-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, GnFjgYnHTP8TQPzEotB/1iYFTSUp8owde7AB2PmlRxaqIzG7pD7CzKk7Fp1pMw6s d/qMp4/H00y8CkC7J9SX1w== 0000898733-00-000198.txt : 20000331 0000898733-00-000198.hdr.sgml : 20000331 ACCESSION NUMBER: 0000898733-00-000198 CONFORMED SUBMISSION TYPE: 10-K PUBLIC DOCUMENT COUNT: 4 CONFORMED PERIOD OF REPORT: 19991231 FILED AS OF DATE: 20000330 FILER: COMPANY DATA: COMPANY CONFORMED NAME: WORLD MONITOR TRUST SERIES A CENTRAL INDEX KEY: 0001051822 STANDARD INDUSTRIAL CLASSIFICATION: INVESTORS, NEC [6799] STATE OF INCORPORATION: DE FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 10-K SEC ACT: SEC FILE NUMBER: 333-43033 FILM NUMBER: 587131 BUSINESS ADDRESS: STREET 1: ONE NEW YORK PLAZA 13TH FLOOR CITY: NEW YORK STATE: NY ZIP: 10292-2013 BUSINESS PHONE: 2127787866 MAIL ADDRESS: STREET 1: ONE NEW YORK PLAZA 13TH FLOOR CITY: NEW YORK STATE: NY ZIP: 10292-2013 10-K 1 WORLD MONITOR TRUST -- SERIES A UNITED STATES SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 FORM 10-K (Mark One) /X/ ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the fiscal year ended December 31, 1999 OR / / TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the transition period from _______________________ to ______________________ Commission file number: 0-25785 WORLD MONITOR TRUST--SERIES A - -------------------------------------------------------------------------------- (Exact name of registrant as specified in its charter) Delaware 13-3985040 - -------------------------------------------------------------------------------- (State or other jurisdiction of (I.R.S. Employer Identification No.) incorporation or organization) One New York Plaza, 13th Floor, New York, New York 10292 - -------------------------------------------------------------------------------- (Address of principal executive offices) (Zip Code) Registrant's telephone number, including area code: (212) 778-7866 Securities registered pursuant to Section 12(b) of the Act: None - ------------------------------------------------------------------------------- Securities registered pursuant to Section 12(g) of the Act: Limited Interests - ------------------------------------------------------------------------------- (Title of class) Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes CK No __ Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is not contained herein, and will not be contained, to the best of registrant's knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K [ ] DOCUMENTS INCORPORATED BY REFERENCE Second Amended and Restated Declaration of Trust and Trust Agreement of the Registrant dated as of March 17, 1998, included as part of the Registration Statement on Form S-1 (File No. 333-43033) filed with the Securities and Exchange Commission on March 23, 1998, pursuant to Rule 424(b) of the Securities Act of 1933, is incorporated by reference into Part IV of this Annual Report on Form 10-K Registrant's Annual Report to Interest holders for the year ended December 31, 1999 is incorporated by reference into Parts II and IV of this Annual Report on Form 10-K Index to exhibits can be found on pages 11 and 12. WORLD MONITOR TRUST--SERIES A (a Delaware Business Trust) TABLE OF CONTENTS
PART I PAGE Item 1 Business......................................................................... 3 Item 2 Properties....................................................................... 4 Item 3 Legal Proceedings................................................................ 4 Item 4 Submission of Matters to a Vote of Interest Holders.............................. 4 PART II Item 5 Market for the Registrant's Interests and Related Interest Holder Matters........ 4 Item 6 Selected Financial Data.......................................................... 5 Item 7 Management's Discussion and Analysis of Financial Condition and Results of Operations..................................................................... 5 Item 7A Quantitative and Qualitative Disclosures about Market Risk....................... 5 Item 8 Financial Statements and Supplementary Data...................................... 8 Item 9 Changes in and Disagreements with Accountants on Accounting and Financial Disclosure..................................................................... 8 PART III Item 10 Directors and Executive Officers of the Registrant............................... 8 Item 11 Executive Compensation........................................................... 10 Item 12 Security Ownership of Certain Beneficial Owners and Management................... 10 Item 13 Certain Relationships and Related Transactions................................... 10 PART IV Item 14 Exhibits, Financial Statement Schedules, and Reports on Form 8-K................. 11 Financial Statements and Financial Statement Schedules........................... 11 Exhibits......................................................................... 11 Reports on Form 8-K.............................................................. 12 SIGNATURES.................................................................................. 13
2 PART I Item 1. Business General 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 Agreement'). The Trust consists of 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. Each Series was formed to engage in the speculative trading of a diversified portfolio of futures, forward and options contracts and may, from time to time, engage in cash and spot transactions. The trustee of the Trust is Wilmington Trust Company. The Trust's fiscal year for book and tax purposes ends on December 31. The Offering Beneficial interests in each Series ('Interests') are being offered once each week until each Series' subscription maximum has been issued either through sale or exchange. On June 10, 1998, a sufficient number of subscriptions for each Series had been received and accepted by the managing owner to permit each Series to commence trading. Series A (the 'Registrant') completed its initial offering with gross proceeds of $6,039,177 from the sale of 59,631.775 limited interests and 760 of general interests. Series A was offered until it achieved its subscription maximum of $34,000,000 during November 1999. Interests in Series B and 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 for each Series is sold ('Continuous Offering Period'). The Registrant is engaged solely in the business of commodity futures, forward and options trading; therefore, presentation of industry segment information is not available. Managing Owner and its Affiliates The managing owner of the Registrant 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 Registrant as well as the commodity broker of the Registrant. 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 professional commodity trading advisor that makes that Series' trading decisions. The Managing Owner has allocated 100% of the proceeds from the initial and continuous offering of the Registrant to its trading advisor. The Managing Owner, on behalf of the Registrant, initially entered into an advisory agreement (the 'Initial Advisory Agreement') with Eagle Trading Systems, Inc. ('Trading Advisor') to make the trading decisions for the Registrant utilizing both the Eagle-Global System and the Eagle-FX System. Effective December 6, 1999, the Eagle-Global System became the exclusive trading program used by the Trading Advisor to trade the Registrant's assets. In conjunction with this change, the Managing Owner and the Trading Advisor voluntarily agreed to terminate the Initial Advisory Agreement and enter into a new advisory agreement (the 'New Advisory Agreement') effective March 21, 2000. Pursuant to the New Advisory Agreement, the Trading Advisor will be paid a weekly management fee at an annual rate of 1% of the Registrant's net asset value until the net asset value per Interest is at least $80 for a period of at least 10 consecutive business days, at which time the weekly management fee will be increased to an annual rate of 2% (i.e. the rate pursuant to the Initial Advisory Agreement). Additionally, although the term of the New 3 Advisory Agreement commenced on March 21, 2000, the Trading Advisor must recoup all trading losses incurred under the Initial Advisory Agreement before an incentive fee is paid. The New Advisory Agreement may be terminated at the discretion of the Managing Owner. Competition The Managing Owner and its affiliates have formed, and may continue to form, various entities to engage in the speculative trading of futures, forward and options contracts which have certain of the same investment policies as the Registrant. The Registrant was an open-end fund which solicited the sale of Interests on a weekly basis until its subscription maximum was reached. As such, the Registrant no longer competes with other entities to attract new participants. However, to the extent that the Trading Advisor recommends similar or identical trades to the Registrant and other accounts which it manages, the Registrant may compete with those accounts for the execution of the same or similar trades. Employees The Registrant has no employees. Management and administrative services for the Registrant are performed by the Managing Owner and its affiliates pursuant to the Trust Agreement as further discussed in Notes A, C and D to the Registrant's annual report to limited owners for the year ended December 31, 1999 ('Registrant's 1999 Annual Report') which is filed as an exhibit hereto. Item 2. Properties The Registrant does not own or lease any property. Item 3. Legal Proceedings There are no material legal proceedings pending by or against the Registrant or the Managing Owner. Item 4. Submission of Matters to a Vote of Interest Holders None PART II Item 5. Market for the Registrant's Interests and Related Interest Holder Matters Information with respect to the offering of Interests is incorporated by reference to Note A to the Registrant's 1999 Annual Report, which is filed as an exhibit hereto. A significant secondary market for the Interests has not developed, and it is not expected that one will develop in the future. There are also certain restrictions set forth in the Trust Agreement limiting the ability of an Interest holder to transfer Interests. However, Interests may be redeemed on a weekly basis, but are subject to a redemption fee if effected within one year of the effective date of purchase. Additionally, 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. Since Interests in Series A are no longer being offered, participants can no longer exchange their Interests from Series B and/or Series C into Series A; however, participants can currently continue to exchange their Interests from Series A to Series B and/or Series C. Exchanges and redemptions are calculated based on 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 or redemption request is effected. There are no material restrictions upon the Registrant's present or future ability to make distributions in accordance with the provisions of the Trust Agreement. No distributions have been made since inception and no distributions are anticipated in the future. As of March 21, 2000, there were 1,624 holders of record owning 301,788.137 Interests which includes 3,081 General Interests. 4 Item 6. Selected Financial Data The following table presents selected financial data of the Registrant. This data should be read in conjunction with the financial statements of the Registrant and the notes thereto on pages 2 through 9 of the Registrant's 1999 Annual Report which is filed as an exhibit hereto.
Year ended Period from June 10, 1998 December 31, (commencement of operations) 1999 to December 31, 1998 ------------ ---------------------------- Total revenues (including interest) $(3,514,892 ) $ 343,726 ------------ ---------------- ------------ ---------------- Net loss $(5,211,460 ) $ (171,858) ------------ ---------------- ------------ ---------------- Net loss per weighted average Interest $ (27.31 ) $ (1.96) ------------ ---------------- ------------ ---------------- Total assets $27,511,754 $ 11,266,863 ------------ ---------------- ------------ ---------------- Net asset value per Interest $ 77.25 $ 98.31 ------------ ---------------- ------------ ----------------
Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations This information is incorporated by reference to pages 12 through 14 of the Registrant's 1999 Annual Report which is filed as an exhibit hereto. Item 7A. Quantitative and Qualitative Disclosures About Market Risk Introduction Past Results Not Necessarily Indicative of Future Performance The Registrant is a speculative commodity pool. The market sensitive instruments held by it are acquired for speculative trading purposes, and substantially all of the Registrant's assets are subject to the risk of trading loss. Unlike an operating company, the risk of market sensitive instruments is integral, not incidental, to the Registrant's main line of business. Market movements result in frequent changes in the fair market value of the Registrant's open positions and, consequently, in its earnings and cash flow. The Registrant's market risk is influenced by a wide variety of factors, including the level and volatility of interest rates, exchange rates, equity price levels, the market value of financial instruments and contracts, the diversification effects among the Registrant's open positions and the liquidity of the markets in which it trades. The Registrant rapidly acquires and liquidates both long and short positions in a wide range of different markets. Consequently, it is not possible to predict how a particular futures market scenario will affect performance, and the Registrant's past performance is not necessarily indicative of future results. Value at Risk is a measure of the maximum amount which the Registrant could reasonably be expected to lose in a given market sector. However, the inherent uncertainty of the Registrant's speculative trading and the recurrence in the markets traded by the Registrant of market movements far exceeding expectations could result in actual trading or non-trading losses far beyond the indicated Value at Risk or the Registrant's experience to date (i.e., 'risk of ruin'). In light of the foregoing, as well as the risks and uncertainties intrinsic to all future projections, the inclusion of the quantification included in this section should not be considered to constitute any assurance or representation that the Registrant's losses in any market sector will be limited to Value at Risk or by the Registrant's attempts to manage its market risk. Standard of Materiality Materiality as used in this section, 'Quantitative and Qualitative Disclosures About Market Risk,' is based on an assessment of reasonably possible market movements and the potential losses caused by such movements, taking into account the leverage, optionality and multiplier features of the Registrant's market sensitive instruments. 5 Quantifying the Registrant's Trading Value at Risk Quantitative Forward-Looking Statements The following quantitative disclosures regarding the Registrant's market risk exposures contain 'forward-looking statements' within the meaning of the safe harbor from civil liability provided for such statements by the Private Securities Litigation Reform Act of 1995 (set forth in Section 27A of the Securities Act of 1933 and Section 21E of the Securities Exchange Act of 1934). The Registrant's risk exposure in the various market sectors traded by the Trading Advisor is quantified below in terms of Value at Risk. Due to the Registrant's mark-to-market accounting, any loss in the fair value of the Registrant's open positions is directly reflected in the Registrant's earnings (realized or unrealized) and cash flow (whereby profits and losses on open positions of exchange-traded contracts are settled daily through variation margin). Exchange maintenance margin requirements have been used by the Registrant as the measure of its Value at Risk. Maintenance margin requirements are set by exchanges to equal or exceed the maximum losses reasonably expected to be incurred in the fair value of any given contract in 95%-99% of any one-day interval. The maintenance margin levels are established by dealers and exchanges using historical price studies as well as an assessment of current market volatility (including the implied volatility of the options on a given futures contract) and economic fundamentals to provide a probabilistic estimate of the maximum expected near-term one-day price fluctuation. Maintenance margin has been used rather than the more generally available initial margin, because initial margin includes a credit risk component which is not relevant to Value at Risk. In quantifying the Registrant's Value at Risk, 100% positive correlation in the different positions held in each market risk category has been assumed. Consequently, the margin requirements applicable to the open contracts have simply been aggregated to determine each trading category's aggregate Value at Risk. The diversification effects resulting from the fact that the Registrant's positions are rarely, if ever, 100% positively correlated have not been reflected. The Registrant's Trading Value at Risk in Different Market Sectors The following table indicates the trading Value at Risk associated with the Registrant's open positions by market sector at December 31, 1999. All open position trading risk exposures of the Registrant have been included in calculating the figures set forth below. At December 31, 1999, the Registrant's total capitalization was approximately $25.0 million.
Value at % of Total Market Sector Risk Capitalization ------------------------ ---------- -------------- Interest Rates $ 658,154 2.63% Stock Indices 490,048 1.96 Commodities 238,700 .96 Currencies 8,943 .04 ---------- ----- Total $1,395,845 5.59% ---------- ----- ---------- -----
Material Limitations on Value at Risk as an Assessment of Market Risk The face value of the market sector instruments held by the Registrant is typically many times the applicable maintenance margin requirement (maintenance margin requirements generally range between approximately 1% and 10% of the contract face value), as well as, many times the total capitalization of the Registrant. The magnitude of the Registrant's open positions creates a 'risk of ruin' not typically found in most other investment vehicles. Because of the size of its positions, certain market conditions, although unusual, but historically recurring from time to time, could cause the Registrant to incur severe losses over a short period of time. The foregoing Value at Risk table, as well as the past performance of the Registrant, give no indication of this 'risk of ruin.' 6 Non-Trading Risk The Registrant is subject to non-trading market risk on foreign cash balances not needed for margin. However, as of December 31, 1999, the Registrant had no foreign cash balances. Qualitative Disclosures Regarding Primary Trading Risk Exposures The following qualitative disclosures regarding the Registrant's market risk exposures--except for (i) those disclosures that are statements of historical fact and (ii) the descriptions of how the Registrant manages its primary market risk exposures--constitute forward-looking statements within the meaning of Section 27A of the Securities Act of 1933 and Section 21E of the Securities Exchange Act of 1934. The Registrant's primary market risk exposures as well as the strategies used and to be used by the Managing Owner and the Trading Advisor for managing such exposures are subject to numerous uncertainties, contingencies and risks, any one of which could cause the actual results of the Registrant's risk controls to differ materially from the objectives of such strategies. Government interventions, defaults and expropriations, illiquid markets, the emergence of dominant fundamental factors, political upheavals, changes in historical price relationships, an influx of new market participants, increased regulation and many other factors could result in material losses as well as in material changes to the risk exposures and the risk management strategies of the Registrant. There can be no assurance that the Registrant's current market exposure and/or risk management strategies will not change materially or that any such strategies will be effective in either the short- or long-term. Investors must be prepared to lose all or substantially all of their investment in the Registrant. The primary trading risk exposures of the Registrant at December 31, 1999, by market sector, were: Interest Rates. Interest rate movements directly affect the price of sovereign bond positions held by the Registrant and indirectly affect the value of its stock index positions. Interest rate movements in one country, as well as, relative interest rate movements between countries may materially impact the Registrant's profitability. The Registrant's primary interest rate exposure is to interest rate fluctuations in the U.S. and other G-7 countries. The Managing Owner anticipates that G-7 interest rates will remain the primary market exposure of the Registrant in the foreseeable future. The changes in interest rates which have the most effect on the Registrant are changes in long-term, as opposed to short-term, rates. Most of the speculative positions held by the Registrant are in medium- to long-term instruments. Consequently, even a material change in short-term rates would have little effect on the Registrant were the medium- to long-term rates to remain steady. Stock Indices. The Registrant's equity exposure is due to equity price risk in various indices including the S&P 500 (U.S.), FTSE 100 (Britain), and the DAX (Germany). The stock index futures traded by the Registrant are, by law, limited to futures on broadly based indices. Commodities. The Trading Advisor of the Registrant trades a variety of precious and base metals and grain contracts. At year-end, the Registrant's commodities exposure is in copper, silver and aluminum within the base metals market and in corn and wheat in the grain sector. Currencies. The currency sector Value at Risk exclusively represents foreign margin amounts converted into U.S. dollars with an incremental adjustment to reflect the exchange rate risk inherent to the dollar-based Registrant in expressing Value at Risk in a functional currency other than U.S. dollars. Qualitative Disclosures Regarding Means of Managing Risk Exposure The means by which the Managing Owner and the Trading Advisor, severally, attempt to manage the risk of the Registrant's open positions is essentially the same in all market categories traded. The Trading Advisor attempts to minimize market risk exposure by applying its own risk management trading policies. In general, the Trading Advisor's portfolio is diversified, consisting of a wide variety of contracts traded in both domestic and foreign markets. Additionally, stop or limit orders may, at the Trading Advisor's discretion, be given with respect to initiating or liquidating positions in order to seek to limit losses or secure profits. 7 The Managing Owner attempts to minimize market risks by requiring the Registrant and its Trading Advisor to abide by various trading limitations and policies. The Managing Owner monitors compliance with these trading limitations and policies which include, but are not limited to, limiting the amount of margin or premium required for any one commodity or all commodities combined and generally limiting transactions to contracts which are traded in sufficient volume to permit the taking and liquidating of positions. Additionally, pursuant to the Advisory Agreement among the Registrant, the Managing Owner and Trading Advisor, the Registrant shall automatically terminate the Trading Advisor if the net asset value allocated to the Trading Advisor declines by 33 1/3% from the value at the beginning of any year or since the commencement of trading activities. Furthermore, the Trust Agreement provides that the Registrant will liquidate its positions, and eventually dissolve, if the Registrant experiences a decline in the net asset value of 50% from the value at the beginning of any year or since the commencement of trading activities. In each case, the decline in the net asset value is after giving effect for distributions, contributions and redemptions. 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 the Registrant. Item 8. Financial Statements and Supplementary Data The financial statements are incorporated by reference to pages 2 through 10 of the Registrant's 1999 Annual Report which is filed as an exhibit hereto. Supplementary data specified by Item 302 of Regulation S-K (selected quarterly financial data) is not applicable. Item 9. Changes in and Disagreements with Accountants on Accounting and Financial Disclosure None PART III Item 10. Directors and Executive Officers of the Registrant There are no directors or executive officers of the Registrant. The Registrant is managed by the Managing Owner. The Managing Owner's directors and executive officers and any person holding more than ten percent of the Registrant's Interests ('Ten Percent Owners') are required to report their initial ownership of such Interests and any subsequent changes in that ownership to the Securities and Exchange Commission on Forms 3, 4 or 5. Such executive officers, directors and Ten Percent Owners are required by Securities and Exchange Commission regulations to furnish the Registrant with copies of all Forms 3, 4 or 5 they file. All of these filing requirements were satisfied on a timely basis (other than Alan J. Brody who did not file Form 4 in a timely manner upon becoming a beneficial owner but subsequently filed and is now current in all filings). In making these disclosures, the Registrant has relied solely on written representations of the Managing Owner's directors and executive officers and Ten Percent Owners or copies of the reports that they have filed with the Securities and Exchange Commission during and with respect to its most recent fiscal year. The directors and executive officers of Prudential Securities Futures Management Inc. and their positions with respect to the Registrant are as follows: Name Position Joseph A. Filicetti President and Director Eleanor L. Thomas Executive Vice President and Director Barbara J. Brooks Chief Financial Officer Steven Carlino Vice President and Treasurer Alan J. Brody Director A. Laurence Norton, Jr. Director Guy S. Scarpaci Director Tamara B. Wright Senior Vice President and Director 8 JOSEPH A. FILICETTI, age 37, is the President and a Director of Prudential Securities Futures Management Inc. He had been a Vice President of Prudential Securities Futures Management Inc. and Seaport Futures Management, Inc. from October 1998 to March 1999. In April 1999, Mr. Filicetti was named to his current positions at Prudential Securities Futures Management Inc. and became an Executive Vice President and a Director of Seaport Futures Management, Inc. Mr. Filicetti is also a Vice President of PSI and the Director of Sales and Marketing for its managed futures department. Prior to joining PSI, Mr. Filicetti was with Rotella Capital Management as Director of Sales and Marketing from September 1996 through September 1998, and was with Merrill Lynch as a market maker trading bonds from July 1992 to August 1996. ELEANOR L. THOMAS, age 45, is the Executive Vice President and a Director of Prudential Securities Futures Management Inc. and is the President and a Director of Seaport Futures Management, Inc. She is primarily responsible for origination, asset allocation, and due diligence for the managed futures department within PSI. She is also a First Vice President of PSI. Prior to joining PSI in March 1993, she was with MC Baldwin Financial Company from June 1990 through February 1993 and Arthur Andersen & Co. from 1986 through May 1990. Ms. Thomas is a certified public accountant. BARBARA J. BROOKS, age 51, is the Chief Financial Officer of Prudential Securities Futures Management Inc. She is a Senior Vice President of PSI. She is also the Chief Financial Officer of Seaport Futures Management, Inc. and serves in various capacities for other affiliated companies. She has held several positions within PSI since April 1983. Ms. Brooks is a certified public accountant. STEVEN CARLINO, age 36, is a Vice President and Treasurer of Prudential Securities Futures Management Inc. He is a First Vice President of PSI. He is also a Vice President and Treasurer of Seaport Futures Management, Inc. and serves in various capacities for other affiliated companies. Prior to joining PSI in October 1992, he was with Ernst & Young for six years. Mr. Carlino is a certified public accountant. ALAN J. BRODY, age 48 is a Director of Prudential Securities Futures Management Inc. and Seaport Futures Management, Inc. Mr. Brody has been a Senior Vice President and Director of International Sales and Marketing for PSI since 1996. Based in London, Mr. Brody is currently responsible for the marketing and sales of all PSI products and services to international clientele throughout the firm's global branch system. Additionally, Mr. Brody has overall responsibility for the managed futures department within PSI. Prior to joining PSI, Mr. Brody was an Executive Director and Senior Vice President with Lehman Brothers' Financial Services Division in London and President of Lehman Brothers' Futures Asset Management Corp. from 1990 to 1996. Prior to joining Lehman Brothers, Mr. Brody served as President and Chief Executive Officer of Commodity Exchange Inc. from 1980 to 1989. Earlier in his career, Mr Brody was associated with the law firm of Baer, Marks and Upham from 1977 to 1980. A. LAURENCE NORTON, JR., age 61, is a Director of Prudential Securities Futures Management Inc. He is an Executive Vice President of PSI and, since March 1994, has been the director of the International and Futures Divisions of PSI. He is also a Director of Seaport Futures Management, Inc. and is a member of PSI's Operating Committee. From October 1991 to March 1994, he held the position of Executive Director of Retail Development and Retail Strategies at PSI. Prior to joining PSI in 1991, Mr. Norton was a Senior Vice President and Branch Manager of Shearson Lehman Brothers. GUY S. SCARPACI, age 53, is a Director of Prudential Securities Futures Management Inc. He is a First Vice President of the Futures Division of PSI. He is also a Director of Seaport Futures Management, Inc. Mr. Scarpaci has been employed by PSI in positions of increasing responsibility since August 1974. TAMARA B. WRIGHT, age 41, is a Director and Senior Vice President of Prudential Securities Futures Management Inc. She is a Senior Vice President and Chief Administrative Officer for the International and Futures Divisions of PSI. She is also a Director and Senior Vice President of Seaport Futures Management, Inc. and serves in various capacities for other affiliated companies. Prior to joining PSI in July 1988, she was a manager with Price Waterhouse. Effective April 1999, Eleanor L. Thomas and Joseph A. Filicetti were elected as Directors of both Prudential Securities Futures Management Inc. and Seaport Futures Management, Inc. In addition, Mr. Filicetti was elected as President of Prudential Securities Futures Management Inc. replacing Thomas M. Lane, Jr. and 9 Ms. Thomas was elected as the Executive Vice President of Prudential Securities Futures Management Inc. Additionally, Alan J. Brody was elected as a Director of Prudential Securities Futures Management Inc. and Seaport Futures Management, Inc. during May 1999. There are no family relationships among any of the foregoing directors or executive officers. All of the foregoing directors and/or executive officers have indefinite terms. Item 11. Executive Compensation The Registrant does not pay or accrue any fees, salaries or any other form of compensation to directors and officers of the Managing Owner for their services. Certain directors and officers of the Managing Owner receive compensation from affiliates of the Managing Owner, not from the Registrant, for services performed for various affiliated entities, which may include services performed for the Registrant; however, the Managing Owner believes that any compensation attributable to services performed for the Registrant is immaterial. (See also Item 13, Certain Relationships and Related Transactions, for information regarding compensation to the Managing Owner.) Item 12. Security Ownership of Certain Beneficial Owners and Management As of March 21, 2000, no director or executive officer of the Managing Owner owns directly or beneficially any interest in the voting securities of the Managing Owner. As of March 21, 2000, the following director is the only director or executive officer of the Managing Owner who owns directly or beneficially any of the Interests issued by the Registrant.
Title Name of Amount and Nature of Percent of of Class Beneficial Owner Beneficial Ownership Class - ------------------ --------------------------------- ----------------------------- ---------- Limited interests Alan J. Brody 249.687 limited interests .08%
As of March 21, 2000, the following owner of limited interests beneficially owns more than five percent (5%) of the limited interests issued by the Registrant:
Title Name and Address of Amount and Nature of Percent of of Class Beneficial Owner Beneficial Ownership Class - ------------------ --------------------------------- ----------------------------- ---------- Limited interests Massachusetts Bay Transportation 17,666.712 limited interests 6% Authority Retirement Fund 99 Summer Street, 17th Floor Boston, MA 02110-1200
Item 13. Certain Relationships and Related Transactions The Registrant has and will continue to have certain relationships with the Managing Owner and its affiliates. However, except for the purchase of limited interests by one of the directors which did not exceed $60,000, there have been no direct financial transactions between the Registrant and the directors or officers of the Managing Owner. Reference is made to Notes A, C and D to the financial statements in the Registrant's 1999 Annual Report which is filed as an exhibit hereto, which identify the related parties and discuss the services provided by these parties and the amounts paid or payable for their services. 10 PART IV
Page Number ------------ Item 14. Exhibits, Financial Statement Schedules, and Reports on Form 8-K (a) 1. Financial Statements and Report of Independent Accountants--incorporated by reference to the Registrant's 1999 Annual Report which is filed as an exhibit hereto Report of Independent Accountants 2 Financial Statements: Statements of Financial Condition--December 31, 1999 and 1998 3 Statement of Operations--Year ended December 31, 1999 and for the period from June 10, 1998 (commencement of operations) to December 31, 1998 4 Statement of Changes in Trust Capital--Two years ended December 31, 1999 4 Notes to Financial Statements 5 2. Financial Statement Schedules All schedules have been omitted because they are not applicable or the required information is included in the financial statements or notes thereto. 3. Exhibits Description: 3.1 Second Amended and Restated Declaration of Trust and Trust Agreement of and World Monitor Trust dated as of March 17, 1998 (incorporated by 4.1 reference to Exhibits 3.1 and 4.1 to the Registrant's Registration Statement on Form S-1, File No. 333-43033 dated as of March 23, 1998) 4.2 Form of Request for Redemption (incorporated by reference to Exhibit 4.2 to the Registrant's Registration Statement on Form S-1, File No. 333-43033 dated as of March 23, 1998) 4.3 Form of Exchange Request (incorporated by reference to Exhibit 4.3 to the Registrant's Registration Statement on Form S-1, File No. 333-43033 dated as of March 23, 1998) 4.4 Form of Subscription Agreement (incorporated by reference to Exhibit 4.4 to the Registrant's Registration Statement on Form S-1, File No. 333-43033 dated as of March 23, 1998) 10.1 Form of Escrow Agreement among the Trust, Prudential Securities Futures Management Inc., Prudential Securities Incorporated and The Bank of New York (incorporated by reference to Exhibit 10.1 to the Registrant's Registration Statement on Form S-1, File No. 333-43033 dated as of March 23, 1998) 10.2 Form of Brokerage Agreement among the Trust and Prudential Securities Incorporated (incorporated by reference to Exhibit 10.2 to the Registrant's Registration Statement on Form S-1, File No. 333-43033 dated as of March 23, 1998)
11 10.3 Form of Advisory Agreement among the Registrant, Prudential Securities Futures Management Inc., and the Trading Advisor (incorporated by reference to Exhibit 10.3 to the Registrant's Registration Statement on Form S-1, File No. 333-43033 dated as of March 23, 1998) 10.4 Form of Representation Agreement Concerning the Registration Statement and the Prospectus among the Trust, Prudential Securities Futures Management Inc., Prudential Securities Incorporated, Wilmington Trust Company and the Trading Advisor (incorporated by reference to Exhibit 10.4 to the Registrant's Registration Statement on Form S-1, File No. 333-43033 dated as of March 23, 1998) 10.5 Form of Net Worth Agreement between Prudential Securities Futures Management Inc. and Prudential Securities Incorporated (incorporated by reference to Exhibit 10.5 to the Registrant's Registration Statement on Form S-1, File No. 333-43033 dated as of March 23, 1998) 10.6 Form of Foreign Currency Addendum to Brokerage Agreement between the Trust and Prudential Securities Incorporated (incorporated by reference to Exhibit 10.6 to the Registrant's Quarterly Report on Form 10-Q, File No. 333-43033, for the quarter ended March 31, 1998) 10.7 Form of Advisory Agreement among the Registrant, Prudential Securities Futures Management Inc., and the Trading Advisor dated March 21, 2000 (filed herewith) 13.1 Registrant's 1999 Annual Report (with the exception of the information and data incorporated by reference in Items 5, 7 and 8 of this Annual Report on Form 10-K, no other information or data appearing in the Registrant's 1999 Annual Report is to be deemed filed as part of this report) (filed herewith) 27.1 Financial Data Schedule (filed herewith) (b) Reports on Form 8-K--None No reports on Form 8-K were filed during the last quarter of the period covered by this report.
12 SIGNATURES Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized. World Monitor Trust--Series A By: Prudential Securities Futures Management Inc. A Delaware corporation, Managing Owner By: /s/ Steven Carlino Date: March 30, 2000 ---------------------------------------- Steven Carlino Vice President and Treasurer Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following persons on behalf of the Registrant and in the capacities (with respect to the Managing Owner) and on the dates indicated. By: Prudential Securities Futures Management Inc. A Delaware corporation, Managing Owner By: /s/ Joseph A. Filicetti Date: March 30, 2000 ----------------------------------------- Joseph A. Filicetti President and Director By: /s/ Eleanor L. Thomas Date: March 30, 2000 ----------------------------------------- Eleanor L. Thomas Executive Vice President and Director By: /s/ Barbara J. Brooks Date: March 30, 2000 ----------------------------------------- Barbara J. Brooks Chief Financial Officer By: /s/ Steven Carlino Date: March 30, 2000 ----------------------------------------- Steven Carlino Vice President and Treasurer By: /s/ Alan J. Brody Date: March 30, 2000 ----------------------------------------- Alan J. Brody Director By: Date: ----------------------------------------- A. Laurence Norton, Jr. Director By: /s/ Guy S. Scarpaci Date: March 30, 2000 ----------------------------------------- Guy S. Scarpaci Director By: Date: ----------------------------------------- Tamara B. Wright Senior Vice President and Director 13 EX-13 2 ANNUAL REPORT 1999 - -------------------------------------------------------------------------------- World Monitor Trust--Series A Annual Report LETTER TO LIMITED OWNERS FOR WORLD MONITOR TRUST--SERIES A 1 PricewaterhouseCoopers (LOGO) PricewaterhouseCoopers LLP 1177 Avenue of the Americas New York, NY 10036 Telephone (212) 596 8000 Facsimile (212) 596 8910 Report of Independent Accountants To the Managing Owner and Limited Owners of World Monitor Trust--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 aspects, the financial position of World Monitor Trust--Series A at December 31, 1999 and 1998, and the results of its operations for the year ended December 31, 1999 and the period from June 10, 1998 (commencement of operations) to December 31, 1998 in conformity with accounting principles generally accepted in the United States. These financial statements are the responsibility of the Managing Owner; our responsibility is to express an opinion on these financial statements based on our audits. We conducted our audits of these statements in accordance with auditing standards generally accepted in the United States 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 January 28, 2000 2 WORLD MONITOR TRUST--SERIES A (a Delaware Business Trust) STATEMENTS OF FINANCIAL CONDITION
December 31, ----------------------------- 1999 1998 - --------------------------------------------------------------------------------------------------- ASSETS Cash $26,587,416 $11,008,050 Net unrealized gain on open futures contracts 924,338 258,813 ------------- ----------- Total assets $27,511,754 $11,266,863 ------------- ----------- ------------- ----------- LIABILITIES AND TRUST CAPITAL Liabilities Net unrealized loss on open forward contracts $ 2,211,068 $ 362,056 Commissions payable 185,065 74,604 Management fees payable 48,596 19,457 Redemptions payable 83,436 -- ------------- ----------- Total liabilities 2,528,165 456,117 ------------- ----------- Commitments Trust capital Limited interests (320,147.380 and 108,568.155 interests outstanding) 24,729,908 10,673,116 General interests (3,284.000 and 1,400.000 interests outstanding) 253,681 137,630 ------------- ----------- Total trust capital 24,983,589 10,810,746 ------------- ----------- Total liabilities and trust capital $27,511,754 $11,266,863 ------------- ----------- ------------- ----------- Net asset value per limited and general interest ('Interests') $ 77.25 $ 98.31 ------------- ----------- ------------- ----------- - --------------------------------------------------------------------------------------------------- The accompanying notes are an integral part of these statements.
3 WORLD MONITOR TRUST--SERIES A (a Delaware Business Trust) STATEMENTS OF OPERATIONS
For the period from June 10, 1998 (commencement of Year ended operations) to December 31, December 31, 1999 1998 - --------------------------------------------------------------------------------------------------- REVENUES Net realized gain (loss) on commodity transactions $(3,253,798 ) $ 174,935 Net unrealized loss on open commodity positions (1,183,487 ) (103,243) Interest income 922,393 272,034 ------------ ----------------- (3,514,892 ) 343,726 ------------ ----------------- EXPENSES Commissions 1,348,655 381,231 Management fees 347,528 98,289 Incentive fees 385 36,064 ------------ ----------------- 1,696,568 515,584 ------------ ----------------- Net loss $(5,211,460 ) $(171,858) ------------ ----------------- ------------ ----------------- ALLOCATION OF NET LOSS Limited interests $(5,154,378 ) $(170,904) ------------ ----------------- ------------ ----------------- General interests $ (57,082 ) $ (954) ------------ ----------------- ------------ ----------------- NET LOSS PER WEIGHTED AVERAGE LIMITED AND GENERAL INTEREST Net loss per weighted average limited and general interest $ (27.31 ) $ (1.96) ------------ ----------------- ------------ ----------------- Weighted average number of limited and general interests outstanding 190,828 87,552 ------------ ----------------- ------------ ----------------- - ---------------------------------------------------------------------------------------------------
STATEMENTS 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 Contributions 255,845.193 23,000,355 190,540 23,190,895 Net loss -- (5,154,378) (57,082 ) (5,211,460) Redemptions (42,381.968) (3,789,185) (17,407 ) (3,806,592) ----------- ----------- --------- ----------- Trust capital--December 31, 1999+ 323,431.380 $24,729,908 $253,681 $24,983,589 ----------- ----------- --------- ----------- ----------- ----------- --------- ----------- - ----------------------------------------------------------------------------------------------------- The accompanying notes are an integral part of these statements.
4 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 consists of 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. Each Series was formed to engage in the speculative trading of a diversified portfolio of futures, forward and options contracts and may, from time to time, engage in cash and spot transactions. The trustee of the Trust is Wilmington Trust Company. The managing owner is Prudential Securities Futures Management Inc. (the 'Managing Owner'), a wholly owned subsidiary of Prudential Securities Incorporated ('PSI') which, in turn, is a wholly owned subsidiary of Prudential Securities Group Inc. PSI is the selling agent for the Trust as well as the commodity broker ('Commodity Broker') of the Trust. The Offering Beneficial interests in each Series ('Interests') are being offered once each week until each Series' subscription maximum has been issued either through sale or exchange. On June 10, 1998, a sufficient number of subscriptions for each Series had been received and accepted by the Managing Owner to permit each Series to commence trading. Series A completed its initial offering with gross proceeds of $6,039,177 from the sale of 59,631.775 limited interests and 760 of general interests. Series A was offered until it achieved its subscription maximum of $34,000,000 during November 1999. Series B and Series C will continue to be offered to investors who meet certain established suitability standards, with a minimum initial subscription of $5,000 ($2,000 for an individual retirement account) per subscriber, although the minimum purchase for any single Series is $1,000. Interests in Series B and Series C will continue to be offered on a weekly basis at the net asset value per Interest ('Continuous Offering Period') until the subscription maximum of $33,000,000 for each Series is sold. 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 has allocated 100% of the proceeds from the initial and continuous offering of Series A to its trading advisor. The Managing Owner, on behalf of the Trust, initially entered into an advisory agreement (the 'Initial Advisory Agreement') with Eagle Trading Systems, Inc. ('Trading Advisor') to make the trading decisions for Series A utilizing both the Eagle-Global System and the Eagle-FX System. Effective December 6, 1999, the Eagle-Global System became the exclusive trading program used by the Trading Advisor to trade Series A's assets. In conjunction with this change, the Managing Owner and the Trading Advisor voluntarily agreed to terminate the Initial Advisory Agreement and enter into a new advisory agreement (the 'New Advisory Agreement') effective March 21, 2000 as more fully discussed in Note G. 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. Since Interests in Series A are no longer being offered, participants can no longer exchange their Interests from Series B and/or Series C into Series A; however, participants can currently continue to exchange their Interests from Series A to Series B and/or Series C. 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 5 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. 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 Policies Basis of accounting The financial statements of Series A are prepared 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.' Certain balances from the prior period have been reclassified to conform with the current financial statement presentation. 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. 6 Accounting for Derivative Instruments In June 1998, the Financial Accounting Standards Board issued Statement of Financial Accounting Standards ('SFAS') No. 133, Accounting for Derivative Instruments and Hedging Activities, which Series A adopted effective October 1, 1999. 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. SFAS No. 133 supersedes SFAS No. 119, Disclosure about Derivative Financial Instruments and Fair Value of Financial Instruments and SFAS No. 105, Disclosure of Information about Financial Instruments with Off-Balance Sheet Risk and Financial Instruments with Concentrations of Credit Risk which required the disclosure of average aggregate fair values and contract/notional values, respectively, of derivative financial instruments for an entity like Series A which carries its assets at fair value. The adoption of SFAS No. 133 has not had a material effect on the carrying value of assets and liabilities within the financial statements. C. Fees Organizational, offering, general and administrative costs PSI or its affiliates paid the costs of organizing Series A and offering its Interests and pays the 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 Through March 2000, Series A paid its Trading Advisor a management fee at an annual rate of 2% of Series A's net asset value allocated to its management at which time the rate was changed as described in Note G. 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 such Trading Advisor's 'New High Net Trading Profits' (as defined in the advisory agreement). The incentive fee also accrues weekly. Commissions The Managing Owner and the Trust entered into a brokerage agreement with PSI to act as Commodity Broker for each Series whereby Series 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, registrar, transfer and assignment functions, 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 Series A's routine operational, administrative, legal and auditing costs. The costs charged to Series A for brokerage services for the year ended December 31, 1999 and the period from June 10, 1998 (commencement of operations) to December 31, 1998 were $1,348,655 and $381,231, respectively. All of the proceeds of the offering of Series A were received in the name of Series A and were deposited at PSI. Series A's assets are maintained either in trading or cash accounts 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 in Series A's accounts. 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. 7 As of December 31, 1999, a non-U.S. affiliate of the Managing Owner owns 101.112 limited interests of Series A. Additionally, a director of the Managing Owner owns 249.687 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 futures and forward 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. 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, 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 Series A and its Trading Advisor to abide by various trading limitations and policies. The Managing Owner monitors compliance with these trading limitations and policies which include, but are not limited to, executing and clearing all trades with creditworthy counterparties (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. Additionally, pursuant to the Advisory Agreement among Series A, the Managing Owner and the Trading Advisor, Series A shall automatically terminate the Trading Advisor if the net asset value allocated to the Trading Advisor declines by 33 1/3% from the value at the beginning of any year or since the commencement of trading activities. Furthermore, the Second Amended and Restated Declaration of Trust and Trust Agreement provides that Series A will liquidate its positions, and eventually dissolve, if Series A experiences a decline in the net asset value of 50% from the value at the beginning of any year or since the commencement of trading activities. In each case, the decline in net asset value is after giving effect for distributions, contributions and redemptions. The Managing Owner may impose additional restrictions (through modifications of 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, 1999, such segregated assets totalled $24,234,466. 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 $3,277,288 at December 31, 1999. There are no segregation requirements for assets related to forward trading. As of December 31, 1999, all open futures and forward contracts mature within six months. 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). Gross contract amounts significantly exceed future cash requirements as Series A intends to close out open positions prior 8 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. As of December 31, 1998, gross contract amounts of open futures and forward contracts for Series A were: Interest Rate Futures: Commitments to purchase $18,683,310 Commitments to sell 16,579,358 Currency Forwards: Commitments to purchase 362,056 Commodity Futures: Commitments to sell 3,076,903 The following table presents the fair value of futures and forward contracts at December 31, 1999 and December 31, 1998.
1999 1998 -------------------------- ------------------------ Assets Liabilities Assets Liabilities ---------- ----------- -------- ----------- Futures Contracts: Domestic exchanges Interest rates $ 255,937 $ -- $ -- $ -- Stock indices 160,500 -- -- -- Commodities 1,963 49,265 31,724 11,760 Foreign exchanges Interest rates 25,510 32,558 204,523 -- Stock indices 425,095 -- -- -- Commodities 137,156 -- 34,326 -- Forward Contracts: Currencies 88,948 2,300,016 -- 362,056 ---------- ----------- -------- ----------- $1,095,109 $ 2,381,839 $270,573 $ 373,816 ---------- ----------- -------- ----------- ---------- ----------- -------- -----------
The following table presents the average fair value and trading revenues of futures and forward contracts for the period from June 10, 1998 (commencement of operations) through December 31, 1998.
Average Fair Value ---------------------------------- Trading Assets Liabilities Revenues ------------------ ----------- --------- Futures Contracts: Domestic exchanges Stock indices $ -- $ -- $(44,325) Currencies 16,840 2,196 (335,203) Commodities 60,041 11,195 131,508 Foreign exchanges Interest rates 149,855 605 741,756 Stock indices 16,850 2,215 32,523 Commodities 5,085 83,278 (161,602) Forward Contracts: Currencies 245,765 356,962 (292,965) ------------------ ----------- --------- $494,436 $ 456,451 $ 71,692 ------------------ ----------- --------- ------------------ ----------- ---------
9 G. Subsequent Event In conjunction with the change in the trading programs utilized by the Trading Advisor as discussed in Note A, the Managing Owner and the Trading Advisor voluntarily agreed to terminate the Initial Advisory Agreement and enter into a New Advisory Agreement effective March 21, 2000. Pursuant to the New Advisory Agreement, the Trading Advisor will be paid a weekly management fee at an annual rate of 1% of Series A's net asset value until the net asset value per Interest is at least $80 for a period of 10 consecutive business days, at which time the weekly management fee will be increased to an annual rate of 2% (i.e. the rate pursuant to the Initial Advisory Agreement). Additionally, although the term of the New Advisory Agreement commenced on March 21, 2000, the Trading Advisor must recoup all trading losses incurred under the Initial Advisory Agreement before an incentive fee is paid. The New Advisory Agreement may be terminated at the discretion of the Managing Owner. 10 - -------------------------------------------------------------------------------- I hereby affirm that, to the best of my knowledge and belief, the information contained herein relating to World Monitor Trust--Series A is accurate and complete. PRUDENTIAL SECURITIES FUTURES MANAGEMENT INC. (Managing Owner) By: Barbara J. Brooks Chief Financial Officer - -------------------------------------------------------------------------------- 11 WORLD MONITOR TRUST--SERIES A (a Delaware Business Trust) MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS Liquidity and Capital Resources Series A commenced operations on June 10, 1998 with gross proceeds of $6,039,177 allocated to commodities trading. Interests in Series A continued to be offered weekly until Series A achieved its subscription maximum of $34,000,000 during November 1999. Interests in Series A may be redeemed on a weekly basis, but are subject to a redemption fee if transacted within one year of the effective date of purchase. Redemptions of limited interests for the year ended December 31, 1999 and for the period from June 10, 1998 (commencement of operations) through December 31, 1999 were $3,789,185 and $3,917,337, respectively. Additionally, 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. Since Interests in Series A are no longer being offered, participants can no longer exchange their Interests from Series B and/or Series C into Series A; however, participants can currently continue to exchange their Interests from Series A to Series B and/or Series C. Future redemptions and exchanges will impact the amount of funds available for investment in commodity contracts in subsequent periods. At December 31, 1999, 100% of Series A's net assets were allocated to commodities trading. A significant portion of the net assets was held in cash which is used as margin for 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. PSI 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, forward 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 contract (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 and its Trading Advisor to abide by various trading limitations and policies which include limiting margin amounts trading only in liquid markets and utilizing stop loss provisions. See Note F to the financial statements 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. Results of Operations Series A commenced trading operations on June 10, 1998, and as such, comparative analysis of the 1999 full year results versus the 1998 partial year results is not meaningful. Additionally, Series A's asset levels have continually increased since the commencement of operations in June 1998, primarily from additional contributions. These rising asset levels have led to proportionate increases in the amount of interest earned by Series A as well as the commissions and management fees incurred. 12 As of December 31, 1999, Series A reported a net asset value per Interest of $77.25, a decrease of 21.42% from the December 31, 1998 net asset value per Interest of $98.31, which was a decrease of 1.69% from the June 10, 1998 initial net asset value per Interest of $100.00. These returns compare negatively to the MAR (Managed Accounts Reports) Fund/Pool Index which returned a gain of 1.48% in 1999 and a gain of 4.74% for the June 1998 through December 1998 period. MAR tracked the performance of 317 and 281 futures funds in 1999 and 1998, respectively. Series A's negative performance in 1999 was attributable to losses in the currency, metal, and financial sectors. Gains were achieved in the energy, grain, and index sectors. By far the largest losses were experienced in the currency sector. Series A suffered from the volatility and range bound nature of many currencies in which it invests. Currency sector positions added profits in the first quarter, but failed to add gains in subsequent quarters. In the second quarter, Series A experienced losses in the Singapore dollar, Japanese yen, and Australian dollar. Increased volatility drove losses in the Singapore dollar. In Japan, as the economy strengthened, officials feared a premature strengthening of the yen might inhibit growth, thus, causing the Bank of Japan to intervene by selling yen, causing long yen positions to incur losses. Influenced by Asia's economic recovery, the Australian dollar began to rise; however, as gold prices fell to a record low, commodity based currencies like the Australian dollar tumbled, leading to losses in long positions. The Australian dollar reversed in the third quarter as it rose, along with the Canadian dollar, when the price of gold surged in September. Short Canadian and Australian dollar positions recorded losses. During the third quarter, long Swiss franc, euro and British pound positions lost money. In Europe, despite sluggish German exports and a rapidly expanding money supply, a strong economy made possible a rate hike by the European Central Bank. Additionally, the Bank of England shocked markets with a 25 basis point interest rate hike. The Swiss franc bottomed out early in the quarter after trading passed an 8-year low against the U.S. dollar. The Swiss franc fell again in the fourth quarter when the Swiss National Bank added liquidity to their domestic money market in an attempt to keep interest rates from rising due to millennium-related liquidity concerns. The euro also fell amid fears that the European economic recovery was stagnating. Also pressuring the euro was the continuing strength of the U.S. economy and concerns over the slow pace of German economic reforms. Finally, strong economic data from Canada pushed the Canadian dollar higher against the U.S. dollar during the last week of December. Short Canadian dollar positions lost value. The currency sector losses were primarily incurred through the use of the Eagle-FX System, one of the two trading programs used by Series A's trading advisor, Eagle Trading Systems, Inc. (the 'Trading Advisor'), to trade Series A's assets. Effective December 6, 1999, the Eagle-Global System became the exclusive trading program used by the Trading Advisor to trade Series A's assets. In conjunction with this change, the Managing Owner and the Trading Advisor voluntarily agreed to terminate the initial advisory agreement (the 'Initial Advisory Agreement') and enter into a new advisory agreement (the 'New Advisory Agreement') effective March 21, 2000. Pursuant to the New Advisory Agreement, the Trading Advisor will be paid a weekly management fee at an annual rate of 1% of Series A's net asset value until the net asset value per Interest is at least $80 for a period of 10 consecutive business days, at which time the weekly management fee will be increased to an annual rate of 2% (i.e. the rate pursuant to the Initial Advisory Agreement). Additionally, although the term of the New Advisory Agreement commenced on March 21, 2000, the Trading Advisor must recoup all trading losses incurred under the Initial Advisory Agreement before an incentive fee is paid. Long positions in the energy sector, specifically crude oil and derivative products, provided gains in the second, third and fourth quarters as prices rose throughout 1999. In the first quarter, energy markets surged as OPEC announced substantial cuts in crude oil exports. Crude oil prices continued to rally into the second quarter as extremely hot U.S. weather drove increased utility demand during June and following statements by Saudi Arabian and Mexican oil ministers reporting a high degree of compliance with OPEC production cuts. These production cuts continued to prove beneficial for oil markets throughout the third and fourth quarters. Interest income is earned on the average net assets held at PSI and, therefore, varies monthly according to interest rates, trading performance, contributions and redemptions. Interest income was $922,000 and $272,000 for the year ended December 31, 1999 and for the period from June 10, 1998 to December 31, 1998, respectively. As discussed above, the increase in interest income during 1999 versus 1998 was due primarily to the difference in the 1999 and 1998 periods covered as well as the increasing net assets as a 13 result of additional contributions. However, lower overall interest rates in 1999 as compared with interest rates in 1998 offset some of the increase. 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 $1,349,000 and $381,000 for the year ended December 31, 1999 and the period from June 10, 1998 to December 31, 1998, respectively. All trading decisions for Series A are made by the Trading Advisor. 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 $348,000 and $98,000 for the year ended December 31, 1999 and the period from June 10, 1998 to December 31, 1998, respectively. Incentive fees are based on the New High Net Trading Profits generated by the Trading Advisor, as defined in the Advisory Agreement among the Trust, the Managing Owner and the Trading Advisor. Incentive fees were negligible for the year ended December 31, 1999. Incentive fees were $36,000 for the period from June 10, 1998 to December 31, 1998. Accounting for Derivative Instruments In June 1998, the Financial Accounting Standards Board issued Statement of Financial Accounting Standards ('SFAS') No. 133, Accounting for Derivative Instruments and Hedging Activities, which Series A adopted effective October 1, 1999. SFAS No. 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. SFAS No. 133 supersedes SFAS No. 119, Disclosure about Derivative Financial Instruments and Fair Value of Financial Instruments and SFAS No. 105, Disclosure of Information about Financial Instruments with Off-Balance Sheet Risk and Financial Instruments with Concentrations of Credit Risk which required the disclosure of average aggregate fair values and contract/notional values, respectively, of derivative financial instruments for an entity like Series A which carries its assets at fair value. The adoption of SFAS No. 133 has not had a material effect on the carrying value of assets and liabilities within the financial statements. Year 2000 Risk The arrival of year 2000 was much anticipated and raised serious concerns about whether or not computer systems around the world would continue to function properly and the degree of 'Year 2000 Problems' that would have to be resolved. Series A engages third parties such as the Trading Advisor and Commodity Broker to perform primarily all of the services it needs and also relies on other third parties such as governments, exchanges, clearinghouses, vendors, and banks. Series A has not experienced any material adverse impact on operations related to Year 2000 Problems. While Series A believes that it has mitigated its Year 2000 risk, Series A cannot guarantee that an as yet unknown Year 2000 failure will not have a material adverse effect 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, 1999. 14 OTHER INFORMATION The actual round-turn equivalent of brokerage commissions paid per contract for the year ended December 1999 was $119. Series A's Annual Report on Form 10-K as filed with the Securities and Exchange Commission is available to limited owners without charge upon written request to: World Monitor Trust--Series A P.O. Box 2016 Peck Slip Station New York, New York 10272-2016 15 Peck Slip Station BULK RATE P.O. Box 2016 U.S. POSTAGE New York, NY 10272 PAID Automatic Mail PFT1/17152 EX-10.7 3 EXHIBIT 10.7 WORLD MONITOR TRUST ADVISORY AGREEMENT ADVISORY AGREEMENT (the "Agreement") dated as of the 21st day of March, 2000, by and among World Monitor Trust - Series A, a Delaware business trust (the "Trust"), Prudential Securities Futures Management Inc., a Delaware corporation (the "Managing Owner") and Eagle Trading Systems, Inc., a Delaware corporation (the "Advisor"). W I T N E S S E T H : WHEREAS, the Trust and Series A has been organized primarily for the purpose of trading, buying, selling, spreading or otherwise acquiring, holding or disposing of futures, forward and options contracts. Other transactions also may be effected from time to time, including among others, those as more fully identified in Exhibit A hereto. The foregoing commodities and other transactions are collectively referred to as "Commodities"; and WHEREAS, the Managing Owner is authorized to utilize the services of one or more professional commodity trading advisors in connection with the Commodities trading activities of the various Series (as defined below) of the Trust; and WHEREAS, the Advisor's present business includes the management of Commodities accounts for its clients; and WHEREAS, the Advisor is registered as a commodity trading advisor under the United States Commodity Exchange Act, as amended (the "CE Act"), and is a member of the National Futures Association (the "NFA") as a commodity trading advisor and will maintain such registration and membership for the term of this Agreement; and WHEREAS, pursuant to an agreement dated March 24, 1998 (the "Initial Agreement"), the Advisor managed the assets of Series A using its Eagle Global System and Eagle-FX System from the date of Series A's initial closing until December 5, 1999, and by mutual consent because of performance related issues with the Eagle-FX System, solely pursuant to the Eagle Global System from December 6, 1999 until March 20, 2000; and WHEREAS, the Initial Agreement was voluntarily terminated by its terms on March 20, 2000; and WHEREAS, the Trust and the Advisor desire to enter into this Agreement in order to set forth the modified terms and conditions upon which the Advisor will continue to render and implement commodity advisory services on behalf of the Trust during the term of this Agreement; NOW, THEREFORE, the parties agree as follows: 1. Duties of the Advisor. (a) Appointment. The Trust hereby appoints the Advisor, and the Advisor hereby accepts appointment, as its limited attorney-in-fact to exercise discretion to invest and reinvest in Commodities during the term of this Agreement the portion of the Trust's Net Asset Value (as defined in the Prospectus) which is comprised of the assets attributable to the Trust's Series A Interests allocated to the Advisor (the "Series A Allocated Assets") on the terms and conditions and for the purposes set forth herein. This limited power-of-attorney is a continuing power and shall continue in effect with respect to the Advisor until terminated hereunder. The Advisor shall have sole authority and responsibility for independently directing the investment and reinvestment in Commodities of the Series A Allocated Assets for the term of this Agreement pursuant to the trading programs, methods, systems, strategies described in Exhibit A hereto, which the Trust and the Managing Owner have selected to be utilized by the Advisor in trading the Series A Allocated Assets (collectively referred to as the Advisor's "Trading Approach"), subject to the trading policies and limitations as set forth in the Trust's Prospectus and attached hereto as Exhibit B (the "Trading Policies and Limitations"), as the same may be modified from time to time and provided in writing to the Advisor. The portion of the Series A Allocated Assets to be allocated by the Advisor at any point in time to one or more of the various trading strategies comprising the Advisor's Trading Approach will be determined as set forth in Exhibit A hereto, as it may be amended from time to time, with the consent of the parties, it being understood that trading gains and losses automatically will alter the agreed upon allocations. Upon receipt of a new allocation, the Advisor will determine and, if required, adjust its trading in light of the new allocation. (b) Allocation of Responsibilities. The Managing Owner will have the responsibility for the management of any portion of the Series A Allocated Assets that are not invested in Commodities. The Advisor will use its good faith and best efforts in determining the investment and reinvestment in Commodities of the Series A Allocated Assets in compliance with the Trading Policies and Limitations, and in accordance with the Advisor's Trading Approach. In the event that the Managing Owner shall, in its sole discretion, determine in good faith following consultation appropriate under the circumstances with the Advisor that any trading instruction issued by the Advisor violates the Trust's Trading Policies and Limitations, then the Managing Owner, following reasonable notice to the Advisor appropriate under the circumstances, may override such trading instruction and shall be responsible therefor. Nothing herein shall be construed to prevent the Managing Owner from imposing any limitation(s) on the trading activities of the Trust beyond those enumerated in the Prospectus if the Managing Owner determines that such limitation(s) are necessary or in the best interests of the Trust, in which case the Advisor will adhere to such limitations following written notification thereof. (c) Trading Approach. The Advisor agrees that at least 90% of the gains and income, if any, generated by its Trading Approach for Series A will be from buying and selling Commodities, as described in Exhibit D hereto. (d) Modification of Trading Approach. In the event the Advisor requests to use, or the Managing Owner requests the Advisor to use, a trading program, system, method or strategy other than or in addition to the trading programs, systems, methods or strategies comprising the Trading Approach in connection with trading for the Trust (including, without limitation, the deletion or addition of an agreed upon trading program, system, method or strategy to the then agreed upon Trading Approach), either in whole or in part, the Advisor may not do so and/or shall not be required to do so, as appropriate, unless both the Managing Owner and the Advisor consent thereto in writing. (e) Notification of Material Changes. The Advisor also agrees to give the Trust prior written notice of any proposed material change in its Trading Approach, and agrees not to make any material change in such Trading Approach (as applied to the Trust) over the objection of the Managing Owner, it being understood that the Advisor shall be free to institute non-material changes in its Trading Approach (as applied to the Trust) without prior written notification. Without limiting the generality of the foregoing, refinements to the Advisor's Trading Approach, the deletion (but not the addition) of commodities (other than the addition of commodities then being traded (i) on organized domestic commodities exchanges, (ii) on foreign commodities exchanges recognized by the Commodity Futures Trading Commission as providing customer protections comparable to those provided on domestic exchanges, or (iii) in the interbank foreign currency market) to or from the Advisor's Trading Approach, and variations in the leverage principles and policies utilized by the Advisor, shall not be deemed a material change in the Advisor's Trading Approach, and prior approval of the Managing Owner shall not be required therefor. The utilization of forward markets in addition to those enumerated in Exhibit D hereto would be deemed a material change to the Advisor's Trading Approach and prior approval shall be required therefor. Subject to adequate assurances of confidentiality, the Advisor agrees that it will discuss with the Managing Owner upon request any trading methods, programs, systems or strategies used by it for trading customer accounts which differ from the Trading Approach used for the Trust, provided, that nothing contained in this Agreement shall require the Advisor to disclose what it deems to be proprietary or confidential information. (f) Request for Information. The Advisor agrees to provide the Trust with any reasonable information concerning the Advisor that the Trust may reasonably request (other than the identity of its customers or proprietary or confidential information concerning the Trading Approach), subject to receipt of adequate assurances of confidentiality by the Trust, including, but not limited to, information regarding any change in control, key personnel, Trading Approach and financial condition which the Trust reasonably deems to be material to the Trust; the Advisor also shall notify the Trust of any such matters the Advisor, in its reasonable judgment, believes may be material to the Trust relating to the Advisor and its Trading Approach. During the term of this Agreement, the Advisor agrees to provide the Trust with updated monthly information related to the Advisor's performance results within a reasonable period of time after the end of the month to which it relates. (g) Notice of Errors. The Advisor is responsible for promptly reviewing all oral and written confirmations it receives to determine that the Commodities trades were made in accordance with the Advisor's instructions. If the Advisor determines that an error was made in connection with a trade or that a trade was made other than in accordance with the Advisor's instructions, the Advisor shall promptly notify the Managing Owner of this fact, and shall utilize its best efforts to cause the error or discrepancy to be corrected. (h) Liability. Neither the Advisor nor any employee, director, officer or shareholder of the Advisor, nor any person who controls the Advisor, shall be liable to the Managing Owner, its officers, directors, shareholders or employees, or any person who controls the Managing Owner, or the Trust or the owners of Series A Interests ("Limited Owners"), or any of their respective successors or assignees under this Agreement, except by reason of acts or omissions in material breach of this Agreement or due to their misconduct or negligence or by reason of their not having acted in good faith in the reasonable belief that such actions or omissions were in the best interests of the Trust; it being understood that the Advisor makes no guarantee of profit nor offers any protection against loss, and that all purchases and sales of Commodities shall be for the account and risk of the Trust, and the Advisor shall incur no liability for trading profits or losses resulting therefrom provided the Advisor would not otherwise be liable to the Trust under the terms hereof. (i) Initial Allocation, Additional Allocations, and Reallocations. Initially, the Series A Allocated Assets will be equal to the Series A Allocated Assets as of the close of business on March 20, 2000. Thereafter, subject to Section 12(a) below, the Trust may, (A) reallocate the Series A Allocated Assets away from the Advisor to another commodity trading advisor (an "Other Advisor"), or (B) reallocate the Series A Allocated Assets to the Advisor away from an Other Advisor in an amount which will not, in the aggregate, cause the assets allocated to the Advisor by the Managing Owner to exceed $34,000,000. (j) Delivery of Disclosure Document. The Advisor agrees to provide to the Managing Owner any amendment, supplement, or update to the Disclosure Document attached hereto as Exhibit D. 2. Indemnification. (a) The Advisor. Subject to the provisions of Section 3, the Advisor, and each officer, director, shareholder and employee of the Advisor, and each person who controls the Advisor, shall be indemnified, defended, and held harmless by the Trust and the Managing Owner, from and against any and all claims, losses, judgments, liabilities, damages, costs, expenses (including, without limitation, reasonable investigatory and attorneys' fees) and amounts paid in settlement of any claims in compliance with the conditions specified below (collectively, "Losses") sustained by the Advisor (i) in connection with any acts or omissions of the Advisor, or any of its officers, directors or employees relating to its management of the Series A Allocated Assets, including in connection with this Agreement or otherwise as a result of the Advisor's performance of services on behalf of the Trust or its role as trading advisor to Series A Allocated Assets and (ii) as a result of a material breach of this 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 this Agreement on the part of the Advisor, and its officers, directors, shareholders and employees, and each person controlling the Advisor, (ii) the Advisor, and its officers, directors, shareholders and employees, and each person controlling the Advisor, acted 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 Trust and (iii) any such indemnification will only be recoverable from the Series A Allocated Assets and the assets of the Managing Owner and not from any other assets of any other Series of the Trust, provided further, that no indemnification shall be permitted under this Section 2 for amounts paid in settlement if either (A) the Advisor fails to notify the Trust of the terms of any settlement proposed, at least fifteen (15) days before any amounts are paid, or (B) the Trust does not approve the amount of the settlement within fifteen (15) days (such approval not to be withheld unreasonably). Notwithstanding the foregoing, the Trust shall, at all times, have the right to offer to settle any matter with the approval of the Advisor (which approval shall not be withheld unreasonably) and if the Trust successfully negotiates a settlement and tenders payment therefor to the party claiming indemnification (the "Indemnitee") the Indemnitee must either use its best efforts to dispose of the matter in accordance with the terms and conditions of the proposed settlement or the Indemnitee may refuse to settle the matter and continue its defense in which latter event the maximum liability of the Trust to the Indemnitee shall be the amount of said proposed settlement. Any indemnification under this Section 2, unless ordered by a court, shall be made by the Trust only as authorized in the specific case and only upon a determination by mutually acceptable independent legal counsel in a written opinion that indemnification is proper in the circumstances because the Indemnitee has met the applicable standard of conduct set forth hereunder. (b) Default Judgments and Confessions of Judgment. None of the foregoing provisions for indemnification shall be applicable with respect to default judgments or confessions of judgment entered into by the Indemnitee, with its knowledge, without the prior consent of the Trust. (c) Procedure. In the event that an Indemnitee under this Section 2 is made a party to an action, suit or proceeding alleging both matters for which indemnification can be made hereunder and matters for which indemnification may not be made hereunder, such Indemnitee shall be indemnified only for that portion of the Losses incurred in such action, suit or proceeding which relates to the matters for which indemnification can be made. (d) Expenses. Expenses incurred in defending a threatened or pending civil, administrative or criminal action, suit or proceeding against an Indemnitee shall be paid by the Trust in advance of the final disposition of such action, suit or proceeding if (i) the legal action, suit or proceeding, if sustained, would entitle the Indemnitee to indemnification pursuant to the terms of this Section 2, and (ii) the Advisor undertakes to repay the advanced funds to the Trust in cases in which the Indemnitee is not entitled to indemnification pursuant to this Section 2, and (iii) in the case of advancement of expenses by the Trust, the Indemnitee obtains a written opinion of mutually acceptable independent legal counsel that advancing such expenses is proper in the circumstances. 3. Limits on Claims. (a) Prohibited Acts. The Advisor agrees that it will not take any of the following actions against the Trust: (i) seek a decree or order by a court having jurisdiction in the premises (A) for relief in respect of the Trust in an involuntary case or proceeding under the Federal Bankruptcy Code or any other federal or state bankruptcy, insolvency, reorganization, rehabilitation, liquidation or similar law or (B) adjudging the Trust a bankrupt or insolvent, or seeking reorganization, rehabilitation, liquidation, arrangement, adjustment or composition of or in respect of the Trust under the Federal Bankruptcy Code or any other applicable federal or state law, or appointing a custodian, receiver, liquidator, assignee, trustee, sequestrator (or other similar official) of the Trust or of any substantial part of any of its properties, or ordering the winding up or liquidation of any of its affairs, or (ii) seek a petition for relief, reorganization or to take advantage of any law referred to in the preceding clause or (iii) file an involuntary petition for bankruptcy (collectively, "Bankruptcy or Insolvency Action"). (b) Limited Assets Available. In addition, the Advisor agrees that for any obligations due and owing to it by the Trust, the Advisor will look solely and exclusively to Series A Allocated Assets or to the assets of the Managing Owner, if it has liability in its capacity as Managing Owner, to satisfy its claims and will not seek to attach or otherwise assert a claim against the other assets of the Trust, whether there is a Bankruptcy or Insolvency Action taken or otherwise. The parties agree that this provision will survive the termination of this Agreement, whether terminated in a Bankruptcy or Insolvency Action or otherwise. (c) No Limited Owner Liability. This Agreement has been made and executed by and on behalf of the Trust and the Managing Owner for the benefit of the Series A Interests of the Trust and the obligations of the Trust and/or the Managing Owner set forth herein are not binding upon any of the Limited Owners individually but are binding only upon the assets and property identified above and no resort shall be had to the assets of other Series issued by the Trust or the Limited Owners' personal property for the satisfaction of any obligation or claim hereunder. (d) Subordination Agreement. The Advisor agrees and consents (the "Consent") to look solely to each Series for which brokerage and clearing services are being performed ("Series A") and assets (the "Series A Assets") of Series A and to the Managing Owner and its assets for payment. The Series A 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 Series A, including, without limitation, funds delivered to the Trust for the purchase of interests in Series A. In furtherance of the Consent, the Advisor 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 arising from, related to or in connection with the Trust and its assets and Series A and the Series A Assets, shall be subject to the following limitations: (1) Subordination of certain claims and rights. (i) except as set forth below, the Claims, if any, of the Advisor (the "Subordinated Claims") 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 Advisor's Claims (if any) against Series A shall not be considered Subordinated Claims with respect to enforcement against and distribution and repayment from Series A, the Series A Assets and the Managing Owner and its assets; and provided further that the Advisor's valid Claims, if any, against Series A shall be pari passu and equal in right of repayment and distribution with all other valid Claims against Series A and (ii) the Advisor will not take, demand or receive from any Series or the Trust or any of their respective assets (other than Series A, the Series A Assets and the Managing Owner and its assets) any payment for the Subordinated Claims; (2) the Claims of the Advisor with respect to Series A shall only be asserted and enforceable against Series A, the Series A 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; (3) if the Claims of the Advisor against Series A or the Trust are secured in whole or in part, the Advisor 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 Series A), as the case may be; (4) in furtherance of the foregoing, if and to the extent that the Advisor receives monies in connection with the Subordinated Claims from a Series or the Trust (or their respective assets), other than Series A, the Series A Assets and the Managing Owner and its assets, the Advisor 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 (5) 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. 4. Obligations of the Trust, the Managing Owner and the Advisor. (a) The Registration Statement and Prospectus. Each of the Trust and the Managing Owner agrees to cooperate and use its good faith, or and best efforts in connection with the taking of such actions not inconsistent with this Agreement as the Managing Owner may determine to be necessary or advisable in order to comply with applicable regulatory requirements. The Advisor agrees to make all necessary disclosures regarding itself, its officers and principals, trading performance, Trading Approach, customer accounts (other than the names of customers, unless such disclosure is required by law or regulation) and otherwise as may be requested, in the reasonable judgment of the Managing Owner, to be made in order to manage the Trust and correspond with the Interestholders. No description of, or other information relating to, the Advisor may be distributed by the Managing Owner without the prior written consent of the Advisor; provided that, distribution of performance information relating to Series A's account shall not require consent of the Advisor. (b) Advisor Not A Promoter. The parties acknowledge that the Advisor has not been, either alone or in conjunction with Prudential Securities Incorporated ("Prudential Securities") or its affiliates, an organizer or promoter of the Trust, and it is not intended by the parties that the Advisor shall have any liability as such. (c) Representation Agreement. The parties agree that the Representation Agreement relating to the offering of the Series A Interests which was executed simultaneous to the Initial Agreement (a copy of which is attached as Exhibit C) remains in full force and effect notwithstanding the termination of the Initial Agreement. 5. Advisor Independence. (a) Independent Contractor. The Advisor shall for all purposes herein be deemed to be an independent contractor with respect to the Trust, the Managing Owner and each other commodity trading advisor that may in the future provide commodity trading advisory services to the Trust and Prudential Securities, and shall, unless otherwise expressly authorized, have no authority to act for or to represent the Trust, the Managing Owner, any other commodity trading advisor or Prudential Securities in any way or otherwise be deemed to be a general agent, joint venturer or partner of the Trust, the Managing Owner, any other commodity trading advisor or Prudential Securities, or in any way be responsible for the acts or omissions of the Trust, the Managing Owner, any other commodity trading advisor or Prudential Securities as long as it is acting independently of such persons. (b) Unauthorized Activities. Without limiting the obligations of the Trust set forth under this Agreement, nothing herein contained shall be deemed to require the Trust to take any action contrary to its Trust Agreement or Certificate of Trust or any applicable statute, regulation or rule of any exchange or self-regulatory organization. (c) Purchase of Interests. Any of the Advisor, its principals, and employees may, in its discretion, purchase Interests in the Trust. (d) Confidentiality. The Trust and the Managing Owner acknowledge that the Trading Approach of the Advisor is the confidential property of the Advisor. Nothing in this Agreement shall require the Advisor to disclose the confidential or proprietary details of its Trading Approach. The Trust and the Managing Owner further agree that they will keep confidential and will not disseminate the Advisor's trading advice to the Trust, except as, and to the extent that, it may be determined by the Managing Owner to be (i) necessary for the monitoring of the business of the Trust, including the performance of brokerage services by the Trust's commodity broker(s) or (ii) expressly required by law or regulation. 6. Commodity Broker. All Commodities trades for the account of the Trust shall be made through such commodity broker or brokers as the Managing Owner directs or otherwise as may be agreed upon in accordance with such order execution procedures as are agreed upon between the Advisor and the Managing Owner. The Advisor shall not have any authority or responsibility in selecting or supervising any broker for execution of Commodities trades of the Trust or for negotiating commission rates to be charged therefor. The Advisor shall not be responsible for determining that any such bank or broker used in connection with any Commodities transactions meets the financial requirements or standards imposed by the Trust's Trading Policies and Limitations. At the present time it is contemplated that the Trust will execute and clear all Commodities trades through Prudential Securities. The Advisor may, however, with the consent of the Managing Owner, execute transactions at such other broker(s), and upon such terms and conditions, as the Advisor and the Managing Owner agree if such broker(s) agree to "give up" all such transactions to Prudential Securities for clearance. To the extent that the Trust determines to utilize a broker or brokers other than Prudential Securities, it will consult with the Advisor prior to directing it to utilize such broker(s), and will not retain the services of such broker(s) over the reasonable objection of the Advisor. 7. Fees. In consideration of and in compensation for the performance of the Advisor's services under this Agreement, the Advisor shall receive from Series A a weekly management fee (the "Management Fee") and a quarterly incentive fee (the "Incentive Fee") based on Series A 's Allocated Assets, as follows: (a) A Management Fee equal to 1/52 of 1% of Series A 's Allocated Assets determined as of the close of business each Friday (an annual rate of 1%) until the Net Asset Value per Interest at the close of business on any business day is at least $80 per Interest for a period of at least 10 consecutive business days, at which time the weekly Management Fee will be increased to 1/26 of 1% (an annual rate of 2%). The sum of the amounts determined each Friday will be paid monthly. For purposes of determining the Management Fee, any distributions, redemptions, or reallocation of the Series A's Allocated Assets made as of the last Friday of a week shall be added back to Series A's Allocated Assets and there shall be no reduction for (i) the accrued Management Fees being calculated, or (ii) any accrued but unpaid incentive fees due the Advisor under paragraph (b) below for the quarter in which such fees are being computed, or (iii) any accrued but unpaid extraordinary expenses (as defined in the Trust Agreement). The Management Fee determined for any week in which an Advisor manages Series A's Allocated Assets for less than a full week shall be prorated, such proration to be calculated on the basis of the number of days in the week Series A Allocated Assets were under the Advisor's management as compared to the total number of days in such week, such proration to include appropriate adjustments for any funds taken away from the Advisor's management during the week for reasons other than distributions or redemptions, including but not limited to the reduction of Series A 's Allocated Assets allocated to the Advisor's management resulting from the payment of extraordinary expenses or distributions. (b) An incentive fee of twenty three percent (23%) (the "Incentive Fee") of "New High Net Trading Profits" (as hereinafter defined) generated on Series A 's Allocated Assets, including realized and unrealized gains and losses thereon, as of the close of business on the last Friday of each calendar quarter (the "Incentive Measurement Date"). This fee will accrue weekly. New High Net Trading Profits (for purposes of calculating the Advisor's Incentive Fee only) will be computed as of the Incentive Measurement Date and will 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 since September 25, 1998, the last date at which the Advisor earned an incentive fee under the Initial Agreement (the "Incentive Measurement Period"). New High Net Trading Profits for any Incentive Measurement Period will be the net profits, if any, from Series A 's 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 will be calculated after the determination of Series A 's fixed brokerage fee and the Advisor's weekly Management Fee, and the operating expenses for which Series A is responsible, but before deduction of any Incentive Fees payable during the Incentive Measurement Period. New High Net Trading Profits will not include interest earned or credited on Series A 's assets and will be 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. New High Net Trading Profits will be generated only to the extent that the 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 (and in the case of the first incentive fee, from the Initial Agreement) must be recouped before New High Net Trading Profits can be generated. 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, but any Incentive Fee accrued in respect of the withdrawn assets on such date shall not be paid to the Advisor until the next scheduled Incentive Measurement Date. New High Net Trading Profits for an Incentive Measurement Period shall exclude capital contributions to Series A in an Incentive Measurement Period, distributions or redemptions payable by Series A during an Incentive Measurement Period, as well as losses, if any, associated with redemptions during the Incentive Measurement Period and prior to the Incentive Measurement Date (i.e., reduction in loss carryforward). In calculating New High Net Trading Profits, incentive fees paid for a previous Incentive Measurement Period will not reduce cumulative New High Net Trading Profits in subsequent periods. Notwithstanding any other provision of this Agreement which may be interpreted to the contrary, it is the intent of the parties that all cumulative losses existing at the date of the termination of the Initial Agreement must be recouped consistent with the calculations and provisions of this Agreement before the first Incentive Fee under this Agreement will be due and owing. (c) Timing of Payment. Management Fees and Incentive Fees shall be paid within fifteen (15) business days following the end of the period for which they are payable. The first incentive fee which may be due and owing to the Advisor in respect of any New Trading Profits will be due and owing as of the last Friday of the first calendar quarter during which the Trading Advisor managed the Allocated Assets for at least forty five (45) days. If an Incentive Fee shall have been paid by the Trust to the Advisor in respect of any calendar quarter and the Advisor shall incur subsequent losses on the Series A Allocated Assets the Advisor shall nevertheless be entitled to retain amounts previously paid to it in respect of New High Net Trading Profits. (d) Fee Data. The Advisor will be provided by the Managing Owner with the data used by the Managing Owner to compute the foregoing fees within ten (10) business days of the end of the relevant period. (e) Third Party Payments. Neither the Advisor, nor any of its officers, directors, employees or stockholders, shall receive any commissions, compensation, remuneration or payments whatsoever from any broker with which the Trust carries an account for transactions executed in the Trust's account. The parties acknowledge that a spouse of any of the foregoing persons may receive floor brokerage commissions in respect of trades effected pursuant to the Advisor's Trading Approach on behalf of the Trust, which payment shall not violate the preceding sentence. 8. Term and Termination. (a) Term. This Agreement shall commence on the date hereof and, unless sooner terminated, shall continue in effect until the close of business on December 31, 2000. Thereafter, unless this Agreement is terminated pursuant to paragraphs (b), (c) or (d) of this Section 8, this Agreement shall be renewed automatically on the same terms and conditions set forth herein for successive additional one-year terms, each of which shall commence on the first day of the month subsequent to the conclusion of the preceding twelve (12) month term. Subject to Section 8(d)(iv) hereof, the automatic renewal(s) set forth in the preceding sentence hereof shall not be affected by (i) any reallocation of the Series A Allocated Assets away from the Advisor pursuant to this Agreement, or (ii) the retention of Other Advisors following a reallocation, or otherwise. (b) Automatic Termination. This Agreement shall terminate automatically in the event that the Trust is terminated. In addition, this Agreement shall terminate automatically in the event that the Series A Allocated Assets declines as of the end of any business day by 33 1/3% from the Series A Allocated Assets (i) as of the first day of this Agreement, or (ii) as of the first day of any calendar year, as adjusted on an ongoing basis by (A) any decline(s) in the Series A Allocated Assets caused by distributions, redemptions, permitted reallocations, and withdrawals, and (B) additions to the Series A Allocated Assets caused by additional allocations to the Advisor's management. (c) Optional Termination Right of Trust. This Agreement may be terminated at any time at the election of the Managing Owner in its sole discretion upon at least thirty (30) days' prior written notice to the Advisor. The Managing Owner will use its best efforts to cause any termination to occur as of a month- end. This Agreement also may be terminated upon prior written notice, appropriate under the circumstances, to the Advisor in the event that: (A) the Managing Owner determines in good faith following consultation appropriate under the circumstances with the Advisor that the Advisor is unable to use its agreed upon Trading Approach to any material extent, as such Trading Approach may be refined or modified in the future in accordance with the terms of this Agreement for the benefit of the Trust; (B) the Advisor's registration as a commodity trading advisor under the CE Act, or membership as a commodity trading advisor with the NFA is revoked, suspended, terminated or not renewed; (C) the Managing Owner determines in good faith following consultation appropriate under the circumstances with the Advisor that the Advisor has failed to conform, and after receipt of written notice, continues to fail to conform in any material respect, to (i) any of the Trust's Trading Policies and Limitations, or (ii) the Advisor's Trading Approach; (D) there is an unauthorized assignment of this Agreement by the Advisor; (E) the Advisor dissolves, merges or consolidates with another entity or sells a substantial portion of its assets, any portion of its Trading Approach utilized by the Trust or its business goodwill, in each instance without the consent of the Managing Owner; (F) either Menachem Sternberg or Liora Sternberg is not in control of the Advisor's trading activities for the Trust; (G) the Advisor becomes bankrupt (admitted or decreed) or insolvent, (H) for any other reason, the Managing Owner determines in good faith that such termination is essential for the protection of the Trust and the Series A Interests, including, without limitation a good faith determination by the Managing Owner that the Advisor has breached a material obligation to the Trust under this Agreement relating to the trading of the Series A Allocated Assets. (d) Optional Termination Right of Advisor. The Advisor shall have the right to terminate this Agreement at any time upon written notice to the Trust, appropriate under the circumstances, in the event (i) of the receipt by the Advisor of an opinion of independent counsel satisfactory to the Advisor and the Trust that by reason of the Advisor's activities with respect to the Trust, it is required to register as an investment adviser under the Investment Advisers Act of 1940 and it is not so registered; (ii) that the registration of the Managing Owner as a commodity pool operator under the CE Act, or its NFA membership as a commodity pool operator is revoked, suspended, terminated or not renewed; (iii) the Managing Owner (x) imposes additional trading limitation(s) pursuant to Section 1 of this Agreement which the Advisor does not agree to follow in its management of the Series A Allocated Assets, or (y) overrides trading instructions of the Advisor or does not consent to a material change to the Trading Approach requested by the Advisor; (iv) if the amount of the Series A Allocated Assets decreases to less than $1 million as the result of redemptions, but not trading losses, as of the close of business on any Friday; (v) the Managing Owner elects (pursuant to Section 1 of this Agreement) to have the Advisor use a different Trading Approach in the Advisor's management of Trust assets from that which the Advisor is then using to manage such assets and the Advisor objects to using such different Trading Approach; (vi) there is an unauthorized assignment of this Agreement by the Trust or the Managing Owner; (vii) there is a material breach of this Agreement by the Trust and/or the Managing Owner after giving written notice to the Managing Owner which identifies such breach and such material breach has not been cured within 10 days following receipt of such notice by the Managing Owner; (viii) an Other Advisor is allocated a portion of the Series A Assets; or (ix) other good cause is shown and the written consent of the Managing Owner is obtained (which shall not be withheld unreasonably). (e) Termination Fees. In the event that this Agreement is terminated with respect to, or by, the Advisor pursuant to this Section 8 or the Managing Owner allocates the Trust's assets to Other Advisors, the Advisor shall be entitled to, and the Trust shall pay, the Management Fee and the Incentive Fee, if any, which shall be computed (i) with respect to the Management Fee, on a pro rata basis, based upon the portion of the month for which the Advisor had the Series A Allocated Assets under management, and (ii) with respect to the Incentive Fee, if any, as if the effective date of termination was the last day of the then current calendar quarter. The rights of the Advisor to fees earned through the earlier to occur of the date of expiration or termination shall survive this Agreement until satisfied. (f) Termination and Open Positions. Once terminated, the Advisor shall have no responsibility for existing positions, including delivery issues, if any, which may result from such positions. 9. Liquidation of Positions. The Advisor agrees to liquidate open positions in the amount that the Managing Owner informs the Advisor, in writing via telecopy or other equivalent means, that the Managing Owner considers necessary or advisable to liquidate in order to (i) effect any termination or reallocation pursuant to Sections 1 or 8, respectively, or (ii) fund its pro rata share of any redemption, distribution or Trust expense. The Managing Owner shall not, however, have authority to instruct the Advisor as to which specific open positions to liquidate, except as provided in Section 1 hereof. The Managing Owner shall provide the Advisor with such reasonable prior notice of such liquidation as is practicable under the circumstances and will endeavor to provide at least three (3) days' prior notice. In the event that losses incurred by the Advisor exceed the amount of the Series A Allocated Assets, the Managing Owner agrees to cover such excess losses from its assets, but in no event from the assets of the other Series issued by the Trust. 10. Other Accounts of the Advisor. (a) Management of Other Accounts. Subject to paragraph (c) of this Section 10, the Advisor shall be free to manage and trade accounts for other investors (including other public and private commodity pools) during the term of this Agreement and to use the same or other information and Trading Approach utilized in the performance of services for the Trust for such other accounts so long as the Advisor's ability to carry out its obligations and duties to the Trust pursuant to this Agreement is not materially impaired thereby. In addition, the Advisor, and its shareholders, directors, officers and employees, as applicable, also will be permitted to trade in Commodities using the Trading Approach or otherwise for their own accounts, so long as the Advisor's ability to carry out its obligations and duties to the Trust pursuant to this Agreement is not materially impaired thereby. (b) Acceptance of Additional Capital. Furthermore, so long as the Advisor is performing services for the Trust, it agrees that it will not accept additional capital for management in the Commodities markets if doing so would have a reasonable likelihood of resulting in the Advisor having to modify materially its agreed upon Trading Approach being used for the Trust in a manner which might reasonably be expected to have a material adverse effect on the Trust. Without limiting the generality of the foregoing, it is understood that this paragraph shall not prohibit the acceptance of additional capital, which acceptance requires only routine adjustments to trading patterns in order to comply with speculative position limits or daily trading limits. (c) Equitable Treatment of Accounts. The Advisor agrees, in its management of accounts other than the account of the Trust, that it will not knowingly or deliberately favor any other account managed or controlled by it or any of its principals or affiliates (in whole or in part) over the Trust. The preceding sentence shall not be interpreted to preclude (i) the Advisor from charging another client fees which differ from the fees to be paid to it hereunder, or (ii) an adjustment by the Advisor in the implementation of any agreed upon Trading Approach in accordance with the procedures set forth in Section 1 hereof which is undertaken by the Advisor in good faith in order to accommodate additional accounts. The Advisor, upon reasonable request and receipt of adequate assurances of confidentiality, shall provide the Managing Owner with an explanation of the differences, if any, in performance between the Trust and any other similar account pursuant to the same Trading Approach for which the Advisor or any of its principals or affiliates acts as a commodity trading advisor (in whole or in part), provided, however, that the Advisor may, in its discretion, withhold from any such inspection the identity of the client for whom any such account is maintained. (d) Inspection of Records. Upon the reasonable request of, and upon reasonable notice from, the Managing Owner, the Advisor shall permit the Managing Owner to review at the Advisor's offices during normal business hours such trading records as it reasonably may request for the purpose of confirming that the Trust has been treated equitably with respect to advice rendered during the term of this Agreement by the Advisor for other accounts managed by the Advisor, which the parties acknowledge to mean that the Managing Owner may inspect, subject to such restrictions as the Advisor may reasonably deem necessary or advisable so as to preserve the confidentiality of proprietary information and the identity of its clients, all trading records of the Advisor as it reasonably may request during normal business hours. The Advisor may, in its discretion, withhold from any such report or inspection the identity of the client for whom any such account is maintained and in any event, the Trust and the Managing Owner shall keep all such information obtained by them from the Advisor confidential unless disclosure thereof is legally required or has been made public.. 11. Speculative Position Limits. If, at any time during the term of this Agreement, it appears to the Advisor that it may be required to aggregate the Trust's Commodities positions with the positions of any other accounts it owns or controls for purposes of applying the speculative position limits of the Commodity Futures Trading Commission ("CFTC"), any exchange, self-regulatory body, or governmental authority, the Advisor promptly will notify the Managing Owner if the Trust's positions under its management are included in an aggregate amount which equals or exceeds the applicable speculative limit. The Advisor agrees that, if its trading recommendations pursuant to its agreed upon Trading Approach are altered because of the potential application of speculative position limits, the Advisor will modify its trading instructions to the Trust and its other accounts in a good faith effort to achieve an equitable treatment of all accounts; to wit, the Advisor will liquidate Commodities positions and/or limit the taking of new positions in all accounts it manages, including the Trust, as nearly as possible in proportion to the assets available for trading of the respective accounts (including "notional" equity) to the extent necessary to comply with applicable speculative position limits. The Advisor presently believes that its Trading Approach for the management of the Trust's account, assuming that the allocation is not more than $34,000,000, can be implemented for the benefit of the Trust notwithstanding the possibility that, from time to time, speculative position limits may become applicable. 12. Redemptions, Distributions, Reallocations and Additional Allocations. (a) Notice. The Managing Owner agrees to give the Advisor at least one (1) business day prior notice of any proposed redemptions, exchanges, distributions, reallocations, additional allocations, or withdrawals. (b) Allocations. Redemptions, exchanges, withdrawals, and distributions of Series A Interests shall be charged against Series A Allocated Assets. 13. Brokerage Confirmations and Reports. The Managing Owner will instruct the Trust's commodity broker or brokers to furnish the Advisor with copies of all trade confirmations, daily equity runs, and monthly trading statements relating to the Series A Allocated Assets. The Advisor will maintain records and will monitor all open positions relating thereto; provided, however, that the Advisor shall not be responsible for any errors by the Trust's brokers. The Managing Owner also will furnish the Advisor with a copy of the form of all reports, including but not limited to, monthly, quarterly and annual reports, sent to the Limited Owners, and copies of all reports filed with the SEC, the CFTC and the NFA. The Advisor shall, at the Managing Owner's request, make a good faith effort to provide the Managing Owner with copies of all trade confirmations (if the broker is other than Prudential Securities), daily equity runs, monthly trading reports or other reports sent to the Advisor by the Trust's commodity broker regarding the Trust, and in the Advisor's possession or control, as the Managing Owner deems appropriate, if the Managing Owner cannot obtain such copies on its own behalf. Upon request, the Managing Owner will provide the Advisor with accurate information with respect to the Series A Allocated Assets. 14. The Advisor's Representations and Warranties. The Advisor represents and warrants that: (a) it has full capacity and authority to enter into this Agreement, and to provide the services required of it hereunder; (b) it will not by entering into this Agreement and by acting as a commodity trading advisor to the Trust, (i) be required to take any action contrary to its incorporating or other formation documents or any applicable statute, law or regulation of any jurisdiction or (ii) breach or cause to be breached any undertaking, agreement, contract, statute, rule or regulation to which it is a party or by which it is bound which, in the case of (i) or (ii), would materially limit or materially adversely affect its ability to perform its duties under this Agreement; (c) it is duly registered as a commodity trading advisor under the CE Act and is a member of the NFA as a commodity trading advisor and it will maintain and renew such registration and membership during the term of this Agreement; (d) a copy of its most recent Commodity Trading Advisor Disclosure Document as required by Part 4 of the CFTC's regulations has been provided to the Managing Owner on behalf of the Trust in the form of Exhibit D hereto (and the Managing Owner acknowledges receipt of such Disclosure Document on behalf of the Trust) and, except as disclosed in such Disclosure Document, all information in such Disclosure Document (including, but not limited to, background, performance, trading methods and trading systems) is true, complete and accurate in all material respects and is in conformity in all material respects with the provisions of the CE Act, as amended, including the rules and regulations thereunder; (e) the Series A Allocated Assets should not, in the reasonable judgment of the Advisor, result in the Advisor being required to alter its Trading Approach to a degree which would be expected to have a material adverse effect on the Trust; and (f) neither the Advisor, nor its stockholders, directors, officers, employees, agents, principals, affiliates, nor any of its or their respective successors or assigns: (i) shall knowingly use or distribute for any purpose whatsoever any list containing the names and/or residence addresses of, and/or other information about, the Limited Owners of the Trust; nor (ii) shall solicit any person it or they know is a Limited Owner of the Trust for the purpose of soliciting commodity business from such Limited Owner, unless such Limited Owner shall have first contacted the Advisor or is already a client of the Advisor or a prospective client with which the Advisor has commenced discussions or is introduced or referred to the Advisor by an unaffiliated agent other than in violation of clause (i). (g) its business operations and any services provided pursuant to this Agreement will not be materially interrupted by the advent of the Year 2000 date. The within representations and warranties shall be continuing during the term of this Agreement, and, if at any time, any event has occurred which would make or tend to make any of the foregoing not true in any material respect with respect to the Advisor, the Advisor promptly will notify the Trust in writing thereof. 15. The Managing Owner's Representations and Warranties. The Managing Owner represents and warrants on behalf of the Trust and itself that: (a) each has the full capacity and authority to enter into this Agreement and to perform its obligations hereunder; (b) it will not, by acting as managing owner to the Trust or by entering into this Agreement, and the Trust will not (i) be required to take any action contrary to its incorporating or other formation documents or any applicable statute, law or regulation of any jurisdiction, or (ii) breach or cause to be breached (A) any undertaking, agreement, contract, statute, rule or regulation to which it or the Trust is a party or by which it or the Trust is bound, or (B) any order of any court or governmental or regulatory agency having jurisdiction over it or the Trust, which in the case of (i) or (ii) would materially limit or materially adversely affect the performance of its or the Trust's duties under this Agreement; (c) it is registered as a commodity pool operator under the CE Act and is a commodity pool operator member of the NFA, and it will maintain and renew such registration and membership during the term of this Agreement; (d) this Agreement has been duly and validly authorized, executed and delivered, and is a valid and binding agreement, enforceable against each of them, in accordance with its terms; and (e) on the date hereof, it is, and during the term of this Agreement, it will be (i) in the case of the Trust, a duly formed and validly existing Delaware Business Trust, and (ii) in the case of the Managing Owner, a duly formed and validly existing corporation, in each case, in good standing under the laws of the State of Delaware, and in good standing and qualified to do business in each jurisdiction in which the nature and conduct of its business requires such qualification and where the failure to be so qualified would materially adversely affect its ability to perform its obligations under this Agreement. The within representations and warranties shall be continuing during the term of this Agreement, and, if at any time, any event has occurred which would make or tend to make any of the foregoing not true in any material respect, the Managing Owner promptly will notify the Advisor in writing. 16. Assignment. This Agreement may not be assigned by any of the parties hereto without the express prior written consent of the other parties hereto, except that the Advisor need not obtain the consent of any Other Advisor. 17. Successors. This Agreement shall be binding upon and inure to the benefit of the parties hereto and the successors and permitted assignees of each of them, and no other person (except as otherwise provided herein) shall have any right or obligation under this Agreement. The terms "successors" and "assignees" shall not include any purchasers, as such, of Interests. 18. Amendment or Modification or Waiver. This Agreement may not be amended or modified, nor may any of its provisions be waived, except upon the prior written consent of the parties hereto, except that an amendment to, a modification of, or a waiver of any provision of the Agreement as to the Advisor need not be consented to by any Other Advisor. 19. Notices. Except as otherwise provided herein, all notices required to be delivered under this Agreement shall be effective only if in writing and shall be deemed given by the party required to provide notice when received by the party to whom notice is required to be given and shall be delivered personally or by registered mail, postage prepaid, return receipt requested, or by telecopy, as follows (or to such other address as the party entitled to notice shall hereafter designate by written notice to the other parties): If to the Managing Owner or the Trust: c/o Prudential Securities Futures Management Inc. One New York Plaza, 13th floor New York, New York 10292-2013 Attention: Eleanor L. Thomas Facsimile: (212) 778-3694 and in either case with a copy to: Rosenman & Colin LLP and Prudential Securities Incorporated 575 Madison Avenue One New York Plaza, 13th Floor New York, New York 10022 New York, New York 10292-2013 Attention: Fred M. Santo, Esq. Attention: Guy Scarpaci Facsimile: (212) 940-7079 Facsimile: (212) 214-7678 If to the Advisor: Eagle Trading Systems Inc. 47 Hulfish Street, Suite 410 Princeton, New Jersey 08542 Attention: Menachem Sternberg Facsimile: (609) 688-2099 20. Governing Law. Each party agrees that this Agreement shall be governed by and construed in accordance with the laws of the State of New York without regard to conflict of laws principles. 21. Survival. The provisions of this Agreement shall survive the termination of this Agreement with respect to any matter arising while this Agreement was in effect. 22. Disclosure Document Modifications. The Advisor shall promptly furnish the Managing Owner with a copy of all modifications to its Disclosure Document when available for distribution. Upon receipt of any modified Disclosure Document by the Managing Owner, the Managing Owner will provide the Advisor with an acknowledgement of receipt thereof. 23. Promotional Literature. Each party agrees that prior to using any promotional literature in which reference to the other parties hereto is made, it shall furnish in advance a copy of such information to the other parties and will not make use of any promotional literature containing references to such other parties to which such other parties object, except as otherwise required by law or regulation. 24. No Waiver. No failure or delay on the part of any party hereto in exercising any right, power or remedy hereunder shall operate as a waiver thereof, nor shall any single or partial exercise of any such right, power or remedy preclude any other or further exercise thereof or the exercise of any other right, power or remedy. Any waiver granted hereunder must be in writing and shall be valid only in the specific instance in which given. 25. No Liability of Limited Owners. This Agreement has been made and executed by and on behalf of the Trust, and the obligations of the Trust and/or the Managing Owner set forth herein are not binding upon any of the Limited Owners individually, but rather, are binding only upon the assets and property of the Trust, and, to the extent provided herein, upon the assets and property of the Managing Owner. 26. Headings. Headings to Sections herein are for the convenience of the parties only, and are not intended to be or to affect the meaning or interpretation of this Agreement. 27. Complete Agreement. Except as otherwise provided herein, this Agreement and the Representation Agreement constitute the entire agreement between the parties with respect to the matters referred to herein, and no other agreement, verbal or otherwise, shall be binding upon the parties hereto. 28. Counterparts. This Agreement may be executed in one or more counterparts, each of which shall be deemed an original and all of which, when taken together, shall constitute one original instrument. 26. Arbitration, Remedies. Each party hereto agrees that any dispute relating to the subject matter of this Agreement shall be settled and determined by arbitration in the City of New York pursuant to the rules of NFA or, if NFA should refuse to accept the matter, the American Arbitration Association. IN WITNESS WHEREOF, this Agreement has been executed for and on behalf of the undersigned as of the day and year first above written. WORLD MONITOR TRUST - Series A PRUDENTIAL SECURITIES FUTURES MANAGEMENT, INC. By: PRUDENTIAL SECURITIES FUTURES MANAGEMENT INC. Its: Managing Owner By: /s/ Joseph A. Filicetti Joseph A. Filicetti President By: /s/ Eleanor L. Thomas Eleanor L. Thomas Executive Vice-President EAGLE TRADING SYSTEMS INC. By: /s/ Menachem Sternberg Menachem Sternberg Chairman EXHIBIT A SERIES A TRADING SYSTEM TRADING SYSTEM OF EAGLE TRADING SYSTEMS INC. The Advisor's will make its trading decisions for Series A according to its Eagle- Global System as described in Exhibit D as amended from time to time. EXHIBIT B TRADING LIMITATIONS AND POLICIES The following limitations and policies are applicable to assets representing the Series A Allocated Assets of the Trust as a whole and at the outset to the Advisor individually; since the Advisor initially will manage 100% of the Trust's Series A Allocated Assets, such application of the limitations and policies is identical initially for the Series A Allocated Assets of the Trust and the Advisor. The Advisor sometimes may be prohibited from taking positions for the Series A Allocated Assets which it would otherwise acquire due to the need to comply with these limitations and policies. The Managing Owner will monitor compliance with the trading limitations and policies set forth below, and it may impose additional restrictions (through modification of such limitations and policies) upon the trading activities of the Advisor, as it, in good faith, deems appropriate in the best interests of the Series A Interests of the Trust, subject to the terms of the Advisory Agreement. The Managing Owner will not approve a material change in the following trading limitations and policies without obtaining the prior written approval of Limited Owners owning more than 50% of the Series A Interests. The Managing Owner may, however, impose additional trading limitations on the trading activities of the Series A Interests of the Trust without obtaining such approval if the Managing Owner determines such additional limitations to be necessary in the best interests of the Series A Interests of the Trust. Trading Limitations The Series A Interests of the Trust will not: (i) engage in pyramiding its commodities positions (i.e., the use of 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 generally whether to acquire additional commodities positions; (ii) borrow or loan money (except with respect to the initiation or maintenance of commodities positions or obtaining lines of credit for the trading of forward currency contracts; provided, however, that the Series A Interests of the Trust is prohibited from incurring any indebtedness on a non-recourse basis); (iii) 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 which would circumvent the foregoing prohibition; (iv) permit the Advisor to share in any portion of the commodity brokerage fees paid by the Series A Interests of the Trust; (v) commingle its assets, except as permitted by law; or (vi) permit the churning of its commodity accounts. The Series A Interests of the Trust will conform in all respects to the rules, regulations and guidelines of the markets on which its trades are executed. Trading Policies Subject to the foregoing limitations, the Advisor has agreed to abide by the trading policies of the Series A Interests of the Trust, which currently are as follows: (1) Series A Allocated Assets will generally be invested in contracts which are traded in sufficient volume which, at the time such trades are initiated, are reasonably expected to permit entering and liquidating positions. (2) Stop or limit orders may, in the 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, no assurance can be given, however, 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. (3) The Series A Interests of the Trust 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. (4) The Series A Interests of the Trust may occasionally make or accept delivery of a commodity including, without limitation, currencies. The Series A Interests of the Trust also may engage in EFP transactions involving currencies and metals and other commodities. (5) The Series A Interests of the Trust may, from time to time, employ trading techniques such as spreads, straddles and conversions. (6) The Series A Interests of the Trust will not initiate open futures or option positions which would result in net long or short positions requiring as margin or premium for outstanding positions in excess of 15% of the Trust's Series A Allocated Assets for any one commodity, or in excess of 66(% of the Trust's Series A Allocated Assets for all commodities combined. Under certain market conditions, such as an inability to liquidate open commodities positions because of daily price fluctuations, the Managing Owner may be required to commit Allocated Assets as margin in excess of the foregoing limits and in such case the Managing Owner will cause the Advisor to reduce its open futures and option positions to comply to these limits before initiating new commodities positions. (7) To the extent the Series A Interests of the Trust engages in transactions in forward currency contracts other than with or through Prudential Securities and/or PBFI, the Series A Interests of the Trust will only engage in such transactions with or through a bank which as of the end of its last fiscal year had an aggregate balance in its capital, surplus and related accounts of at least $100,000,000, as shown by its published financial statements for such year, and through other broker-dealer firms with an aggregate balance in its capital, surplus and related accounts of at least $50,000,000. EXHIBIT C [REPRESENTATION AGREEMENT] EXHIBIT D [ATTACH LATEST DISCLOSURE DOCUMENT] EX-27 4 ART. 5 FDS FOR 10-K
5 The Schedule contains summary financial information extracted from the financial statements for World Monitor Trust-Series A and is qualified in its entirety by reference to such financial statements 1051822 World Monitor Trust-Series A 1 Dec-31-1999 Jan-01-1999 Dec-31-1999 12-Mos 26,587,416 924,338 0 0 0 27,511,754 0 0 27,511,754 2,528,165 0 0 0 0 24,983,589 27,511,754 0 (3,514,892) 0 0 1,696,568 0 0 0 0 0 0 0 0 (5,211,460) (27.31) 0
-----END PRIVACY-ENHANCED MESSAGE-----