EXHIBIT 10.03
ADVISORY AGREEMENT
AMONG
ML PRINCIPAL PROTECTION L.P.
ML PRINCIPAL PROTECTION TRADING X.X.
XXXXXXX XXXXX INVESTMENT PARTNERS INC.
AND
[TRADING ADVISOR]
Dated as of _______, 199_
ML PRINCIPAL PROTECTION L.P.
ADVISORY AGREEMENT
TABLE OF CONTENTS
Page
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1. Undertakings in Connection with Offering
of Units................................................... 2
a. Undertakings by the Parent and the
General Partner....................................... 2
b. Undertakings by the Trading Advisor..................... 2
c. Withdrawal of Prospectus; Termination
of Offering; Termination of
Agreement Prior to Initial Closing.................... 3
d. Use of Prospectus and Other
Solicitation Material................................. 3
e. Updated Performance Information......................... 3
f. Access to Books and Records............................. 4
2. Duties of the Trading Advisor................................ 4
a. Speculative Trading..................................... 4
b. List of Commodity Interests Traded
by the Trading Advisor.................................. 5
c. Investment of Assets Held in
Securities and Cash..................................... 5
d. Trading Authorization..................................... 6
e. Delivery of Disclosure Documents.......................... 6
f. Trade Reconciliations..................................... 6
3. Trading Advisor Independent.................................. 6
4. Commodity Broker; Floor Brokers;
F/X Desk................................................ 6
5. Allocation of Trading Partnership Assets to Trading
Advisor................................................. 7
6. Profit Share................................................. 8
7. Term and Termination......................................... 9
a. Term and Renewal........................................ 9
b. Termination............................................. 9
8. Right to Advise Others; Uniformity
of Acts and Practices................................... 9
9. Speculative Position Limits.................................. 11
10. Additional Undertakings by the
Trading Advisor......................................... 11
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Page
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11. Representations and Warranties............................... 11
12. Entire Agreement............................................. 12
13. Standard of Liability; Indemnification....................... 12
14. Assignment................................................... 14
15. Amendment; Waiver............................................ 14
16. Severability................................................. 14
17. Notices...................................................... 15
18. Governing Law................................................ 15
19. Consent to Jurisdiction...................................... 15
20. Remedies..................................................... 16
21. Promotional Material......................................... 16
22. Confidentiality.............................................. 16
23. Survival..................................................... 16
24. Counterparts................................................. 17
25. Headings..................................................... 17
Appendix A - Commodity Interests
Traded by Trading Advisor........................... 00
Xxxxxxxx X - Commodity Trading Authority......................... 20
Appendix C - Acknowledgment of Receipt of
Disclosure Document................................. 21
Appendix D - Form of Committed Funds Letter...................... 22
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ADVISORY AGREEMENT
THIS ADVISORY AGREEMENT (the "Agreement"), made as of this ______ day
of _______, 199_, among ML PRINCIPAL PROTECTION TRADING L.P., a Delaware limited
partnership (the "Trading Partnership"; formerly, ML Principal Protection Plus
Trading L.P.), ML PRINCIPAL PROTECTION L.P. (the "Parent"; formerly, ML
Principal Protection Plus L.P.), XXXXXXX XXXXX INVESTMENT PARTNERS INC., a
Delaware corporation (the "General Partner"; formerly ML Futures Investment
Partners Inc.), and _____________________, a __________ corporation (the
"Trading Advisor");
W I T N E S S E T H:
- - - - - - - - - -
WHEREAS, the Trading Partnership trades buys, sells or otherwise
acquires, holds or disposes of forward contracts, futures contracts for
commodities, financial instruments and currencies on United States and foreign
exchanges, any rights pertaining thereto and any options thereon or on physical
commodities and engages from time to time in all manner of activities incident
thereto (the foregoing forms of investment being collectively referred to herein
as "commodity interests");
WHEREAS, the General Partner is the general partner of the Trading
Partnership and the Parent is the sole limited partner of the Trading
Partnership;
WHEREAS, the Parent is continuously offering its Units of Limited
Partnership Interests ("Units") for sale to investors in an offering registered
with the Securities and Exchange Commission ("SEC") under the Securities Act of
1933, as amended (the "1933 Act") and SEC Rule 415 thereunder, as described in
the prospectus and registration statement filed with the SEC under the 1933 Act,
which also constitutes a disclosure document that has been filed with the
Commodity Futures Trading Commission (the "CFTC") and the National Futures
Association (the "NFA") pursuant to the Commodity Exchange Act, as amended (the
"CEA"), the commodity pool operators and commodity trading advisors regulations
promulgated under the CEA by the CFTC (the "Commodity Regulations"), and NFA
rules promulgated under the CEA (the "NFA Rules") (said prospectuses,
registration statements and disclosure documents as further amended and
supplemented from time to time by the Trading Partnership, including further
amendments, supplements and additional prospectuses, registration statements and
disclosure documents necessary to offer and sell Units as of the beginning of
each calendar quarter under the 1933 Act, the CEA, the Commodity Regulations,
the NFA Rules or otherwise, shall hereinafter be referred to as the
"Prospectus");
WHEREAS, the Parent uses a substantial portion of the proceeds of the
sale of each series of the Units to make a capital contribution to the Trading
Partnership attributable to
such series, which the Trading Partnership employs in speculative futures and
forward trading;
WHEREAS, the Parent agreed (as set forth in Section 16(e) of its Third
Amended and Restated Limited Partnership Agreement which is Exhibit A of the
Prospectus) to be liable for all debts incurred by the Trading Partnership in an
amount not to exceed the difference between the equity in the Trading
Partnership and the amount of assets committed to the Trading Partnership's
trading advisors, including the Trading Advisor, for management.
WHEREAS, the Trading Advisor is engaged in the business of, among
other things, making trading decisions on behalf of investors in the purchase
and sale of certain commodity interests; and
WHEREAS, the Parent and the Trading Partnership desire the Trading
Advisor, upon the terms and conditions set forth herein, to act as a trading
advisor for the Trading Partnership and to make commodity interests investment
decisions for the Trading Partnership with respect to the Trading Partnership's
assets allocated to the Trading Advisor, and the Trading Advisor desires to so
act;
NOW, THEREFORE, the parties hereto do hereby agree as follows:
1. Undertakings in Connection with Offering of Units
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(a) Undertakings by the Parent and the General Partner. The Parent
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and the General Partner agree to use their best efforts: (i) to complete the
preparation of any amended Prospectus, to file such amended Prospectus with the
SEC as required by the 1933 Act and with the CFTC and NFA as the disclosure
document required by Section 4.21 of the Commodity Regulations and the NFA
Rules, and when it is necessary or desirable to amend or supplement such amended
Prospectus, to prepare such further amendments and supplements and file the same
with the SEC, CFTC and NFA; and (ii) to take action at any time and from time to
time to qualify by registration or exemption from registration the Units for
offer and sale under the securities and Blue Sky laws of such jurisdictions as
the General Partner deems necessary or desirable.
(b) Undertakings by the Trading Advisor. The Trading Advisor agrees
-----------------------------------
to use its best efforts to cooperate with the Parent and the General Partner in
effecting the registration and continuous offering of the Units as contemplated
by Section 1(a) above, including without limitation by providing, as promptly as
may be reasonably practicable, all information regarding the Trading Advisor and
its principals which the General Partner
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reasonably believes to be necessary or advisable to include in the Prospectus,
as the same may be amended or supplemented from time to time.
The Trading Advisor agrees to make an investment in the Parent in the
amount of $10,000 (100 Units). The Trading Advisor agrees not to redeem its
investment as long as the Trading Advisor continues to manage assets for the
Trading Partnership.
As used in this Agreement, the term "principal" shall have the same
meaning given to such term in Section 4.10(e) of the Commodity Regulations, and
the term "affiliate" shall mean an individual or entity (including a
stockholder, director, officer, employee, agent, or principal) that directly or
indirectly controls, is controlled by, or is under common control with any other
individual or entity.
(c) Withdrawal of Prospectus; Termination of Offering.
-------------------------------------------------
Notwithstanding any provision of this Agreement to the contrary, the General
Partner or the Parent at any time, in its sole discretion, may: (i) withdraw
the Prospectus from the SEC, CFTC and NFA or any applications or other documents
filed with the authorities of any jurisdiction to qualify by registration or
exemption from registration the Units for offer and sale under the securities or
Blue Sky law of such jurisdiction; (ii) terminate the registration or exemption
from registration, or qualification of Units with any of such agencies or
authorities; or (iii) discontinue the offering of the Units.
(d) Use of Prospectus and Other Solicitation Material. Neither the
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Trading Advisor, its principals nor any of its employees, affiliates or agents,
the employees, affiliates or agents of such affiliates, or their respective
successors or assigns shall use, publish, circulate or distribute the Prospectus
(including any amendment or supplement thereto) or any related solicitation
material nor shall any of the foregoing engage in any marketing, sales or
promotional activities in connection with the offering of Units, except as may
be requested by the General Partner and agreed to by the Trading Advisor.
(e) Updated Performance Information. While the continuous offering
-------------------------------
of the Units is in progress, at the written request of the Parent or the General
Partner or as otherwise required under this Agreement in order for the Parent to
prepare an amendment or supplement to the Prospectus pursuant to the 1933 Act,
the Commodity Regulations and/or NFA Rules, the Trading Advisor, at its own
expense, shall promptly provide the Parent and the General Partner with: (i)
Performance summaries and other information reflecting the actual performance,
on a monthly basis, of the accounts directed by the Trading Advisor up to the
latest practicable date (consistent with Section 4.35(a) of the Commodity
Regulations) prior to the date of the Prospectus as
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amended or supplemented, together with any reports or letters relating to such
performance data received from accountants and in the possession of the Trading
Advisor; and (ii) a letter from the Trading Advisor addressed to the Parent and
in form and substance satisfactory to the Parent and its counsel, containing
representations by the Trading Advisor that, except as otherwise disclosed in
the performance data described in Section l(e)(i) and the explanations and
footnotes thereto, the actual performance of all accounts directed by the
Trading Advisor and its principals during the period of time covered by the
performance data is reflected in such performance data in conformity with the
requirements, if applicable, of the Commodity Futures Trading Commission Rules
and National Futures Association Rules that such performance data and the
explanations and footnotes thereto are fairly presented and are true, correct
and complete in all material respects.
(f) Access to Books and Records. Upon reasonable notice to the
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Trading Advisor, the Parent or the General Partner shall have the right to have
access to the Trading Advisor's offices in order to inspect and copy such books
and records during normal business hours as may enable them to verify the
accuracy and completeness of or to supplement as necessary the data furnished by
the Trading Advisor pursuant to Section l(e) of this Agreement or to verify
compliance with the terms of this Agreement (subject to such restrictions as the
Trading Advisor may reasonably deem necessary or advisable so as to preserve the
confidentiality of proprietary information concerning such trading systems,
methods, models, strategies and formulas and of the identity of the Trading
Advisor's clients).
2. Duties of the Trading Advisor
-----------------------------
(a) Speculative Trading. The Trading Advisor shall act as a trading
-------------------
advisor for the Trading Partnership, acting independently from any other
advisors or managers selected to direct accounts on behalf of the Trading
Partnership, and pursuant to the trading strategies described in the Disclosure
Document provided by the Trading Advisor to the General Partner as the same may
be developed and modified over time (the "Disclosure Document"). The Trading
Advisor may trade a different portfolio in managing the Trading Partnership's
account only with the consent of the General Partner. Except as provided
otherwise in this Section 2, the Trading Advisor shall have sole and exclusive
authority and responsibility for directing the investment and reinvestment of
the Trading Partnership's assets allocated to the Trading Advisor utilizing the
designated trading program pursuant to and in accordance with the Trading
Advisor's best judgment and its approach as described in the Disclosure Document
and as refined and modified from time to time in the future in accordance
herewith, for the period and on the terms and conditions set forth herein and as
described in the Prospec-
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tus and the Third Amended and Restated Limited Partnership Agreement of the
Trading Partnership (the "Limited Partnership Agreement"). Notwithstanding the
foregoing, the Trading Partnership or the General Partner may override the
trading instructions of the Trading Advisor to the extent necessary: (i) to fund
any distributions or redemptions of Units to be made by the Parent; (ii) to pay
any Parent or Trading Partnership expenses; (iii) to deleverage the Trading
Partnership's trading in order to provide the "principal protection" feature of
the Trading Partnership without requiring Xxxxxxx Xxxxx & Co., Inc. to make any
payments under its Guarantee, as described in the Prospectus; and/or (iv) to
comply with speculative position limits; provided that the Parent and the
General Partner shall permit the Trading Advisor three days in which to
liquidate positions for the purposes set forth in clauses (i)-(ii) prior to
exercising its override authority. The Trading Advisor will have no liability
for the results of any of the General Partner's interventions in (i)-(iv),
above.
The Parent, the Trading Partnership and the General Partner each
specifically acknowledge that in agreeing to manage an account for the Trading
Partnership the Trading Advisor is in no respects making any guarantee of
profits or of protections against loss.
The Trading Advisor shall give the Parent prompt written notice of any
proposed material change in the Trading Advisor's trading approach or the manner
in which trading decisions are to be made or implemented and shall not make any
such proposed change with respect to trading for the Trading Partnership without
having given the Parent and the General Partner at least 30 days' prior written
notice of such change. The addition and/or deletion of commodity interests from
the Trading Partnership's portfolio managed by the Trading Advisor shall not be
deemed a change in the Trading Advisor's trading approach and prior written
notice to the Trading Partnership or the General Partner shall not be required
therefor, except as set forth in section 2(b) below; provided that, with respect
to the Trading Partnership, the Trading Advisor may only utilize a trading
program other than that described in the Disclosure Document (or Prospectus) as
traded on behalf of the Trading Partnership with the consent of the General
Partner.
(b) List of Commodity Interests Traded by the Trading Advisor. The
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Trading Advisor shall provide the Parent and the General Partner with a complete
list of commodity interests which it intends to trade on the Trading
Partnership's behalf. All commodity interests other than regulated futures
contracts and options on regulated futures contracts traded on a qualified board
or exchange in the United States shall be listed on Appendix A to this
Agreement. The addition of commodity interests (other than forward contracts on
foreign currencies) to
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the Trading Partnership's portfolio managed by the Trading Advisor as set forth
in Appendix A to this Agreement shall require prior written notice to the Parent
or the General Partner and an amendment to Appendix A.
The Trading Advisor agrees to trade only in commodity interests which
the Trading Advisor considers to be traded in sufficient volume to permit the
Trading Advisor readily to acquire and liquidate positions on behalf of the
Fund.
The Trading Advisor will not trade any securities (including without
limitation options on securities indices).
(c) Investment of Assets Held in Securities and Cash. Notwithstanding
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any provision of this Agreement to the contrary, the Parent and the General
Partner, and not the Trading Advisor, shall have the sole and exclusive
authority and responsibility with regard to the investment, maintenance and
management of the Trading Partnership's assets other than in respect of the
Trading Advisor's trading of the Trading Partnership's assets in commodity
interests.
(d) Trading Authorization. Prior to the Trading Partnership's
---------------------
acceptance of trading advice from the Trading Advisor in accordance with this
Agreement, the Trading Partnership shall deliver to the Trading Advisor a
trading authorization in the form of Appendix B hereto appointing the Trading
Advisor as an agent of the Trading Partnership and attorney-in-fact for such
purpose.
(e) Delivery of Disclosure Documents. The Trading Advisor shall,
--------------------------------
during the term of this Agreement, deliver to the Trading Partnership copies of
all disclosure documents filed with the CFTC or NFA by the Trading Advisor
promptly following such filing and the Trading Partnership shall, if requested,
sign the Acknowledgment of Receipt of Disclosure Document in the form of
Appendix C hereto, for each disclosure document so delivered.
The Trading Advisor will use its best efforts, during the term of this
Agreement, to discuss with the Fund and the General Partner any changes which
the Trading Advisor proposes to make in the disclosures concerning itself or in
its performance tables -- as included in any other disclosure documents or as
filed with any governmental authority -- prior to implementing any such changes,
and to use best efforts not to make any such changes within a period of six (6)
full calendar months subsequent to having furnished the Fund with information
concerning the Trading Advisor for distribution to the Fund's investors.
(f) Trade Reconciliations. The Trading Advisor acknowledges its
---------------------
obligation to review the Fund's positions in the
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account managed by the Trading Advisor on a daily basis and promptly to notify
the General Partner and the Fund of any errors committed by the Trading Advisor
or any trade which the Trading Advisor believes was not executed in accordance
with its instructions. Further, the Trading Advisor shall be responsible for
correcting all trading errors or omissions relating to transactions executed in
respect of the Fund assets managed by the Trading Advisor by any broker other
xxxx Xxxxxxx Xxxxx Futures Inc.
3. Trading Advisor Independent
---------------------------
For all purposes of this Agreement, the Trading Advisor shall be
deemed to be an independent contractor and shall have no authority to act for or
represent the Parent or the Trading Partnership in any way and shall not
otherwise be deemed to be an agent of the Parent or the Trading Partnership.
Nothing contained herein shall create or constitute the Trading Advisor and any
other trading advisor for the Trading Partnership, the Parent or the General
Partner as a member of any partnership, joint venture, association, syndicate,
unincorporated business or other separate entity, nor shall be deemed to confer
on any of them any express, implied, or apparent authority to incur any
obligation or liability on behalf of any other. The parties acknowledge that the
Trading Advisor has not been an organizer or promoter of the Parent or the
Trading Partnership.
4. Commodity Broker; Floor Brokers; F/X Desk
-----------------------------------------
The Trading Advisor shall clear orders for all commodity interest
transactions for the Trading Partnership through such commodity broker or
brokers as the Parent shall designate from time to time in its sole discretion
(the Parent initially so designating Xxxxxxx Xxxxx Futures Inc.). The Trading
Advisor will not, without the consent of the General Partner, trade on a "give
up" basis through floor brokers not associated with Xxxxxxx Xxxxx Futures Inc.
Even if such floor brokers are permitted to execute trades on behalf of the
Trading Partnership, all such trades will be "given-up" so as to be carried as a
Xxxxxxx Xxxxx Futures Inc. account. The Trading Advisor shall receive copies of
daily and monthly brokerage statements. All forward trades for the Trading
Partnership shall be executed through the forward trading facilities of the
counterparties selected by the Parent's affiliated Foreign Exchange Desk, unless
the General Partner consents to some other forward trading arrangement. The
Trading Advisor shall only use such other banks or dealers for what the Trading
Advisor, in good faith, believes to be good cause.
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5. Allocation of Assets Committed to Trading to Trading Advisor
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The General Partner shall allocate ___% of the assets committed by the
Parent to trading, as notified by the Parent to the Trading Advisor, to the
Trading Advisor to be managed in accordance with the terms of this Agreement
(none of which shall constitute "notional funds," see Appendix D hereto). The
General Partner may allocate to the Trading Advisor such percentage of
subsequent Unit sales (a new series of Units to be sold as of each calendar
quarter-end) as the General Partner may in its discretion determine, provided
that the General Partner may not allocate in excess of $50,000,000 to the
Trading Advisor for management without the Trading Advisor's consent.
The General Partner may, in its sole discretion, reallocate assets
committed to trading between the Trading Advisor and any other trading advisor
to the Trading Partnership as of any month-end. In the event the General
Partner decides to de-leverage the Trading Partnership's trading, as
contemplated by the Prospectus, as a result of trading losses, the General
Partner may reallocate assets away from the Trading Advisor as of the end of any
day.
Distributions, brokerage commissions and interest income (as well as
any other charges or receipts applicable to the Trading Partnership as a whole)
shall be allocated among the accounts managed by the different trading advisors
for the Trading Partnership pro rata based on the month-end Net Assets held in
--- ----
each such account. Charges or receipts specific to a particular account (for
example, Profit Shares (as determined pursuant to Section 6 below) or trading
profits and losses) shall be allocated entirely to such account.
The Trading Advisor acknowledges and agrees that certain of the assets
committed to trading may be held by the Parent, not by the Trading Partnership.
The Parent has undertaken in its Third Amended and Restated Limited Partnership
Agreement that any such assets held by the Parent are fully subject to market
risk and available to pay initial and variation margin and other trading losses
upon demand of Xxxxxxx Xxxxx Futures Inc. without need of making any demand upon
the Parent or the General Partner.
The Trading Advisor acknowledges and agrees that although the Trading
Advisor will manage a single account on behalf of the Trading Partnership, the
trading assets committed to such account shall represent the commitments of a
number of different series of Units sold by the Parent, and that Profit Shares
shall be calculated separately with respect to each such series.
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6. Profit Share
------------
For the advisory services contemplated by this Agreement, the Trading
Partnership shall allocate to the Trading Advisor an annual Profit Share equal
to ___% of any New Trading Profit, as defined in the Prospectus, earned on
assets committed to trading and managed by the Trading Advisor, determined as of
the end of each year (irrespective of whether the Trading Partnership has been
trading for the entirety of such year). The portion of the brokerage commissions
and Administrative Fee to be paid prior to calculation of New Trading Profit
shall be equal to ___ of 1% of the Fund's month-end net assets each month (a
___% annual rate). The Profit Share shall also be paid to the Trading Advisor
upon the redemption of Units (any Profit Share accrued in respect of redeemed
Units being paid to the Trading Advisor from the redemption price of such Units)
or the reallocation or distribution of assets from the Trading Advisor's Account
and upon termination of this Agreement.
The assets committed to the Trading Advisor's management shall
represent assets committed by a number of different series of Units sold by the
Parent. The Trading Advisor's Profit Share is to be calculated separately in
respect of each series of Units. Consequently, the Profit Shares payable to the
Trading Advisor may not be the same as would be payable to the Trading Advisor
were all assets committed to the Trading Advisor's management to represent
assets attributable to a single series of Units.
New Trading Profit is calculated on a per-Unit basis so that the
redemption of or sale of Units has no effect on the Profit Share due in respect
of other Units. Interest income shall not be included in New Trading Profit.
The description of the calculation of the Profit Share set forth in
the Prospectus is hereby confirmed in all respects.
Profit Shares shall be paid within ten (10) business days after the
end of each period for which they are payable. At such time as the Trading
Partnership remits each Profit Share payment hereunder to the Trading Advisor,
the Trading Partnership shall also submit a reasonably itemized statement
setting forth the calculation of the amount of the Profit Share due to the
Trading Advisor in respect of such period (and with respect to each series of
Shares as appropriate). If the Trading Advisor does not object to such
statement within ten (10) business days of the receipt thereof, such statement
shall for all purposes be deemed to be conclusively correct.
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7. Term and Termination
--------------------
(a) Term and Renewal. This Agreement shall continue in effect for
----------------
one year after the end of the calendar quarter ending next after the date of
this Agreement. Thereafter, this Agreement is renewable at the option of the
General Partner, on the same terms, for up to two (2) additional twelve-month
periods. In addition, the Trading Advisor hereby agrees to negotiate in good
faith concerning the possibility of four additional one-year renewals on terms
to be negotiated by the Trading Partnership and the Trading Advisor at the time.
If no new terms are negotiated with respect to each of the four additional one-
year renewal periods and neither party hereto has given notice at least 60 days
prior to such renewal date to the other party of its intent to terminate this
Agreement at such time, then this Agreement shall be automatically renewed, on
the same terms, for each such additional one-year period.
(b) Termination. Notwithstanding Section 7(a) hereof, this Agreement
-----------
shall terminate:
(i) immediately if the Trading Partnership shall terminate and be
dissolved in accordance with the Limited Partnership Agreement or
otherwise;
(ii) at the discretion of the General Partner as of the end of any
month; or
(iii) at the discretion of the Trading Advisor, as of the following
month-end, should any of the following occur: (1) the assets committed to
the Trading Advisor's management decrease to less than $1,000,000 at the
close of business on any day, or (2) the Trading Advisor has determined to
cease managing any customer accounts pursuant to the same strategy as such
Trading Advisor has been retained to employ on behalf of the Trading
Partnership.
8. Right to Advise Others; Uniformity of Acts and Practices
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During the term of this Agreement, the Trading Advisor and its
affiliates shall be free to advise other investors as to the purchase and sale
of commodity interests, to manage and trade other investors' commodity interests
accounts and to trade for and on behalf of their own proprietary commodity
interests accounts. However, under no circumstances shall the Trading Advisor or
any of its affiliates favor any commodity interests account directed by any of
them (regardless of the date on which they began or shall begin to direct such
account) over the Trading Partnership's account, giving due consideration to the
trading program which the General Partner has requested the
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Trading Advisor to trade on behalf of the Trading Partnership. For purposes of
this Agreement, the Trading Advisor and its affiliates shall not be deemed to be
favoring another commodity interests account over the Trading Partnership's
account if the Trading Advisor or its affiliates, in accordance with specific
instructions of the owner of such account, trade such account at a degree of
leverage or in accordance with trading policies which shall be different from
that which shall normally be applied to substantially all of the Trading
Advisor's other accounts or if the Trading Advisor or its affiliates, in
accordance with the Trading Advisor's money management principles, shall not
trade certain commodity interests contracts for an account based on the amount
of equity in such account.
The Trading Advisor's conduct shall be governed by the standard of a
fiduciary in accordance with applicable law with respect to its advisory
services under this Agreement.
The parties hereto acknowledge that the Trading Advisor may, at the
instruction of the General Partner, trade a limited portfolio for the Trading
Partnership, which may significantly underperform the more diversified programs
offered by the Trading Advisor. The reasons for this include numerous material
differences among accounts, including: (1) the period during which accounts are
active; (2) the trading approach used -- although all accounts may be traded in
accordance with the same trading approach, such approach can and does change
periodically as a result of an ongoing program of research and development by
the Trading Advisor; (3) the size of accounts -- which influences the number of
commodities and the number of contracts in each commodity traded by the account;
(4) investor's goals and the policies by which accounts are traded -- some
accounts are more highly leveraged at the investor's request producing
commensurately larger gains or losses than other accounts; (5) the rates of
brokerage commissions paid by accounts and when such commissions are charged to
accounts; (6) the amount of interest income earned by accounts, which will
depend on the portion of the account's assets invested in interest-bearing
obligations such as United States Treasury Bills; (7) the rate of management
and/or incentive fees and amount of administrative costs paid by accounts --
some pay management and incentive fees, some pay incentive fees only and some
pay no fees at all; (8) the timing of orders to open or close positions; and (9)
the market conditions in which accounts are traded, which in part determines the
quality of trade executions.
At the request of the Parent, the Trading Advisor and its affiliates
shall promptly make available to the Parent copies of the normal daily, monthly,
quarterly and annual, as the case may be, written reports prepared by the
Trading Advisor in the ordinary course, reflecting the performance of all
commodity pool accounts advised, managed, owned or controlled by the Trading
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Advisor or its affiliates required to be delivered to pool participants pursuant
to the CEA and similar written information, including monthly account
statements, reflecting the performance of all other commodity interest accounts
advised, managed, owned or controlled by the Trading Advisor or its affiliates,
with respect to which account reports shall not be required to be delivered
pursuant to the CEA (subject to the need to preserve the confidentiality of
proprietary information concerning the Trading Advisor's trading systems,
methods, models, strategies and formulas and the identity of the Trading
Advisor's clients). At the request of the Parent, the Trading Advisor or its
affiliates shall promptly deliver to the Trading Partnership a satisfactory
written explanation, in the judgment of the Parent, of the differences, if any,
in the performance between the Trading Partnership's account and such other
commodity interest accounts traded utilizing the same program or portfolio
(subject to the need to preserve the confidentiality of proprietary information
concerning the Trading Advisor's trading systems, methods, models, strategies
and formulas and the identity of the Trading Advisor's clients).
9. Speculative Position Limits
---------------------------
If the Trading Advisor (either alone or aggregated with the positions
of any other person if such aggregation shall be required by the CEA, the CFTC
or any other regulatory authority having jurisdiction) shall exceed or be about
to exceed applicable limits in any commodity interest traded for the Trading
Partnership, the Trading Advisor shall immediately take such action as the
Trading Advisor may deem fair and equitable to comply with the limits, and shall
immediately deliver to the Trading Partnership a written explanation of the
action taken to comply with such limits. If such limits are exceeded by the
Trading Partnership, the General Partner may require the Trading Advisor to
liquidate positions as required.
10. Additional Undertakings by the Trading Advisor
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Neither the Trading Advisor nor its employees, affiliates or agents,
the stockholders, directors, officers, employees, principals, affiliates or
agents of such affiliates, or their respective successors or assigns shall: (i)
use or distribute for any purpose whatsoever any list containing the names
and/or residential addresses of and/or other information about the Limited
Partners; nor (ii) directly solicit any Limited Partner for any business purpose
whatsoever (unless such Limited Partner is already a client of the Trading
Advisor).
11. Representations and Warranties
------------------------------
(a) The Trading Advisor hereby restates all representations and
warranties made by it in the Selling Agreement dated
-12-
July 14, 1994, as amended, relating to the offering of the Units (the "Selling
Agreement"), with the same effect as if such representations and warranties were
set forth verbatim herein.
(b) The General Partner hereby restates all representations and
warranties made by it in the Selling Agreement with the same effect as if such
representations and warranties were set forth verbatim herein.
(c) The Parent and the Trading Partnership hereby make, on their own
behalf, the representations and warranties made in the Selling Agreement by the
General Partner relating to the Parent and the Trading Partnership, as if such
representations and warranties were set forth verbatim herein as representations
and warranties of the Parent and the Trading Partnership.
The foregoing representations and warranties shall be continuing
during the entire term of this Agreement and, if at any time, any event shall
occur which would make any of the foregoing representations and warranties no
longer true and accurate, the General Partner shall promptly notify the Trading
Advisor and the Trading Advisor shall promptly notify the General Partner (as
the case may be).
12. Entire Agreement
----------------
This Agreement constitutes the entire agreement between the parties
hereto with respect to the matters referred to here in, and no other agreement,
verbal or otherwise, shall be binding as between the parties unless it shall be
in writing and signed by the party against whom enforcement is sought.
13. Standard of Liability; Indemnification
--------------------------------------
The Trading Advisor, its officers, directors, employees and
shareholders shall not be liable to the Trading Partnership, the Parent or their
respective partners, or to any of their successors or assigns except by reason
of acts or omissions in contravention of the express terms of this Agreement, or
due to their misconduct or negligence, or by reason of not having acted in good
faith and in the reasonable belief that such actions or omissions were in, or
not opposed to, the best interests of the Trading Partnership or Parent.
The Parent and the Trading Partnership, jointly and severally, shall
indemnify, defend and hold harmless the Trading Advisor and its affiliates and
their respective directors, officers, shareholders, employees and controlling
persons from and against any and all losses, claims, damages, liabilities (joint
and several), costs and expenses (including any investigatory, legal and other
expenses incurred in connection with, and any amounts paid in, any settlement;
provided that the Trading
--------
-13-
Partnership shall have approved such settlement) resulting from a demand, claim,
lawsuit, action or proceeding relating to any of such person's actions or
capacities relating to the business or activities of the Trading Partnership
pursuant to this Agreement; provided that the conduct of such person which was
--------
the subject of the demand, claim, lawsuit, action or proceeding did not
constitute negligence, misconduct or a breach of this Agreement or of any
fiduciary obligation to the Trading Partnership and was done in good faith and
in a manner such person reasonably believed to be in, or not opposed to, the
best interests of the Trading Partnership. The termination of any demand, claim,
lawsuit, action or proceeding by settlement shall not, in itself, create a
presumption that the conduct in question was not undertaken in good faith and
in a manner reasonably believed to be in, or not opposed to, the best interests
of the Trading Partnership. No indemnification shall be due hereunder, however,
for any matter for which the Trading Advisor or its affiliates and their
respective directors, officers, shareholders, employees and controlling persons
are indemnified under the Selling Agreement (although indemnity shall be due
under the Selling Agreement).
The Trading Advisor shall indemnify, defend and hold harmless the
Parent, the Trading Partnership, the General Partner, their respective
affiliates and their respective directors, officers, shareholders, employees and
controlling persons from and against any and all losses, claims, damages,
liabilities (joint and several), costs and expenses (including any reasonable
investigatory, legal and other expenses incurred in connection with, and any
amounts paid in, any settlement; provided that the Trading Advisor shall have
--------
approved such settlement) resulting from a demand, claim, lawsuit, action or
proceeding relating to any action or omission of the Trading Advisor or any of
its respective officers, directors or employees relating to the business or
activities of such person under this Agreement or relating to the management of
an account of the Trading Partnership provided: the action or omission of such
--------
person which was the subject of the demand, claim, lawsuit, action or proceeding
constituted negligence or misconduct or a breach of this Agreement or of any
fiduciary obligation to the Trading Partnership or was an action or omission
taken otherwise than in good faith and in a manner reasonably believed to be in,
or not opposed to, the best interests of the Trading Partnership. No
indemnification shall be due hereunder, however, for any matters for which the
Parent, the Trading Partnership, their respective affiliates and their
respective directors, officers, shareholders, employees or controlling persons
are indemnified under the Selling Agreement (although indemnity shall be due
under the Selling Agreement).
The foregoing agreements of indemnity shall be in addition to, and
shall in no respect limit or restrict, any other remedies which may be available
to an indemnified party. This
-14-
foregoing indemnity provision shall not increase the liability of any Limited
Partner of the Parent beyond the amount of such Limited Partner's capital and
profits (exclusive of distributions previously received or other returns of
capital, including redemptions).
The indemnifying party's right to control the defense of any demand,
claim, lawsuit, action or indemnity for which indemnity is to be sought under
this Section 13 and the requirements relating to notice from the indemnified
party shall be the same as in the indemnification provisions contained in the
Selling Agreement.
No indemnification under this Section 13 shall be made in respect of
any demand, claim, lawsuit, action or proceeding relating to activities of the
person to be indemnified which have been adjudged, by a court having
jurisdiction with respect to the matter upon entry of a final judgment, not to
have been done in good faith and in the reasonable belief that such conduct was
in, or not opposed to, the best interests of the Trading Partnership or to
constitute negligence, misconduct or breach of this Agreement unless, and except
to the extent that, such court determines that, despite such judgment, such
person is fairly and reasonably entitled to indemnity.
Any indemnification required by this Section 13, unless ordered or
expressly permitted by a court, shall be made by the indemnifying party only
upon a determination by independent legal counsel mutually agreeable to the
parties hereto in a written opinion that the conduct which is the subject of the
claim, demand, lawsuit, action or proceeding with respect to which
indemnification is sought meets the applicable standard set forth in this
Section 13.
14. Assignment
----------
This Agreement shall not be assigned by any of the parties hereto
without the prior express written consent of the other parties hereto.
15. Amendment; Waiver
-----------------
This Agreement shall not be amended except by a writing signed by the
parties hereto. No waiver of any provision of this Agreement shall be implied
from any course of dealing between the parties hereto or from any failure by
either party hereto to assert its rights hereunder on any occasion or series of
occasions.
-15-
16. Severability
------------
If any provision of this Agreement, or the application of any
provision to any person or circumstance, shall be held to be inconsistent with
any present or future law, ruling, rule or regulation of any court or
governmental or regulatory authority having jurisdiction over the subject matter
hereof, such provision shall be deemed to be rescinded or modified in
accordance with such law, ruling, rule or regulation, and the remainder of this
Agreement, or the application of such provision to persons or circumstances
other than those as to which it shall be held inconsistent, shall not be
affected thereby.
17. Notices
-------
Any notice required or desired to be delivered under this Agreement
shall be in writing and shall be delivered by courier service, postage prepaid
mail, telex, telegram or other similar means and shall be effective upon actual
receipt by the party to which such notice shall be directed, addressed as
follows (or to such other address as the party entitled to notice shall
hereafter designate in accordance with the terms hereof):
if to the Parent or the Trading Partnership:
ML PRINCIPAL PROTECTION L.P.
c/o Merrill Xxxxx Investment
Partners Inc., General Partner
Xxxxxxx Xxxxx World Headquarters
Sixth Floor, South Tower
World Financial Center
New York, New York 10080-6106
Attn: Xxxx X. Xxxxxxx, Xx.
if to the General Partner:
XXXXXXX XXXXX INVESTMENT PARTNERS INC.
Xxxxxxx Xxxxx World Headquarters
Sixth Floor, South Tower
World Financial Center
New York, New York 10080-6106
Attn: Xxxx X. Xxxxxxx, Xx.
if to the Trading Advisor:
__________________________
__________________________
__________________________
__________________________
Attn: ___________________
18. GOVERNING LAW
-------------
-16-
THIS AGREEMENT SHALL BE GOVERNED BY AND CONSTRUED IN ACCORDANCE WITH
THE LAWS OF THE STATE OF NEW YORK WITHOUT REGARD TO PRINCIPLES OF CONFLICTS OF
LAW.
19. Consent to Jurisdiction
-----------------------
The parties hereto agree that any action or proceeding arising
directly, indirectly or otherwise in connection with, out of, related to or from
this Agreement, any breach hereof or any transaction covered hereby, shall be
resolved, whether by arbitration or otherwise, within the County of New York,
City of New York, and State of New York. Accordingly, the parties consent and
submit to the jurisdiction of the federal and state courts and any applicable
arbitral body located within the County of New York, City of New York, and State
of New York. The parties further agree that any such action or proceeding
brought by either party to enforce any right, assert any claim, or obtain any
relief whatsoever in connection with this Agreement shall be brought by such
party exclusively in federal or state courts, or if appropriate before any
applicable arbitral body, located within the County of New York, City of New
York, and State of New York.
20. Remedies
--------
In any action or proceeding arising out of any of the provisions of
this Agreement, the Trading Advisor, the General Partner, the Parent and the
Trading Partnership agree that they shall not seek any prejudgment equitable or
ancillary relief. Such parties also agree that their sole remedy in any such
action or proceeding shall be to seek actual monetary damages for any breach of
this Agreement; provided, however, that the Parent and the Trading Partnership
agree that the Trading Advisor and the General Partner may seek declaratory
judgment with respect to the indemnification provisions of this Agreement.
21. Promotional Material
--------------------
None of the parties hereto will make reference to any other such party
in an officially filed or publicly or privately distributed material without
first submitting such material to the party so named for approval a reasonable
period of time in advance of the proposed use of such material.
22. Confidentiality
---------------
The Parent, the Trading Partnership and the General Partner
acknowledge that the Trading Advisor's strategies and trades constitute
proprietary data belonging to the Trading Advisor and agree that they will not
disseminate any confidential information regarding any of the foregoing, except
as required by law, and any such information as may be acquired by the General
-17-
Partner or the Trading Partnership is to be used solely to monitor the Trading
Advisor's performance on behalf of the Trading Partnership.
23. Survival
--------
The provisions of this Agreement shall survive the termination hereof
with respect to any matter arising while this Agreement shall be in effect.
24. Counterparts
------------
This Agreement may be executed in counterparts, each of which shall be
deemed an original but all of which together shall constitute one and the same
instrument.
25. Headings
--------
Headings to sections and subsections in this Agreement are for the
convenience of the parties only and are not intended to be a part of or to
affect the meaning or interpretation hereof.
-18-
IN WITNESS WHEREOF, this Agreement has been executed for and on behalf
of the undersigned on the day and year first written above.
ML PRINCIPAL PROTECTION
TRADING L.P.
By: XXXXXXX XXXXX INVESTMENT
PARTNERS INC.
General Partner
By:________________________________
Name:
Title:
ML PRINCIPAL PROTECTION L.P.
By: XXXXXXX XXXXX INVESTMENT
PARTNERS INC.
General Partner
By:________________________________
Name:
Title:
XXXXXXX XXXXX INVESTMENT
PARTNERS INC.
By:________________________________
Name:
Title:
[TRADING ADVISOR]
By:________________________________
-19-
APPENDIX A
COMMODITY INTERESTS TRADED BY [TRADING ADVISOR]
-----------------------------------------------
The undersigned represents that the following is a complete list of
all commodity interests which the undersigned intends to trade on behalf of ML
PRINCIPAL PROTECTION L.P. other than regulated futures contracts and options on
regulated futures contracts traded on a qualified board or exchange in the
United States:
Contract Type
(futures, forward,
option on futures) Exchange Contract
------------------ -------- --------
[TRADING ADVISOR]
By:___________________________
Dated: __________________, 199_
-00-
XXXXXXXX X
COMMODITY TRADING AUTHORITY
---------------------------
____________________
____________________
____________________
Attn: _____________
Dear ___________:
ML PRINCIPAL PROTECTION L.P. (the "Partnership") does hereby make,
constitute and appoint you as its attorney-in-fact to buy and sell commodity
futures and forward contracts through Xxxxxxx Xxxxx Futures Inc., as broker and
as principal through the Partnership's affiliated Foreign Exchange Desk,
respectively, in accordance with the Advisory Agreement among the Partnership,
ML Principal Protection L.P. , Xxxxxxx Xxxxx Investment Partners Inc. and
__________________ dated as of _______, 199_. This authorization shall
terminate and be null, void and of no further effect simultaneously with the
termination of the said Advisory Agreement.
Very truly yours,
ML PRINCIPAL PROTECTION
TRADING L.P.
By: XXXXXXX XXXXX INVESTMENT
PARTNERS INC.
General Partner
By:________________________________
Name:
Title:
Dated as of _______, 199_
-21-
APPENDIX C
ACKNOWLEDGMENT OF RECEIPT
OF DISCLOSURE DOCUMENT
--------------------------
The undersigned hereby acknowledges receipt of _____________________'s
Disclosure Document dated _____________, 1996.
ML PRINCIPAL PROTECTION
TRADING L.P.
By: XXXXXXX XXXXX INVESTMENT
PARTNERS INC.
General Partner
By:________________________________
Name:
Title:
Dated: _____________, 199_
-00-
XXXXXXXX X
FORM OF
COMMITTED FUNDS LETTER
----------------------
Dear [ADVISOR]:
This letter shall confirm that, with respect to the closing of the
offering of Series ___ Units of Limited Partnership Interest in ML Principal
Protection L.P. (the "Partnership") ending on ________, 199_, $__________ (the
"Series _____ Allocated Assets"), has been allocated to your management pursuant
to the Advisory Agreement among the Partnership, ML Principal Protection
Trading L.P. (the "Trading Partnership"), Xxxxxxx Xxxxx Investment Partners Inc.
("MLIP") and _______________________________ (the "Trading Advisor") dated as of
_________, 199_.
Of the Series _____ Allocated Assets, $__________ (the "Committed
Funds") will be held in an unregulated account of the Partnership (the
"Partnership's Account") at Northern Trust International Bank, ML Account #51U-
2203. The remainder of the Series ____ Allocated Assets ($________) will be
deposited at Xxxxxxx Xxxxx Futures Inc. (the "Commodity Broker") in a Regulated
Commodity Account (Account No. 41A-__________).
The Committed Funds will increase each month by the amount of interest
earned thereon (notice of such amount will be contained in the Fee Statement
provided to the Trading Advisor).
-23-
The Committed Funds shall be available to the Commodity Broker at all times for
transfer to Account No. 41A-_____ without need of the Commodity Broker giving
advance notice to the Partnership or the Trading Partnership of any such debit
to the Partnership's Account.
The foregoing is in accordance with Section 16(e) of the Partnership's
Amended and Restated Limited Partnership Agreement dated _________, 1996,
Section 6 of the Trading Partnership's Amended and Restated Limited Partnership
Agreement dated _________, 1996, and Section 10 in the Customer Agreement
-24-
between the Commodity Broker and the Trading Partnership dated July 14, 1994.
Sincerely,
ML PRINCIPAL PROTECTION L.P.
By: XXXXXXX XXXXX INVESTMENT
PARTNERS INC.
General Partner
By:__________________________
Name:
Title:
ML PRINCIPAL PROTECTION
TRADING L.P.
By: XXXXXXX XXXXX INVESTMENT
PARTNERS INC.
General Partner
By:___________________________
Name:
Title:
Dated: ______________, 199_
-25-
