who
are creditors, to the extent otherwise permitted by law, in
satisfaction of liabilities of the Series of the Trust
(whether by payment or the making of reasonable provision
for payment thereof) other than liabilities for
distributions to Interestholders, and (b) to the Managing
Owner and each Limited Owner pro rata in accordance with
his positive book capital account balance, less any amount
owing by such Interestholder to the Series, after giving
effect to all adjustments made pursuant to Article VI and
all distributions theretofore made to the Interestholders
pursuant to Article VI. After the distribution of all
remaining assets of the Series, the Managing Owner will
contribute to the Series an amount equal to the lesser of
(i) the deficit balance, if any, in its book capital
account, and (ii) the excess of 1.01% of the total Capital
Contributions of the Limited Owners over the capital
previously contributed by the Managing Owner. Any Capital
Contributions made by the Managing Owner pursuant to this
Section shall be applied first to satisfy any amounts then
owed by the Series to its creditors, and the balance, if
any, shall be distributed to those Interestholders in the
Series whose book capital account balances (immediately
following the distribution of any liquidation proceeds)
were positive, in proportion to their respective positive
book capital account balances.
SECTION 13.3 Termination; Certificate of
Cancellation. Following the dissolution and distribution
of the assets of all Series of the Trust, the Trust shall
terminate and Managing Owner or Liquidating Trustee, as the
case may be, shall execute and cause such certificate of
cancellation of the Certificate of Trust to be filed in
accordance with the Business Trust Statute.
Notwithstanding anything to the contrary contained in this
Trust Agreement, the existence of the Trust as a separate
legal entity shall continue until the filing of such
certificate of cancellation.
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ARTICLE XIV
POWER OF ATTORNEY
SECTION 14.1 Power of Attorney Executed Concurrently.
Concurrently with the written acceptance and adoption of
the provisions of this Trust Agreement, each Limited Owner
shall execute and deliver to the Managing Owner a Power of
Attorney as part of the Subscription Agreement, or in such
other form as may be prescribed by the Managing Owner.
Each Limited Owner, by its execution and delivery hereof,
irrevocably constitutes and appoints the Managing Owner and
its officers and directors, with full power of
substitution, as the true and lawful attorney-in-fact and
agent for such Limited Owner with full power and authority
to act in his name and on his behalf in the execution,
acknowledgment, filing and publishing of Trust documents,
including, but not limited to, the following:
(a) Any certificates and other instruments,
including but not limited to, any applications for
authority to do business and amendments thereto, which the
Managing Owner deems appropriate to qualify or continue the
Trust as a business trust in the jurisdictions in which the
Trust may conduct business, so long as such qualifications
and continuations are in accordance with the terms of this
Trust Agreement or any amendment hereto, or which may be
required to be filed by the Trust or the Interestholders
under the laws of any jurisdiction;
(b) Any instrument which may be required to be
filed by the Trust under the laws of any state or by any
governmental agency, or which the Managing Owner deems
advisable to file; and
A-59
(c) This Trust Agreement and any documents which
may be required to effect an amendment to this Trust
Agreement approved under the terms of the Trust Agreement,
and the continuation of the Trust, the admission of the
signer of the Power of Attorney as a Limited Owner or of
others as additional or substituted Limited Owners, or the
termination of the Trust, provided such continuation,
admission or termination is in accordance with the terms of
this Trust Agreement.
SECTION 14.2 Effect of Power of Attorney. The Power
of Attorney concurrently granted by each Limited Owner to
the Managing Owner:
(a) Is a special, irrevocable Power of Attorney
coupled with an interest, and shall survive and not be
affected by the death, disability, dissolution,
liquidation, termination or incapacity of the Limited
Owner;
(b) May be exercised by the Managing Owner for
each Limited Owner by a facsimile signature of one of its
officers or by a single signature of one of its officers
acting as attorney-in-fact for all of them; and
(c) Shall survive the delivery of an assignment
by a Limited Owner of the whole or any portion of his
Limited Interests; except that where the assignee thereof
has been approved by the Managing Owner for admission to
the Trust as a substituted Limited Owner, the Power of
Attorney of the assignor shall survive the delivery of such
assignment for the sole purpose of enabling the Managing
Owner to execute, acknowledge and file any instrument
necessary to effect such substitution.
Each Limited Owner agrees to be bound by any
representations made by the Managing Owner and by any
successor thereto, determined to be acting in good faith
pursuant to such Power of Attorney and not constituting
negligence or misconduct.
SECTION 14.3 Limitation on Power of Attorney. The
Power of Attorney concurrently granted by each Limited
Owner to the Managing Owner shall not authorize the
Managing Owner to act on behalf of Limited Owners in any
situation in which this Trust Agreement requires the
approval of Limited Owners unless such approval has been
obtained as required by this Trust Agreement. In the event
of any conflict between this Trust Agreement and any
instruments filed by the Managing Owner or any new Managing
Owner pursuant to this Power of Attorney, this Trust
Agreement shall control.
ARTICLE XV
MISCELLANEOUS
SECTION 15.1 Governing Law. The validity and
construction of this Trust Agreement and all amendments
hereto shall be governed by the laws of the State of
Delaware, and the rights of all parties hereto and the
effect of every provision hereof shall be subject to and
construed according to the laws of the State of Delaware
without regard to the conflict of laws provisions thereof;
provided, however, that causes of action for violations of
federal or state securities laws shall not be governed by
this Section 15.1, and provided, further, that the parties
hereto intend that the provisions hereof shall control over
any contrary or limiting statutory or common law of the
State of Delaware (other than the Business Trust Statute)
and that, to the maximum extent permitted by applicable
law, there shall not be applicable to the Trust, the
Trustee, the Managing Owner, the Interestholders or this
Trust Agreement any provision of the laws (statutory or
common) of the State of Delaware (other than the Business
Trust Statute) pertaining to trusts which relate to or
regulate in a manner inconsistent with the terms hereof:
(a) the filing with any court or governmental body or
agency of trustee accounts or schedules of trustee fees and
charges, (b) affirmative requirements to post bonds for
trustees, officers, agents, or employees of a trust, (c)
the necessity for obtaining court or other governmental
approval concerning the acquisition, holding or disposition
of real or personal property, (d) fees or other sums
payable to trustees, officers, agents or employees of a
trust, (e) the allocation of receipts and expenditures to
income or principal, (f) restrictions or limitations on the
permissible nature, amount or concentration of trust
investments or requirements relating to the titling,
storage or other manner of holding of trust assets, or (g)
A-60
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
A-61
may be. Requests for
redemption, notices of assignment, transfer, pledge or
encumbrance of Interests shall be effective upon timely
receipt by the Managing Owner in writing.
SECTION 15.5 Counterparts. This Trust Agreement may
be executed in several counterparts, and all so executed
shall constitute one agreement, binding on all of the
parties hereto, notwithstanding that all the parties are
not signatory to the original or the same counterpart.
SECTION 15.6 Binding Nature of Trust Agreement. The
terms and provisions of this Trust Agreement shall be
binding upon and inure to the benefit of the heirs,
custodians, executors, estates, administrators, personal
representatives, successors and permitted assigns of the
respective Interestholders. For purposes of determining
the rights of any Interestholder or assignee hereunder, the
Trust and the Managing Owner may rely upon the Trust
records as to who are Interestholders and permitted
assignees, and all Interestholders and assignees agree that
the Trust and the Managing Owner, in determining such
rights, shall rely on such records and that Limited Owners
and assignees shall be bound by such determination.
SECTION 15.7 No Legal Title to Trust Estate. The
Interestholders shall not have legal title to any part of
the Trust Estate.
SECTION 15.8 Creditors. No creditors of any
Interestholders shall have any right to obtain possession
of, or otherwise exercise legal or equitable remedies with
respect to the Trust Estate.
SECTION 15.9 Integration. This Trust Agreement
constitutes the entire agreement among the parties hereto
pertaining to the subject matter hereof and supersedes all
prior agreements and understandings pertaining thereto.
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:
A-62
PRUDENTIAL SECURITIES FUTURES
MANAGEMENT INC.,
as Managing Owner
By:________________________
Name: Thomas M. Lane
Title: President
All Limited Owners now and
hereafter admitted as Limited
Owners of the Trust, pursuant
to powers of attorney now and
hereafter executed in favor
of, and granted and delivered
to, the Managing Owner
By:___________________________
Attorney-in fact
A-63
EXHIBIT A
CERTIFICATE OF TRUST
OF
WORLD MONITOR TRUST
This Certificate of Trust is filed in accordance with
the provisions of the Delaware Business Trust Act (12 Del. C.
Section 3801 et seq.) and sets forth the following:
FIRST: The name of the trust is World Monitor Trust (the
"Trust").
SECOND: The name and the business address of the
Delaware trustee is Wilmington Trust Company, Rodney Square
North, 1110 North Market Street, Wilmington, Delaware 19890,
Attention: Corporate Trust Administration.
THIRD: Pursuant to Section 3806(b)(2) of the Delaware
Business Trust Act, the Trust shall issue one or more series
of beneficial interests having the rights, powers and duties
as set forth in the Declaration of Trust and Trust Agreement
of the Trust dated December 17, 1997, as the same may be
amended from time to time (each a "Series").
FOURTH: Notice of Limitation of Liability of each
Series: Pursuant to Section 3804 of the Delaware Business
Trust 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.
WILMINGTON TRUST COMPANY, Trustee
By_______________________________
A-64
EXHIBIT B
WORLD MONITOR TRUST
REQUEST FOR REDEMPTION
, 19
(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 A:
Series B:
Series C:
(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 on the Friday
immediately preceding the Dealing Date, assuming that this
Request for Redemption is received by the Managing Owner on at
least two (2) Business Days' prior written notice
("Redemption Date"). The first permissible Redemption Date
shall be the end of the first full week of trading activity by
the Series in which the Interests are owned ("Interests"). 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% of the Series Net Asset Value at which they are
redeemed, respectively. I understand 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 for
subscriptions made during the Continuous Offering Period means the
applicable Dealing Day. 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
Request for Redemption relates, with full power and authority
to request Redemption of such Interests. Such Interests are
not subject to any pledge or otherwise encumbered in any
fashion. My signature has been guaranteed by a commercial
bank with a correspondent in New York or by a member of a
registered national securities exchange.
United States Taxable Limited Owners Only
Under the penalties of perjury, I hereby certify that the
Social Security Number or Taxpayer ID Number indicated on this
Request for Redemption is my true, correct and complete Social
Security Number or Taxpayer ID Number and that I am not
subject to backup withholding under the provisions of Section
3406(a)(1)(C) of the Internal Revenue Code.
Non-United States Limited Owners Only
Under penalties of perjury I hereby certify that (a) I am
not a citizen or resident of the United States and have not
been present in the United States for 183 days or more during
any calendar year or (b) I am a non-United States corporation,
partnership, estate or trust.
SIGNATURES ON REVERSE SIDE MUST BE IDENTICAL TO NAME(S)
IN WHICH INTERESTS OF TRUST ARE REGISTERED
INTERESTS REGISTERED IN THE NAME(S) OF:
- -----------------------------------------------------------------------
Type or Print Name Social Security or Taxpayer ID
- -----------------------------------------------------------------------
Street
- -----------------------------------------------------------------------
City State Zip Code
- -----------------------------------------------------------------------
Account # Type FA
B-1
SIGNATURE(S)
Individual Owner(s) or Assignee(s)
----------------------------------------
----------------------------------------
----------------------------------------
Signature(s) Guaranteed by:
- -------------------------- ----------------------------------------
Signature(s) of owner(s) or assignee(s)
Entity Owner (or assignee)
-------------------------------------------
Signature(s) Guaranteed by: ____________________________________________
- -------------------------- By:_________________________________________
(Trustee, partner, or authorized officer.
If a corporation, include certified copy
of authorizing resolution.)
NOTE: If the entity owner is a trustee, custodian, or
fiduciary of an Individual Retirement Account, Keogh
Plan without common law employees or employee benefit
plan under which a plan participant may exercise
control over assets in his account, the signature of
the plan participant must also be supplied.
Plan Participant
Signature(s) Guaranteed by: __________________________________________
Type or Print Name
- -------------------------- ------------------------------------------
(Signature)
THIS REQUEST FOR REDEMPTION MUST BE RECEIVED BY THE MANAGING
OWNER AT LEAST TWO (2) BUSINESS DAYS' PRIOR TO THE DEALING
DAY ON WHICH YOUR REDEMPTION IS TO BECOME EFFECTIVE.
B-2
EXHIBIT C
EXCHANGE REQUEST
To: WORLD MONITOR TRUST
Prudential Securities Futures Management Inc.
One New York Plaza, 12th Floor
Specialty Finance Operations
New York, New York 10292
I hereby request the following exchange of Interests as of the
Dealing Date which first occurs two (2) business days after
your receipt of this Exchange Request, upon the terms and
conditions described in the Prospectus for the World Monitor
Trust dated April ____, 1998. I certify that all of the
statements, including all representations and warranties, made
in my original Subscription Agreement remain accurate. I
(either in my individual capacity or as an authorized
representative of an entity, if applicable) hereby represent
and warrant that I am the true, lawful, and beneficial owner
of the Interests to which this Exchange Request relates, with
full power and authority to request an Exchange of such
Interests. Such Interests are not subject to any pledge or
otherwise encumbered in any fashion. My signature has been
guaranteed by a commercial bank with a correspondent in New
York or by a member of a registered national securities
exchange.
Amount to be Redeemed Upon Exchange
Totals in each column must be equal.
Series A $____________ or All Interests
Series B $____________ or All Interests
Series C $____________ or All Interests
C-1
Amount to be Purchased Upon Exchange
Series A $____________
Series B $____________
Series C $____________
Total $_______________ Total $_______________
SIGNATURES ON REVERSE SIDE MUST BE IDENTICAL TO NAME(S)
IN WHICH INTERESTS OF TRUST ARE REGISTERED
INTERESTS REGISTERED IN THE NAME(S) OF:
Type or Print Name Social Security or Taxpayer ID
Street
City State Zip Code
Account # Type FA
This Exchange Request is intended to be used for an even-value
exchange of Interests from one or more Series into one or more
different Series. This Exchange Request is not to be used to
redeem Interests or to purchase additional Interests of a
Series in which you are currently a Limited Owner.
C-2
SIGNATURE(S)
Individual Owner(s) or Assignee(s)
Signature(s) Guaranteed by:
Signature(s) of owner(s) or assignee(s)
Entity Owner (or assignee)
Signature(s) Guaranteed by:
By:
(Trustee, partner, or
authorized officer.
If a corporation, include
certified copy
of authorizing resolution.)
NOTE: If the entity owner is a trustee, custodian, or
fiduciary of an Individual Retirement Account, Keogh
Plan without common law employees or employee benefit
plan under which a plan participant may exercise
control over assets in his account, the signature of
the plan participant must also be supplied.
Plan Participant
Signature(s) Guaranteed by:
Type or Print Name
(Signature)
IF SUBMITTED IN ACCORDANCE WITH REQUIRED PROCEDURES, THE
EXCHANGE REQUESTED HEREIN WILL BE EFFECTIVE AS OF THE DEALING
DAY (USUALLY MONDAY) OF THE WEEK FOLLOWING A WEEK AFTER WHICH
THIS EXCHANGE REQUEST WAS RECEIVED.
FOR USE BY PSI-FA ONLY
C-3
Ledger Code Account Number FA# Phone Order
- -
Client Account Number at PSI
FA Name FA Telephone No. Branch Name and Wire Code of Branch
Signature of FA and Date Signature of Branch Manager and Date
FOR USE BY TRUST ONLY
Interests to be Redeemed:
Series A Interests: Amount $
Series B Interests: Amount $
Series C Interests: Amount $
Total $
Interests to be Purchased:
Series A Interests: Amount $
Series B Interests: Amount $
Series C Interests: Amount $
Total $
C-4
EXHIBIT D
WORLD MONITOR TRUST
SUBSCRIPTION AGREEMENTS FOR
LIMITED LIABILITY BENEFICIAL INTERESTS
INSTRUCTIONS (Please read carefully)
A. Using a typewriter or printing in ink, check the appropriate box or
fill in the blanks on Pages D-2 through D-4 as directed herein:
CHECK THE APPROPRIATE BOX
Boxes (i) NEW SUBSCRIBER(S)
(ii) EXISTING OWNER(S) OF SERIES A, B, OR C 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 OR 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-7.
Number 2 SOCIAL SECURITY 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).
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. ALL
SIGNATURE PAGES MUST BE COUNTERSIGNED BY THE BRANCH MANAGER.
Number 8 CLIENT(S) SIGNATURE(S) IF ACCOUNT TYPE IS INDIVIDUAL OR JOINT.
Number 9 CLIENT'S SIGNATURE IF ACCOUNT TYPE IS AN INDIVIDUAL RETIREMENT
ACCOUNT OR KEOGH PLAN WITHOUT ANY COMMON LAW EMPLOYEES.
Number 10 SIGNATURE OF AUTHORIZED CORPORATE OFFICER, PARTNER,
TRUSTEE CUSTODIAN OR FIDUCIARY IF ACCOUNT TYPE IS A
CORPORATION, PARTNERSHIP, TRUST, KEOGH WITH EMPLOYEES OR
OTHER EMPLOYEE BENEFIT PLAN (E.G., PENSION OR PROFIT
SHARING PLAN).
Number 11 SUBSCRIBER(S) MUST INITIAL EACH APPLICABLE REPRESENTATION
AND WARRANTY IN THE SPACE PROVIDED IN THE LEFT MARGIN.
Number 12 SUBSCRIBER(S) MUST INITIAL THE SUBORDINATION AGREEMENT IN
THE SPACE PROVIDED IN THE LEFT MARGIN.
B. Subscriber's admission as a Limited Owner of a Series will be
determined based on the date on which a fully completed, dated, and
signed Subscription Agreement is delivered to Prudential Securities
or an Additional Seller during the Initial and Continuous Offering
Period. A subscriber may not deliver his Subscription Agreement to
the Trust's offices. If such delivery is made, the Subscription
Agreement will be returned to the subscriber to be forwarded to his
Prudential Securities branch office or to an Additional Seller.
C. U.S. subscribers must have W-9s and non-U.S. subscribers must have
W-8s on file with Prudential Securities.
D-2
WORLD MONITOR TRUST
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; (b) if
information has changed, follow
instructions for new subscriber(s).
1. Total Dollar Amount of Subscription:
Series A Interests.....................$
Series B Interests.....................$
Series C 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 have checked the following box because I (we) am (are) subject to
backup withholding under the provisions of Section 3406(a)(1)(C) of the
Internal Revenue Code:
4. Check Account Type
// Individual Ownership // Corporation
// Joint Tenants with Right of Survivorship // Keogh Plan (no
(All tenants' Signatures required) common law employees)
// Tenants in Common (All tenants'
Signatures required)
// Community Property (Both Signatures // Other Employee Benefit
required) Plan (e.g.,
// Custodian // Pension, Profit Sharing,
Keogh plan
// Partnership with employees)
// Trust // Individual Retirement
Account (Non-PSI employees)
// UGMA or UTMA // Individual Retirement
Account (PSI employees)
5. Full Name of Account, Joint Owners, Trustee, if trust account,
Custodian, if custodian account or other Authorized Person, if
Partnership, Corporation or Institutional Trustee or Plan fiduciary
(No Initials).
__________________________________________________________________
Mailing Address. If trust or custodian account, address of
Trustee, Custodian or Plan Fiduciary.
__________________________________________________________________
City State Zip Code Country Business Telephone No.
or if none, Home No.
New Worth of Subscriber (exclusive of home, home furnishings and
automobiles): $______________
Annual Gross Income of Subscriber: $_______________
D-3
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
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 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
under the caption "Subscriber(s)."
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PRINT FULL NAME OF FA FA# WIRE CODE OF BRANCH
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FA'S SIGNATURE FA'S TELEPHONE NUMBER
I have received all documents required to accept this
subscription and acknowledge the suitability of the subscriber and
the amount of the subscription for each Series. If the subscriber is
other than an individual subscriber, I acknowledge that my review of
the subscriber's governing documents indicates that such documents
permit investment in commodities funds whose principal business is
speculative futures trading.
( )
------------------------ ----------------------------
BRANCH MANAGER'S SIGNATURE BRANCH MANAGER'S TELEPHONE NUMBER
FOR ALL ACCOUNTS
SUBSCRIBERS -- DO NOT SIGN WITHOUT READING THE "REPRESENTATIONS AND
WARRANTIES" AND "NOTICE OF RISKS TO SUBSCRIBERS" AND
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) 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) THAT
THE PERFORMANCE TABLES INCLUDED IN THE
PROSPECTUS MUST BE READ ONLY IN CONJUNCTION WITH THE
NOTES THERETO; (VII) THE TAX CONSEQUENCES OF AN
INVESTMENT IN THE TRUST; (VIII) THE LIMITATIONS ON
LIMITED LIABILITY; (IX) THAT THERE ARE SUBSTANTIAL
RESTRICTIONS ON THE TRANSFERABILITY OF INTERESTS; AND
(X) THE SERIES' STRUCTURE AND PROPOSED HIGHLY
LEVERAGED TRADING ACTIVITIES.
Payment of the above subscription will be made by charging the
subscriber's account with Prudential Securities Incorporated or any
Additional Seller. In the event that the subscriber does not have a
customer account with Prudential Securities Incorporated or any
Additional Seller or does not have sufficient funds in its existing
account, the Subscriber should make appropriate arrangements with its
financial advisors, if any, and if none, should contact its local
Prudential Securities Incorporated branch office or the branch office
of any Additional Seller.
D-4
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
X X
---------------------- ----------------------------------------------
(Signature of Subscriber) (Signature of Joint Owner, if any) Date
---------------------- ----------------------------------------------
(Print or Type Name (Print or Type Name of Signatory)
of Signatory)
9. IRA AND KEOGH PLAN (WITHOUT COMMON LAW EMPLOYEES) SUBSCRIPTION
X
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(Signature of IRA beneficiary or plan participants) Date
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(Print or Type Name of Signatory)
10. ENTITY (CUSTODIAN, CORPORATION, PARTNERSHIP, TRUST, EMPLOYEE
BENEFIT PLAN) SUBSCRIPTION
The undersigned corporate officer, partner, or trustee custodian or
fiduciary hereby certifies and warrants that s/he 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
investment in the Trust has been affirmatively authorized by the
governing board or body, if any, of the entity (if a corporation or
partnership) and is not prohibited by law or the governing documents
of the entity.
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(Type or Print Name of Entity, Trust or Custodial Account)
X
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(Signature of Authorized Corporate Date
Officer, Partner, Trustee
Custodian or Fiduciary)
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(Print or Type Name of Signatory)
D-5
11. REPRESENTATIONS AND WARRANTIES
I(we) hereby represent and warrant to the Managing Owner and the
Trust as follows (please initial each applicable representation and
warranty):
____ (1) I (we) satisfy one of the following financial standards
outlined below for subscription in the Trust:
____ I (we) am (are) not acting on behalf of an Employee Benefit
Plan and I (we) have either
____ (A) a net worth (exclusive of home, home furnishings, and
automobiles) of at least $150,000 or
____ (B) 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.
____ (C) 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, if I (we) am (are) a participant in a Plan, it
meets the net worth and gross income requirement in (A) or (B)
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.
____ (D) 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 assets of the Plan are at least
$150,000 and its investment in the Trust does not exceed 10%
of the assets of the Plan at the time of investment.
____ (E) If I (we) am (are) a resident(s) of one of those states
listed under "State Suitability Requirements", 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.
____ (2) The address set forth under the caption "Subscriber(s)"
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 under that caption is true,
correct, and complete as of the date of this Subscription
Agreement and if there should be any material change in such
information prior to my (our) admission to the Trust as a
Limited Owner, I (we) will immediately furnish such revised or
corrected information to the Managing Owner. I (we) will
furnish the Managing Owner with such other documents as it may
request to evaluate this subscription.
____ (3) I (we) am (are) over 21 years old and am (are) legally
competent and 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.
____ (5) I (we) have received a Prospectus of each Series which
constitutes its Commodity Futures Trading Commission ("CFTC")
Disclosure Document.
____ (6) I (we) am (are) purchasing the Limited Interests for our
own account.
____ (7) If trading for the applicable Series has commenced, I
(we) have received a copy of its most recent monthly report as
required by the CFTC.
____ (8) I (we) acknowledge that as a holder or holders of any
interests in, or claims of any kind against, any Series, I
(we) will seek to recover any debts, liabilities, obligations
and expenses incurred or otherwise existing with respect to
that Series solely from, or to assert such claims solely
against, (i) the assets of that Series (and not the assets of
any other Series or the Trust generally) or (ii) the Managing
Owner.
By making these representations and warranties, Subscribers are not
waiving any rights of action which they may have under applicable
federal or state securities laws. Federal securities law provides that
any such waiver would be unenforceable. Subscribers should be aware,
however, that the representations and warranties set forth herein may
be asserted in the defense of the Trust or others in any subsequent
litigation or other proceeding.
12. SUBSCRIBERS CONSENT AND SUBORDINATION AGREEMENT
____ I(we), a Subscriber(s) who is(are) purchasing Interests in the
Series that is the subject of this agreement (Series ___) (the
"Contracting Series"), agrees and consents (the "Consent") to look
solely to the assets (the "Contracting Series Assets") of the
Contracting Series and to the Managing Owner and its assets for payment.
The Contracting Series Assets include only those funds and other assets
that are paid, held or distributed to the Trust on account of and for
the benefit of the Contracting Series, including, without limitation,
funds delivered to the Trust for the purchase of Interests in a Series.
D-6
In furtherance of the Consent, the Subscriber agrees 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 Interests,
beneficial interests or equity ownership of any kind (collectively,
"Interests"), 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 Interests, if any, of the Subscriber
(collectively, the "Subordinated Claims and Interests") shall be
expressly subordinate and junior in right of payment to any and all
other Claims against and Interests 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 Interests (if any) in the Contracting Series
shall not be considered Subordinated Claims and Interests 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
Interests, if any, in the Contracting Series shall be pari passu and
equal in right of repayment and distribution with all other Interests
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 Interests;
(b) the Claims and Interests of the Subscriber with respect to the
Contracting Series shall only be asserted and enforceable against the
Contracting Series, the Contracting Series Assets and the Managing Owner
and its assets; and such Claims and Interests 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 Bankruptcy Code (11 U.S.C. S 1111(b))) any
right to have any deficiency Claims (which deficiency Claims may arise
in the event such security is inadequate to satisfy such Claims) treated
as unsecured Claims against the Trust or any Series (other than the
Contracting Series), as the case may be;
(d) in furtherance of the foregoing, if and to the extent that the
Subscriber receives monies in connection with the Subordinated Claims
and Interests 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, the Interests are sold, transferred, redeemed
or in any way disposed of and notwithstanding that the agreements in
respect of such Claims and Interests are terminated, rescinded or
canceled.
NOTICES TO SUBSCRIBERS
13. RISKS
These securities are speculative and their purchase involves a high
degree of risk. Risk Factors relating to the Interests in each Series
which are more fully described in the Prospectus include the following:
(i) futures, forward and options trading is speculative, volatile and
highly leveraged; (ii) each Series is largely reliant on the Trading
Advisor for success; (iii) past performance of the Trading Advisor for
each Series is not necessarily indicative of future results; (iv) a
Limited Owner's tax liability is likely to exceed his cash
distributions; (v) substantial charges will be imposed on each Series;
and it is estimated that each Series will have to achieve net trading
profits (after taking interest income into account) of approximately
5.00% per annum for Series A, B, and C in order to offset expenses, and
of approximately 8.00% to also offset the 3% redemption charge imposed
on an Interest being redeemed as of the end of the 12th month following
its sale; (vi) Limited Owners will have limited voting rights and no
control over the Trust's business as well as the business of each
Series; (vii) a Limited Owner could lose a substantial portion, or even
all, of his investment; (viii) Limited Owners will have a limited
ability to liquidate their Interests in a Series because transferability
is restricted, redemption is limited and no trading market exists; (ix)
actual and potential conflict of interests exist; and (x) Prudential
Securities and its affiliates have been involved in several lawsuits,
investigations, and enforcement actions by regulatory authorities,
including various matters surrounding allegations relating to the sale
of interests in over 700 non-commodities limited partnerships. See
"Risk Factors" in the Prospectus.
D-7
14. SUBSCRIPTIONS
The minimum subscription amount is $5,000 or $2,000 for trustees or
custodians of employee benefit plans, except in the case of certain
states (see State Suitability Requirements, attached). 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 Series'
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.
Prudential Securities Futures Management Inc. (the "Managing Owner")
may, in its sole and absolute discretion, accept or reject this
subscription in whole or in part. THE SALE OF LIMITED INTERESTS WILL
NOT BE FINAL AND BINDING ON ANY SUBSCRIBER UNTIL AT LEAST FIVE (5)
BUSINESS DAYS AFTER SUCH SUBSCRIBER DELIVERS 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 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-8
THE EXECUTION COPY OF THE SUBSCRIPTION AGREEMENT AND POWER
OF ATTORNEY ACCOMPANIES THIS PROSPECTUS AS A SEPARATE DOCUMENT
WORLD MONITOR TRUST
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
Prudential Securities Futures
Management Inc.
One New York Plaza, 12th Floor
Specially Financial 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 A, B, and/or C of World Monitor Trust (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.
D-9
3. Power of Attorney. In connection with my purchase of Limited
Interests, I do hereby irrevocably constitute and appoint the Managing
Owner and its successors and assigns, as my true and lawful Attorney-in-
Fact, with full power of substitution, in my name, place and stead, to
(i) file, prosecute, defend, settle or compromise litigation, claims or
arbitrations on behalf of the Trust and Series and (ii) make, execute,
sign, acknowledge, swear to, deliver, record and file any documents or
instruments which may be considered necessary or desirable by the
Managing Owner to carry out fully the provisions of the Declaration of
Trust 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, shall survive, and shall not be affected by, my subsequent
death, incapacity, disability, insolvency or dissolution or any delivery
by me of an assignment of the whole or any portion of my Limited
Interests.
4. Governing Law. Subscriber hereby acknowledges and agrees that
this Subscription Agreement and Power of Attorney shall be governed by
and be interpreted in accordance with the laws of the State of Delaware,
without regard to principles of conflicts of laws.
PLEASE COMPLETE THE SUBSCRIPTION AGREEMENT AND POWER OF ATTORNEY
SIGNATURE PAGE WHICH ACCOMPANIES THIS PROSPECTUS CAREFULLY.
D-10
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 or $2,000 in the case
of Individual Retirement Accounts.
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
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.
Idaho. . . . . . . No offers or sales permitted except in compliance
with Section 30-1435 of the Idaho Securities
Regulations.
Iowa . . . . . . . (a) $225,000 NW, or (b) $60,000 NW and $60,000 TI.
Minimum subscription for IRAs is $3,000.
Massachusetts. . . (a) $225,000 NW, or (b) $60,000 NW and $60,000 TI.
Michigan . . . . . (a) $225,000 NW, or (b) $60,000 NW and $60,000 TI.
Minnesota. . . . . (a) $225,000 NW, or (b) $60,000 NW and $60,000
AI.
Mississippi. . . . (a) $225,000 NW, or (b) $60,000 NW and $60,000 AI.
Missouri . . . . . (a) $225,000 NW, or (b) $60,000 NW and $60,000 TI.
Nebraska . . . . . (a) $225,000 NW, or (b) $60,000 NW and $60,000 TI.
New Hampshire. . . (a) $250,000 NW, or (b) $125,000 NW and
$50,000 TI.
North Carolina . . (a) $225,000 NW, or (b) $60,000 NW and $60,000 TI.
Oklahoma . . . . . (a) $225,000 NW, or (b) $60,000 NW and $60,000 AI.
Oregon . . . . . . (a) $225,000 NW, or (b) $60,000 NW and $60,000 AI.
Pennsylvania . . . (a) $175,000 NW, or (b) $100,000 NW and $50,000 TI.
South Dakota . . . (a) $225,000 NW, or (b) $60,000 NW and $60,000 AI.
Tennessee. . . . . (a) $250,000 NW, or (b) $60,000 NW and $60,000 TI.
Texas. . . . . . . (a) $225,000 NW, or (b) $60,000 NW and $60,000 TI.
AN INVESTMENT IN THE TRUST MAY NOT EXCEED 10% OF NW
D-11
WORLD MONITOR TRUST - SERIES C
The date of this Part II is March 8, 1999.
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
Item 15. Recent Sales of Unregistered Securities.
On December 17, 1997, the Registrant sold 10 interests to the managing
owner for $1,000 to effect the formation of the Trust as a Delaware
business trust. At the initial closing on June 10, 1998, the Registrant sold
an additional 750 interests to the managing owner for $75,000. No
underwriting discount or sales commission was paid or received with
respect to these sales. The Registrant claims an exemption from
registration for these transactions based on Section 4(2) of the Securities
Act of 1933, as amended, as a sale by an issuer not involving a public
offering.
Item 16. Exhibits and Financial Statements Schedules.
(a) The following documents (unless otherwise indicated) are filed herewith
and made a part of this Registration Statement:
*1.1 Form of Underwriting Agreement among the Registrant, Prudential
Securities Futures Management, Inc. and Prudential Securities
Incorporated
3.1
and
4.1 Declaration of Trust and Trust Agreement of the Registrant
(annexed to the Prospectus as Exhibit A)
4.2 Form of Request for Redemption (annexed to the Prospectus as
Exhibit B)
4.3 Form of Exchange Request (annexed to the Prospectus as Exhibit C
4.4 Form of Subscription Agreement (annexed to the Prospectus as
Exhibit D)
*5.1 Opinion of Rosenman & Colin LLP as to legality
*5.2 Opinion of Richards, Layton & Finger PA as to legality and inter-
series liability
* Previously filed.
II-1
*5.3 Opinion of Rosenman & Colin LLP as to legality with regard to
federal bankruptcy issues
8.1 Opinion of Rosenman & Colin LLP as to income tax matters
*10.1 Form of Escrow Agreement among the Registrant, Prudential
Securities Futures Management, Inc., Prudential Securities
Incorporated and The Bank of New York
*10.2 Form of Brokerage Agreement between the Registrant and
Prudential Securities Incorporated
*10.3 Form of Advisory Agreement among the Registrant, Prudential
Securities Futures Management, Inc., and the Advisor
*10.4 Form of Representation Agreement Concerning the Registration
Statement and the Prospectus among the Registrant, Prudential
Securities Futures Management, Inc., Prudential Securities
Incorporated, Wilmington Trust Company and the advisor
*10.5 Form of Net Worth Agreement between Prudential Securities
Futures Management, Inc. and Prudential Securities Group Inc.
23.1 The consent of PricewaterhouseCoopers LLP is included as part of
the Registration Statement
23.2 The consent of Rosenman & Colin LLP is included as part of the
Registration Statement
24.3 The consent of Richards, Layton & Finger PA is included as
part of the Registration Statement
* Previously filed.
(b) The following financial statements are included in the Prospectus:
1. World Monitor Trust -- Series A
(i) Report of Independent Accountants
(ii) Financial Statements as of December 31, 1998 and 1997 and for the
period from June 10, 1998 (commencement of operations) to
December 31, 1998
II-2
(iii) Notes to Financial Statements
2. World Monitor Trust -- Series B
(i) Report of Independent Accountants
(ii) Financial Statements as of December 31, 1998 and 1997 and for the
period from June 10, 1998 (commencement of operations) to
December 31, 1998
(iii) Notes to Financial Statements
3. World Monitor Trust -- Series C
(i) Report of Independent Accountants
(ii) Financial Statements as of December 31, 1998 and 1997 and for the
period from June 10, 1998 (commencement of operations) to
December 31, 1998
(iii) Notes to Financial Statements
4. Prudential Securities Futures Management, Inc.
(i) Report of Independent Accountants
(ii) Statement of Financial Condition as of December 31, 1998
(iii) Notes to Statement of Financial Condition
5. Diversified Futures Trust I
(i) Report of Independent Accountants
(ii) Statement of Financial Condition as of December 31, 1998
(iii) Notes to Statement of Financial Condition
All schedules have been omitted as the required information is inapplicable
or is presented in the Statements of Financial Condition or related notes.
Item 17. Undertakings.
Registrant undertakes (a) to file, during any period in which offers or sales
are being made, a post-effective amendment to the Registration Statement:
(i) to include any prospectus required by Section 10(a)(3) of the Securities
Act of 1933 (the "Act"), (ii) to reflect in the prospectus any facts or events
arising after the effective date of the Registration Statement (or the most
recent post-effective amendment thereof) which, individually or in the
aggregate, represent a fundamental change in the information set forth in
the Registration Statement and (iii) to include any material information
with respect to the plan of distribution not previously
II-3
disclosed in the Registration Statement or any material change
to such information in the Registration Statement; (b) that,
for the purposes of determining any liability under the Act,
each such post-effective amendment be deemed to be a new
Registration Statement relating to the securities offered herein
and the offering of such securities at that time shall be deemed to be the
initial bona fide offering thereof; and (c) to remove from registration by
means of a post-effective amendment any of the securities being registered
which remain unsold at the termination of the offering.
Insofar as indemnification for liabilities arising under the Act may be
permitted to the managing owner of Registrant, including its directors,
officers, and controlling persons, Registrant has been advised that in the
opinion of the Securities and Exchange Commission such indemnification
is against public policy as expressed in the Act and is, therefore,
unenforceable. In the event that a claim for indemnification against such
liabilities (other than for expenses incurred in a successful defense) is
asserted against Registrant by the managing owner under the Declaration
of Trust and Trust Agreement or otherwise, Registrant will, unless in the
opinion of its counsel the matter has been settled by controlling precedent,
submit to a court of appropriate jurisdiction the question whether such
indemnification by it is against public policy as expressed in the Act and
will be governed by the final adjudication of such issue.
II-4
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, the Registrant
has duly caused this Registration Statement to be signed on its behalf by
the undersigned, thereunto duly authorized, in the City of New York, State
of New York, on the 8th day of March, 1999.
WORLD MONITOR TRUST - SERIES C
By: Prudential Securities Futures
Management, Inc., Managing Owner
By: /s/ Thomas M. Lane
Thomas M. Lane, President
Pursuant to the requirements of the Securities Act of 1933, this
Registration Statement has been signed below by the following persons in
their capacities as directors or officers of Prudential Securities Futures
Management Inc., the Managing Owner of the Registrant, on the dates
indicated below.
Signature Title Date
/s/ Thomas M. Lane President and Director March 5, 1999
- -----------------------
Thomas M. Lane
/s/ Eleanor L. Thomas First Vice President March 5, 1999
- -----------------------
Eleanor L. Thomas
Director March 5, 1999
- -----------------------
A. Laurence Norton, Jr.
/s/ Guy S. Scarpaci Director March 5, 1999
- -----------------------
Guy S. Scarpaci
/s/ Barbara J. Brooks Chief Financial Officer March 5, 1999
- -----------------------
Barbara J. Brooks
/s/ Steven Carlino Chief Accounting Officer, March 5, 1999
- ----------------------- Vice President and Treasurer
Steven Carlino
/s/ Tamara B. Wright Vice President and Director March 5, 1999
- -----------------------
Tamara B. Wright
(Being the principal executive officers, the principal financial officer,
the principal accounting officer and a majority of the directors
of Prudential Securities Futures Management Inc.)
II-5
INDEX TO EXHIBITS
Page in
Sequential
Numbering
System
Exhibits
*1.1 Form of Underwriting Agreement among the
Registrant, Prudential Securities Futures
Management Inc. and Prudential Securities
Incorporated
3.1
and
4.1 Declaration of Trust and Trust Agreement of the
Registrant (annexed to the Prospectus as
Exhibit A)
4.2 Form of Request for Redemption (annexed to the
Prospectus as Exhibit B)
4.3 Form of Exchange Request (annexed to the
Prospectus as Exhibit C
4.4 Form of Subscription Agreement (annexed to the
Prospectus as Exhibit D)
*5.1 Opinion of Rosenman & Colin LLP as to legality
*5.2 Opinion of Richards, Layton & Finger PA as to
legality and inter-Series liability under
Delaware Law
*5.3 Opinion of Rosenman & Colin LLP as to federal
bankruptcy issues
8.1 Opinion of Rosenman & Colin LLP as to income
tax matters
*10.1 Form of Escrow Agreement among the Registrant,
Prudential Securities Futures Management Inc.,
Prudential Securities Incorporated and The
Bank of New York
* Previously filed.
Page in
Sequential
Numbering
System
Exhibits
*10.2 Form of Brokerage Agreement between the
Registrant and Prudential Securities
Incorporated
*10.3 Form of Advisory Agreement among the Registrant,
Prudential Securities Futures Management Inc.,
and the Advisor
*10.4 Form of Representation Agreement Concerning
the Registration Statement and the Prospectus among
the Registrant, Prudential Securities Futures
Management Inc., Prudential Securities Incorporated,
Wilmington Trust Company and the Advisor
*10.5 Form of Net Worth Agreement between Prudential
Securities Futures Management Inc. and Prudential
Securities Group Inc.
23.1 The consent of PricewaterhouseCoopers LLP is included
as part of the Registration Statement
23.2 The consent of Rosenman & Colin LLP is included as
part of the Registration Statement
23.3 The consent of Richards, Layton & Finger PA is
included as part of the Registration Statement
* Previously filed.