ADVISORY AGREEMENT
ADVISORY AGREEMENT (the "Agreement") dated as of the 27th
day of July, 1998 by and among Prudential-Bache Capital
Return Futures Fund 3, L.P., a Delaware limited partnership
(the "Partnership"), Seaport Futures Management Inc., a
Delaware corporation (the "General Partner") and Xxxxxx X.
Xxxxxx, a sole proprietor (the "Advisor").
W I T N E S S E T H :
WHEREAS, the Partnership has been organized primarily for
the purpose of trading, buying, selling, spreading or
otherwise acquiring, holding or disposing of futures,
forwards and options contracts. Physical commodities also
may be traded from time to time. The foregoing commodities
related transactions are collectively referred to as
"Commodities"; and
WHEREAS, the General Partner is authorized to utilize the
services of one or more professional commodity trading
advisors in connection with the Commodities trading
activities of the Partnership; and
WHEREAS, the Partnership wishes to retain the Advisor as a
commodity trading advisor to the Partnership to manage a
portion of the Partnership's Assets; and
WHEREAS, the Advisor's present business includes the
management of Commodities accounts for his clients; and
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WHEREAS, the Advisor is registered as a commodity trading
advisor under the United States Commodity Exchange Act, as
amended ("CE Act") and is a member of the National Futures
Association ("NFA") as a commodity trading advisor and will
maintain such registration and membership for the term of
this Agreement; and
WHEREAS, the Partnership and the Advisor desire to enter
into this Agreement in order to set forth the terms and
conditions upon which the Advisor will render and implement
commodity advisory services in connection with the conduct
by the Partnership of its Commodities trading activities
during the term of this Agreement;
NOW, THEREFORE, the parties agree as follows:
1. Duties of the Advisor.
(a) Appointment. The Partnership hereby appoints the
Advisor, and the Advisor hereby accepts appointment, as its
attorney-in-fact to invest and reinvest in Commodities a
portion of the Net Asset Value of the Partnership on the
terms and conditions set forth herein, commencing on the
date hereof. The Advisor's initial allocation shall be
approximately $7,000,000. The precise definition of the
term "Net Asset Value" shall be as defined in Exhibit A
hereto. This limited power-of-attorney is a continuing
power and shall continue in effect with respect to the
Advisor until terminated hereunder. To this end, the
Advisor (i) agrees to act as a commodity trading advisor
retained by the General Partner on behalf of the
Partnership, and specifically, to exercise discretion with
respect to that portion of the Net Asset Value of the
Partnership which the General Partner has allocated to the
Advisor's management above, and which the General Partner
may allocate to the Advisor in the future, upon the terms
and conditions, and for the purposes, set forth in this
Agreement and (ii) shall have sole authority and
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responsibility for independently directing the investment
and reinvestment in Commodities of the portion of the
Partnership's Net Asset Value allocated to him for the term
of this Agreement pursuant to the trading methods, systems
and strategies of his Interbank Currency System (the
Advisor's "Trading Approach") as such trading approach is
described in the Advisor's Disclosure Document dated July 1,
1998 attached hereto as Exhibit B (the "Disclosure
Document"), receipt of which is hereby acknowledged, subject
to the Partnership's trading policies and limitations as set
forth in Exhibit C, attached hereto, as the same may be
modified or amended and provided in writing to the Advisor
from time to time (the Partnership's "Trading Policies and
Limitations"). The General Partner and the Partnership
acknowledge that the Advisor makes no guarantee of profits
or of protection against loss, and that the Advisor's
Commodities transactions hereunder are for the account and
risk of the Partnership.
(b) Allocation of Responsibilities. The General Partner
will have the responsibility for the management of the
portion of the Partnership's Net Asset Value that is
invested in United States Treasury bills or other
investments approved by the Commodity Futures Trading
Commission ("CFTC") for the investment of "customer" funds
or are held in cash. The Advisor will use his good faith
best efforts in determining the investment and reinvestment
in Commodities of that portion of the Partnership's Net
Asset Value allocated to him in compliance with the Trading
Policies and Limitations, and in accordance with his Trading
Approach. In the event that the General Partner shall, in
its sole discretion, determine in good faith following
consultation, if appropriate under the circumstances, with
the Advisor that any trading instruction issued by the
Advisor violates the Partnership's Trading Policies and
Limitations, then the General Partner, following reasonable
notice appropriate under the circumstances to the Advisor,
may override such trading instruction. Nothing herein shall
be
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construed to prevent the General Partner from imposing
any limitation(s) on the trading activities of the
Partnership beyond those enumerated in Exhibit C hereto if
the General Partner determines that such limitation(s) are
necessary or in the best interests of the Partnership, in
which case the Advisor will adhere to such limitations
following written notification thereof.
(c) Modification of Trading Approach. In the event the
Advisor wishes to use a trading method or strategy other
than or in addition to the Trading Approach in connection
with trading for the Partnership (including without
limitation the deletion of an agreed upon trading method or
strategy or the addition of a trading method or strategy in
addition to the then agreed upon Trading Approach), either
in whole or in part, the Advisor may not do so unless he
gives the General Partner prior written notice of his
intention to utilize such different trading method or
strategy, and the General Partner consents thereto in
writing.
(d) Notification of Material Changes. The Advisor also
agrees to give the Partnership prior written notice of any
proposed material change in his Trading Approach, and agrees
not to make any material change in such Trading Approach (as
applied to the Partnership) over the objection of the
General Partner, it being understood that the Advisor shall
be free to institute non-material changes in his Trading
Approach (as applied to the Partnership) without prior
written notification. Without limiting the generality of
the foregoing, refinements to the Advisor's Trading
Approach, the addition or deletion of Commodities 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 General Partner
shall not be required therefor. The Advisor agrees that he
will discuss with the General Partner upon request, subject
to adequate assurances of confidentiality, any trading
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methods or strategies used by him for trading customer
accounts which differ from the Trading Approach which he
uses for the Partnership, provided, that nothing contained
in this Agreement shall require the Advisor to disclose what
he deems to be proprietary or confidential information
concerning any such trading methods or strategies, including
the Trading Approach.
(e) Request for Information. The Advisor agrees to provide
the Partnership with any reasonable information concerning
the Advisor that the Partnership may reasonably request,
subject to receipt of adequate assurances of confidentiality
by the Partnership, including, but not limited to,
information regarding any change in control, key personnel,
Trading Approach and financial condition which the
Partnership reasonably deems to be material to the
Partnership; the Advisor also shall notify the Partnership
of any such matters the Advisor, in his reasonable judgment,
believes may be material to the Partnership relating to the
Advisor and his Trading Approach.
(f) Notice of Errors. The Advisor is responsible for
promptly reviewing all oral and written confirmations he
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 Partnership of this fact, and shall utilize his
reasonable best efforts to cause the error or discrepancy to
be corrected.
(g) Exculpation. The Advisor shall not be liable to the
General Partner, its officers, directors, shareholders or
employees, or any person who controls the General Partner,
or the Partnership or its partners, or any of their
respective successors or assigns under this Agreement,
except by reason of the Advisor's acts or omissions in
material breach of this
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Agreement or due to his misconduct
or negligence or by reason of not having acted in good faith
in the reasonable belief that such actions or omissions were
in the best interests of the Partnership; it being
understood that all purchases and sales of Commodities shall
be for the account and risk of the Partnership, and the
Advisor shall not incur any liability for trading profits or
losses resulting therefrom.
2. Indemnification.
(a) The Advisor and each employee of the Advisor shall be
indemnified by the Partnership against any losses,
judgments, liabilities, expenses (including, without
limitation, reasonable attorneys' fees) and amounts paid in
settlement of any claims (collectively "Losses") sustained
by the Advisor (i) in connection with any matter relating to
the Partnership's Registration Statement No. 33-32355 or
final prospectus, dated February 1, 1990, (the "Prospectus")
including all amendments and supplements thereto, as well as
any matters relating to the Partnership prior to the
effective date of this Agreement, (ii) in connection with
any acts or omissions of the Advisor relating to its
management of its allocable portion of the Partnership's Net
Asset Value, and (iii) as a result of a material breach of
this Agreement by the Partnership or the General Partner
provided that, (A) such Losses were not the direct result of
negligence, misconduct or a material breach of this
Agreement on the part of the Advisor, (B) the Advisor and
his employees acted (or omitted to act) in good faith and in
a manner reasonably believed by it and them to be in the
best interests of the Partnership and (C) any such
indemnification by the Partnership will only be recoverable
from the assets of the Partnership and/or the General
Partner.
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(b) The Partnership shall be indemnified by the Advisor
against any Losses sustained by the Partnership directly
resulting from (i) the negligence or misconduct of, or a
material breach of this Agreement by, the Advisor or his
employees or (ii) any action or omission to act of the
Advisor or his employees that was not taken in good faith or
in a manner reasonably believed by him and them to be in the
best interests of the Partnership.
(c) No indemnification shall be permitted under this Section
2 for amounts paid in settlement if either (A) the party
claiming indemnification (the "Indemnitee") fails to notify
the indemnifying party of the terms of any settlement
proposed, at least fifteen (15) days before any amounts are
paid or (B) the indemnifying party does not in its good
faith business judgment approve the amount of the settlement
within thirty (30) days of its receipt of notice of the
proposed settlement. Notwithstanding the foregoing, the
indemnifying party shall, at all times, have the right to
offer to settle any matter with the approval of the
Indemnitee (which approval shall not be withheld
unreasonably) and if the indemnifying party successfully
negotiates a settlement and tenders payment therefor to the
Indemnitee, the Indemnitee must either use its reasonable
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
indemnifying party 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
indemnifying party 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.
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(d) None of the provisions for indemnification in this
Section 2 shall be applicable with respect to default
judgments or confessions of judgment entered into by an
Indemnitee, with its knowledge, without the prior consent of
the indemnifying party.
(e) 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.
(f) Expenses incurred in defending a threatened or pending
civil, administrative or criminal action, suit or proceeding
against an Indemnitee shall be paid 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 Indemnitee undertakes
to repay the advanced funds in cases in which the Indemnitee
is not entitled to indemnification pursuant to the preceding
paragraph, and (iii) in the case of advancement of expenses,
the Indemnitee receives a written opinion of mutually
acceptable independent legal counsel that advancing such
expenses is proper in the circumstances.
3. Advisor Independence. The Advisor shall for all
purposes herein be deemed to be an independent contractor
with respect to the Partnership, the General Partner and
each other commodity trading advisor that provides or may in
the future provide commodity trading advisory services to
the Partnership (the other Advisors and each such other
commodity trading advisor being collectively referred to
herein as the "Other Advisors"), and shall, unless otherwise
expressly authorized, have no authority to act for or to
represent the Partnership, the General Partner or any Other
Advisor in any way or otherwise be deemed to be a general
agent, joint venturer or partner of the Partnership, the
General
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Partner or any Other Advisor, or in any way be
responsible for the acts or omissions of any Other Advisor
as long as he is acting independently of such Other Advisor.
The parties acknowledge that the Advisor has not been an
organizer or promoter of the Partnership.
Nothing herein contained shall be deemed to require the
Partnership to take any action contrary to its Agreement of
Limited Partnership or Certificate of Limited Partnership,
or any applicable statute, regulation or rule of any
exchange or self-regulatory organization.
The Partnership and the General Partner acknowledge that the
Advisor's Trading Approach is his confidential property.
Nothing in this Agreement shall require the Advisor to
disclose the confidential or proprietary details of his
Trading Approach. The Partnership and the General Partner
further agree that they will keep confidential and will not
disseminate the Advisor's trading advice to the Partnership,
except as, and to the extent that, it may be determined by
the General Partner to be (i) necessary for the monitoring
the business of the Partnership, including the performance
of brokerage services by the Partnership's commodity
broker(s), or (ii) expressly required by law or regulation.
4. Commodity Broker. All Commodities trades for the
account of the Partnership shall be made through such
commodity broker or brokers as the General Partner directs
pursuant to such procedures as are mutually agreed upon.
The Advisor shall not have any authority or responsibility
in selecting or supervising any broker for execution of
Commodities trades of the Partnership 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
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Commodities transactions
meets the financial requirements or standards imposed by the
Partnership's Trading Policies and Limitations. At the
present time it is contemplated that the Partnership will
effect all Commodities trades through Prudential Securities
Incorporated ("Prudential Securities"); provided, however,
that the Advisor may execute transactions at such other
broker(s), and upon such terms and conditions, as the
Advisor and the General Partner agree if such broker(s)
agree to "give up" all such transactions to Prudential
Securities for clearance. To the extent that the
Partnership 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.
5. Fees. In consideration of and in compensation for the
performance of the Advisor's services under this Agreement,
the Advisor shall receive from the Partnership:
(a) A management fee (the "Management Fee") of 1/6 of 1%
(2% annualized) of the portion of the Partnership's Net
Asset Value allocated to it as of the last day of each
calendar month. For purposes of determining such Management
Fee, any distributions and redemptions allocable to the
Advisor made as of the last day of such month shall be added
back to the Net Asset Value and there shall be no reduction
for (i) the accrued Management Fee being calculated, or (ii)
any fees due the Advisor under paragraph (c) below accrued
as of the last day of such month or (iii) any reallocation
of assets as of the last day of such month, or (iv) any
accrued but unpaid extraordinary expenses. The Management
Fee for any month in which the Advisor manages all or any
portion of the Net Asset Value of the Partnership allocated
to it for less than a full month shall be prorated, such
proration to be calculated on the basis of the
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number of days in the month the Net Asset Value allocated to the
Advisor was under the Advisor's management as compared to
the total number of days in such month.
(b) For the purposes of calculating incentive fees under
Section 5, only the management fee paid to the Advisor shall
be deducted from the Net Asset Value allocated to the
Advisor, together with brokerage commissions attributable to
the Advisor's trading activities, general administrative
charges attributable to the pro rata portion of the
Partnership's Net Asset Value allocated to the Advisor for
trading, and extraordinary expenses, if any, attributable to
the Advisor.
(c) A quarterly incentive fee (the "Incentive Fee") of
seventeen percent (17%) of New High Net Trading Profits (as
hereinafter defined) achieved on the portion of the
Partnership's Net Asset Value allocated to the Advisor. New
High Net Trading Profits for the Advisor shall be computed
as of the close of trading on the last day of each calendar
quarter. The first Incentive Fee which may be due and owing
to the Advisor in respect of any New High Net Trading
Profits shall be computed as of September 30, 1998. New
High Net Trading Profits shall be computed solely on the
performance of the Advisor and shall not include or be
affected by the performance of any Other Advisor.
"New High Net Trading Profits" (for purposes of calculating
the Advisor's Incentive Fee only) for each calendar quarter
is defined as the excess (if any) of (A) the Net Asset Value
of the Partnership allocated to the Advisor as of the last
day of any calendar quarter, but before deduction of
Incentive Fees payable for such quarter over (B) the Net
Asset Value of the Partnership allocated to the Advisor as
of the last day of the most recent preceding calendar
quarter for which an Incentive Fee was earned (or the date
the Advisor commenced trading the
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Partnership's Net Asset Value, whichever date the Net Asset Value
allocated to it was higher), after deduction of Management Fees and
Incentive Fees paid or payable to the Advisor for such prior
quarter. In computing New High Net Trading Profits, the
difference between (A) and (B) in the preceding sentence
shall be (i) decreased by all interest earned on the portion
of the Partnership's Net Asset Value allocated to the
Advisor between the dates referred to in (A) and (B), and
(ii) increased by (x) any distributions or redemptions
allocable to the Advisor and paid or payable by the
Partnership as of, or subsequent to, the date in (B) through
the date in (A); as well as (y) losses (including losses
incurred from the date of the last Incentive Fee paid or
payable), if any, associated with redeemed Units allocable
to the Advisor, and (iii) adjusted (either increased or
decreased, as the case may be) to reflect any additional
allocations or negative reallocations of the Partnership's
Net Asset Value to or from the Advisor from the date in (B)
to the last day of the calendar quarter as of which the
current Incentive Fee calculation is made. For purposes of
calculating the first Incentive Fee payable to the Advisor,
the date referred to in (B) shall be the date of this
Agreement. If there is a cumulative loss when a withdrawal
is made from the assets allocated to the Advisor for any
reason, such loss shall be reduced by the proportionate
amount of the loss attributable to the monies being
withdrawn.
Management Fees and Incentive Fees shall be paid within ten
(10) business days following the end of the period for which
they are payable.
If an Incentive Fee shall have been paid by the Partnership
to the Advisor in respect of any calendar quarter and the
Advisor shall incur subsequent losses on the portion of the
Partnership's Net Asset Value under his management, the
Advisor shall nevertheless be entitled to retain amounts
previously paid to it in respect of New High Net Trading
Profits.
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(d) Neither the Advisor nor any of his employees shall
receive any commissions, compensation, remuneration or
payments whatsoever from any broker with which the
Partnership carries an account for transactions executed in
the Partnership's account.
6. 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 July 31, 1999. Thereafter,
this Agreement shall be renewed automatically on the terms
and conditions set forth herein for additional successive
twelve (12) month terms, each of which shall commence on the
first day of the month subsequent to the conclusion of the
preceding twelve (12) month term, unless this Agreement is
terminated pursuant to paragraphs (b), (c) or (d) of this
Section 6. The automatic renewal(s) set forth in the
preceding sentence hereof shall not be affected by (i) any
reallocation of Partnership's Net Asset Value away from the
Advisor pursuant to Section 7 of 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 Partnership is
terminated. This Agreement shall terminate automatically
with respect to the Advisor, upon one business day prior
written notice from the General Partner, without affecting
the continuation of this Agreement with any Other Advisor in
the event that the Advisor's allocable percentage of the
Partnership's Net Asset Value at the close of trading on any
business day is equal to or less than the Termination
Amount. The "Termination Amount" shall be an amount equal
to 66-2/3% of the portion of the Partnership's Net Asset
Value allocated to the Advisor's management on the date it
commences Commodities trading activities for the
Partnership, or the first day of any calendar year,
whichever day the Net Asset Value
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allocated to the Advisor
is higher, in either case, as adjusted on an ongoing basis
by the percentage decline(s) or increases in that portion of
the Partnership's Net Asset Value allocated to the Advisor's
management caused by distributions, redemptions and
permitted reallocations, and new allocations to the Advisor
covered by reallocations away from other trading advisors,
respectively. Each redemption and distribution of funds
shall have the effect of reducing the Termination Amount by
an amount equal to the portion of such redemption or
distribution allocable to the Advisor. Reallocations of
funds away from the Advisor shall reduce the Termination
Amount dollar for dollar.
(c) Optional Termination Right of Partnership. This
Agreement may be terminated at any time in the sole
discretion of the General Partner upon prior written notice
to the Advisor. The General Partner will use its best
efforts to cause any such termination to occur as of a
month-end.
(d) Optional Termination Right of Advisor. The Advisor
shall have the right to terminate this Agreement (1) upon
written notice to the General Partner at least thirty (30)
days' prior to the end of each twelve (12) month term of
this Agreement; and (2) upon thirty (30) days' prior written
notice to the General Partner in the event (i) of the
receipt by the Advisor of an opinion of independent counsel
satisfactory to the Advisor and the Partnership that by
reason of the Advisor's activities with respect to the
Partnership, the Advisor is required to register as an
investment adviser under the Investment Advisers Act of
1940; (ii) that the registration of the General Partner 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 General
Partner imposes additional trading limitation(s) pursuant to
Section 1 of this Agreement which
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the Advisor does not agree
to follow in his management of the Partnership's Net Asset
Value or the General Partner overrides a trading instruction
of the Advisor; (iv) if the Net Asset Value allocated to the
Advisor decreases, for any reason, to less than $1,000,000;
(v) the General Partner elects (pursuant to Section 1 of
this Agreement) to have the Advisor use a different Trading
Approach in the Advisor's management of Partnership 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 Partnership or the General Partner;
or (vii) other good cause is shown and the written consent
of the General Partner is obtained (which shall not be
withheld unreasonably).
(e) In the event that this Agreement is terminated pursuant
to subparagraphs (b), (c) or (d) of this Section 6, the
Advisor shall be entitled to, and the Partnership shall pay,
the Management Fee and the Incentive Fee, if any, which
shall be computed (A) with respect to the Management Fee, on
a pro rata basis, based upon the portion of the month for
which the Advisor had his portion of the Partnership's Net
Asset Value under management, and (B) 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 of this Agreement shall survive this Agreement
until satisfied.
7. Reallocation of Funds. The General Partner may, at any
month-end, in its sole discretion, upon at least thirty (30)
days' prior written notice, reallocate a portion of the
Partnership's Net Asset Value then allocated to the
Advisor's management away from the Advisor.
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8. Liquidation of Positions. The Advisor agrees to
liquidate open positions in the amount that the General
Partner informs the Advisor, in writing via telecopy or
other equivalent means, that the General Partner considers
necessary or advisable to liquidate in order to (i) effect
any termination or reallocation pursuant to Sections 6 or 7,
respectively, or (ii) fund his pro rata share of any
redemption, distribution or Partnership expense. The
General Partner 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
General Partner 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 assets
allocated to the Advisor, the General Partner will withdraw
the funds necessary to cover such excess losses pro rata
from the assets under the management of all Other Advisors.
9. Other Accounts of the Advisor.
(a) Subject to paragraph (b) of this Section 9, 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 Partnership for such other
accounts so long as the Advisor's ability to carry out his
obligations and duties to the Partnership pursuant to this
Agreement is not materially impaired thereby. In addition,
the Advisor and his employees, as applicable, also will be
permitted to trade in Commodities for their own accounts, so
long as the Advisor's ability to carry out his obligations
and duties to the Partnership is not materially impaired
thereby.
(b) Furthermore, so long as the Advisor is performing
services for the Partnership, he agrees that he 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 his
agreed upon Trading Approach being used for the Partnership
in a manner which might reasonably be expected to have a
material adverse effect on the Partnership (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) The Advisor agrees, in his management of accounts other
than the account of the Partnership, that he will not
knowingly or deliberately favor any other account managed or
controlled by him or any of his employees or affiliates (in
whole or in part) over the Partnership. 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 General
Partner with an explanation of the differences, if any, in
performance between the Partnership and any other similar
account pursuant to the same Trading Approach for which the
Advisor or any of his affiliates acts as a commodity trading
advisor (in whole or in part).
(d) Upon reasonable notice from the General Partner, the
Advisor shall permit the General Partner to review at the
Advisor's offices during normal business hours such trading
records as he reasonably may request for the purpose of
confirming that the Partnership 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
General Partner 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 his clients, all trading records of the
Advisor as it reasonably may request related to such other
accounts during normal business hours. The Advisor may, in
his 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 Partnership and the General
Partner shall keep all such information obtained by it from
the Advisor confidential.
10. Speculative Position Limits. If, at any time during the
term of this Agreement, it appears to the Advisor that he
may be required to aggregate the Partnership's Commodities
positions with the positions of any other accounts he owns
or controls for purposes of applying the speculative
position limits of the CFTC, any exchange, self-regulatory
body, or governmental authority, the Advisor promptly will
notify the General Partner if the Partnership's positions
are included in an aggregate amount which equals or exceeds
one hundred percent (100%) of the applicable speculative
limit. The Advisor agrees that, if his trading
recommendations pursuant to his agreed upon Trading Approach
are altered because of the potential application of
speculative position limits, the Advisor will modify his
trading instructions to the Partnership and his 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
18
all accounts he manages, including the
Partnership, as nearly as possible in proportion to the
assets available for trading of the respective accounts to
the extent necessary to comply with applicable speculative
position limits. The Advisor presently believes that his
Trading Approach for the management of the Partnership's
account can be implemented for the benefit of the
Partnership notwithstanding the possibility that, from time
to time, speculative position limits may become applicable.
11. Redemptions, Distributions and Reallocations.
(a) The General Partner agrees to give the Advisor at least
three (3) days' prior notice of any proposed redemptions,
distributions or reallocations.
(b) Redemptions and distributions shall be charged against
the various Partnership accounts managed by its trading
advisors, including the Advisor, in such proportions as the
General Partner, in its discretion, determines to be in the
Partnership's best interests.
12. Brokerage Confirmations and Reports. The General
Partner will instruct the Partnership'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 Partnership's assets under the
management of the Advisor. The Advisor will maintain
records and will monitor all open positions relating
thereto; provided, however, that except as provided in
Section 1(f) hereof, the Advisor shall not be responsible
for any brokerage errors. The General Partner also will
furnish the Advisor with a copy of all reports, including
but not limited to, monthly, quarterly and annual reports,
sent to the limited partners, the Securities and Exchange
Commission ("SEC"), the CFTC and the NFA. The Advisor
shall, at the General Partner's
19
request, provide the General
Partner with copies of all trade confirmations, daily equity
runs, monthly trading reports or other reports sent to the
Advisor by the Partnership's commodity broker regarding the
Partnership, and in the Advisor's possession or control, as
the General Partner deems appropriate, if the General
Partner cannot obtain such copies on its own behalf. Upon
request, the General Partner will provide the Advisor with
accurate information with respect to the Partnership's then
current Net Asset Value and Net Asset Value per Unit.
13. The Advisor's Representations and Warranties. The
Advisor represents and warrants that:
(a) He has full capacity and authority to enter into this
Agreement, and to provide the services required of it
hereunder;
(b) He will not by entering into this Agreement and by
acting as a commodity trading advisor to the Partnership,
(i) be required to take any action contrary to 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 he is bound which, in the case of (i)
or (ii), would materially limit or materially adversely
affect his ability to perform his duties under this
Agreement;
(c) He 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 he will maintain and renew such
registration and membership during the term of this
Agreement;
20
(d) A copy of his most recent Commodity Trading Advisor
Disclosure Document, as required by Part 4 of the CFTC's
regulations, has been provided to the Partnership in the
form of Exhibit B hereto 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 including the rules and regulations thereunder;
(e) The amount of Partnership assets to be allocated to the
Advisor should not, in the reasonable judgment of the
Advisor, result in the Advisor being required to alter his
Trading Approach to a degree which would be expected to have
a material adverse effect on the Partnership;
(f) Neither the Advisor nor his employees, agents, or
affiliates, nor any of his or their respective successors or
assigns: (i) shall knowingly or deliberately use or
distribute for any purpose whatsoever any list containing
the names and/or residence addresses of, and/or other
information about, the limited partners of the Partnership;
nor (ii) shall solicit any person he or they know is a
limited partner of the Partnership for the purpose of
soliciting commodity business from such limited partner,
unless such limited partner 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) This Agreement has been duly and validly executed and
delivered and is a valid and binding agreement, enforceable
against it in accordance with its terms;
21
(h) Xxxxxx X. Xxxxxx devotes, and will continue to devote
during the term of this Agreement, such portion of his time
to the trading activities of, and the conduct of the
business of, the Advisor as he shall reasonably believe is
necessary and appropriate;
(i) There is no pending, or to the best of his knowledge,
threatened or contemplated action, suit or proceeding before
any court or arbitration panel, or before or by any
governmental, administrative or self-regulatory body, to
which he or his employees or affiliates is a party, or to
which any of his assets is subject, which might reasonably
be expected to result in any material adverse change in the
condition of the Advisor (financial or otherwise), business
or prospects or reasonably might be expected to affect
adversely in any material respect any of the Advisor's
assets or which reasonably might be expected to (A)
materially impair the Advisor's ability to discharge his
obligations to the Partnership, or (B) result in a matter
which would require disclosure in his Disclosure Document
which has not been so disclosed; and the Advisor has not
received any notice of an investigation by (i) the NFA
regarding noncompliance with NFA rules or the CE Act, (ii)
the CFTC regarding noncompliance with the CE Act, or the
rules and regulations thereunder, or (iii) any exchange
regarding noncompliance with the rules of such exchange,
which investigation reasonably might be expected to (1)
materially impair his ability to discharge his obligations
to the Partnership, or (2) result in a matter which would
require disclosure in his Disclosure Document which has not
been so disclosed;
(j) The Advisor has or will take all steps necessary to
identify any of his computer systems which are Year 2000
vulnerable, such steps are set forth in Exhibit D hereto and
that its business operations and any services provided
pursuant to this Agreement will not be materially
interrupted by the advent of the Year 2000 date; and
22
(k) The Advisor has or will take all steps necessary to
modify his computer systems to process positions reported in
the "ECU" effective as of January 1, 1999, such steps are
set forth in Exhibit E hereto and that its business
operations and any services provided pursuant to this
Agreement will not be materially interrupted by the use of
the "ECU."
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, the Advisor promptly
will notify the Partnership in writing thereof.
14. The General Partner's Representations and Warranties.
The General Partner represents and warrants on behalf of the
Partnership and itself that:
(a) It has full corporate capacity and authority to enter
into this Agreement;
(b) It will not, by acting as general partner to the
Partnership or by entering into this Agreement, (i) be
required to take any action contrary to its incorporating
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,
regulation, to which it or the Partnership is a party or by
which it or the Partnership is bound or (B) any order of any
court or governmental or regulatory agency having
jurisdiction over the Partnership or the General Partner,
which in the case of (i) or (ii) would materially limit or
materially adversely affect the performance of its or the
Partnership's duties under this Agreement;
(c) The Partnership and the General Partner have obtained
all required governmental and regulatory licenses,
registrations and approvals required by law as may be
23
necessary to act as described in the Partnership's
Registration Statement and Prospectus, including, without
limitation, registration as a commodity pool operator under
the CE Act and membership as a commodity pool operator in
the NFA. The General Partner will maintain and renew the
foregoing registrations, licenses, memberships and
approvals, as appropriate, during the term of this
Agreement;
(d) The Partnership and the General Partner have complied,
and will continue to comply, with all laws, rules and
regulations having application to its or their business,
including rules and regulations promulgated by the CFTC and
NFA, the violation of which would materially and adversely
affect the business, financial condition or earnings of the
Partnership or the General Partner; and there are no
actions, suits or proceedings pending or, to the best of the
knowledge of the Partnership or the General Partner,
threatened against it or them, at law or in equity or before
or by any federal, state, municipal or other governmental or
regulatory department, commission, board, bureau, agency or
instrumentality, or by any commodity or security exchange
worldwide in which an adverse decision would materially and
adversely affect the ability of the Partnership or the
General Partner to comply with, and perform their
obligations under, this Agreement;
(e) 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
(f) On the date hereof, it is, and during the term of this
Agreement, it will be (i) in the case of the Partnership, a
duly formed and validly existing limited partnership, and
(ii) in the case of the General Partner, a duly formed and
validly existing corporation, in each case, in good
24
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 the failure to be so qualified would
materially adversely affect its ability to perform its
obligations under this Agreement; and
(g) All authorizations, consents or orders of any court, or
of any federal, state or other governmental or regulatory
agency or body required for the valid authorization,
issuance, offer and sale of the Partnership's Units were
obtained, and, to the best of its knowledge, after due
inquiry no order preventing or suspending the use of the
Prospectus with respect to the Units was issued by the SEC,
the CFTC or the NFA. The Partnership's Registration
Statement and Prospectus contained all statements which were
required to be made therein, conformed in all material
respects with the requirements of the Securities Act of
1933, as amended and the CE Act, and the rules and
regulations of the SEC and the CFTC, respectively,
thereunder, and with the rules of the NFA, and did not
contain an untrue statement of a material fact or omit to
state a material fact required to be stated therein or
necessary to make the statements therein (with respect to
the Prospectus, in light of the circumstances in which they
were made) not misleading; provided, however, that this
representation and warranty shall not apply to any
statements or omissions made in reliance upon and in
conformity with information furnished to the General
Partner, the Partnership or to Prudential Securities by or
on behalf of the trading advisors referenced in the
Registration Statement or Prospectus, including, without
limitation, all references to those trading advisors and
their affiliates, controlling persons, shareholders,
directors, officers and employees, as well as to each such
trading advisor's trading approach and past performance
history.
25
(h) The Partnership's offering of its Units has terminated
and there are not currently, and will not be in the future,
any offering materials in use by the Partnership or the
General Partner in connection with the offer or sale of
Units in the Partnership.
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, the General Partner
promptly will notify the Advisor in writing.
15. Assignment. This Agreement may not be assigned by any
of the parties hereto without the express prior written
consent of the other parties hereto.
16. Successors. This Agreement shall be binding upon and
inure to the benefit of the parties hereto and the
successors and permitted assigns 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 "assigns" shall not include any
purchasers, as such, of Units.
17. Amendment or Modification. This Agreement may not be
amended or modified except by the written consent of the
parties hereto.
18. 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, 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):
26
If to the General Partner: If to the Partnership:
Seaport Futures Management Inc. Prudential-Bache OptiMax
Xxx Xxx Xxxx Xxxxx, 00xx xxxxx Futures Fund, L.P.
Xxx Xxxx, Xxx Xxxx 00000-0000 c/o Seaport Futures Management Inc.
Attention: Xxxxxxx X. Xxxxxx One New York Plaza, 13th floor
Facsimile: (000) 000-0000 Xxx Xxxx, Xxx Xxxx 00000-0000
Attention: Xxxxxxx X. Xxxxxx
Facsimile: (000) 000-0000
and in either case with a copy to:
Rosenman & Colin LLP and Prudential Securities Incorporated
000 Xxxxxxx Xxxxxx Xxx Xxx Xxxx Plaza, 13th Floor
New York, New York 10022 Xxx Xxxx, Xxx Xxxx 00000-0000
Attention: Xxxx X. Xxxxx, Esq. Attention: Xxxxxxx X. Xxxxxx
Facsimile: (000) 000-0000 Facsimile: (000) 000-0000
If to the Advisor: with a copy to:
Xxxxxx X. Xxxxxx Xxxxxxx Xxxxxxx, Esq.
000 Xxxxxxx Xxxxxx Xxxxxxx, Burstein, et. al.
Xxx Xxxx, Xxx Xxxx 00000 000 Xxxxx Xxxxxx
Attention: Xxxxxx X. Xxxxxx Xxx Xxxx, Xxx Xxxx 00000
Facsimile: (000) 000-0000 Facsimile: (000) 000-0000
19. Governing Law. The parties agree 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.
20. 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.
21. Disclosure Document Modifications. The Advisor shall
promptly furnish the General Partner with a copy of all
modifications to his Disclosure Document when available for
distribution. Upon receipt of any modified Disclosure
Document by the General Partner, the General Partner will
provide the Advisor with an acknowledgement of receipt
thereof.
27
22. Promotional Literature. The parties agree that prior to
using any literature in which reference to the other parties
hereto is made, they shall furnish a copy of such
information to the other parties and will not make use of
any literature containing references to such other parties
to which such other parties object, except as otherwise
required by law or regulation.
23. 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.
24. 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.
25. Complete Agreement. Except as otherwise provided
herein, this Agreement constitutes 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.
26. 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
28
PAGE
together, shall constitute one original instrument.
IN WITNESS WHEREOF, this Agreement has been executed for and
on behalf of the undersigned as of the day and year first
above written.
PRUDENTIAL-BACHE CAPITAL SEAPORT FUTURES MANAGEMENT INC.
CAPITAL RETURN FUTURES
FUND 3, L.P. By: /s/ Xxxxxxx X. Xxxxxx
----------------------------
Xxxxxxx X. Xxxxxx, Vice-President
By: SEAPORT FUTURES
MANAGEMENT INC.,
Its: General Partner
By: /s/ Xxxxxxx X. Xxxxxx
--------------------------
Xxxxxxx X. Xxxxxx
Vice-President
/s/ Xxxxxx X. Xxxxxx
---------------------------
Xxxxxx X. Xxxxxx
29
PAGE
EXHIBIT A
"Net Asset Value" means the total assets, including, but not
limited to, all cash and cash equivalents (valued at cost
plus accrued interest and amortization of original issue
discount) less total liabilities, of the Partnership, each
determined on the basis of generally accepted accounting
principles in the United States, consistently applied under
the accrual method of accounting ("GAAP"), including, but
not limited to, the extent specifically set forth below:
(a) Net Asset Value shall include any unrealized profit or
loss on open Commodities Positions, and any other credit or
debit accruing to the Partnership but unpaid or not received
by the Partnerships.
(b) All open commodity futures contracts and options traded
on a United States exchange are calculated at their then
current market value, which shall be based upon the
settlement price for that particular commodity futures
contract and option traded on the applicable United States
exchange on the date with respect to which Net Asset Value
is being determined; provided, that if a commodity futures
contract or option traded on a United States exchange could
not be liquidated on such day, due to the operation of daily
limits or other rules of the exchange upon which that
position is traded or otherwise, the settlement price on the
first subsequent day on which the position could be
liquidated shall be the basis for determining the market
value of such position for such day. The current market
value of all open commodity futures contracts and options
traded on a non-United States exchange shall be based upon
the liquidating value for that particular commodity futures
contract and option traded on the applicable non-United
States exchange on the date with respect to which Net Asset
Value is being determined; provided, that if a commodity
futures contract or option traded on a non-United States
exchange could not be liquidated on such day, due to the
operation of rules of the exchange upon which that position
is traded or otherwise, the liquidating value on the first
subsequent day on which the position could be liquidated
shall be the basis for determining the market value of such
position for such day. The current market value of all open
forward contracts entered into by the Partnership shall be
the mean between the last bid and last asked prices quoted
by the bank or financial institution which is a party to the
contract on the date with respect to which Net Asset Value
is being determined; provided, that if such quotations are
not available on such date, the mean between the last bid
and asked prices on the first subsequent day on which such
quotations are available shall be the basis for determining
the market value of such forward contract for such day. The
General Partner may in its discretion value any assets of
the Partnership pursuant to such other principles as it may
deem fair and equitable.
(c) Interest earned on the Partnership's commodity brokerage
account shall be accrued at least monthly; and
30
(d) The amount of any distribution made pursuant to Article
VIII of the Partnership's Agreement of Limited Partnership
shall be a liability of the Partnership from the day when
the distribution is declared until it is paid.
31
EXHIBIT B
DISCLOSURE DOCUMENT
OF
XXXXXX X. XXXXXX
AS COMMODITY TRADING ADVISOR
Xxxxxx X. Xxxxxx
000 Xxxxxxx Xxxxxx
Xxx Xxxx, Xxx Xxxx 00000
(000) 000-0000
THE COMMODITY FUTURES TRADING COMMISSION HAS NOT PASSED UPON THE
MERITS OF PARTICIPATING IN THIS TRADING PROGRAM NOR HAS THE COMMISSION
PASSED UPON THE ADEQUACY OR ACCURACY
OF
THIS DISCLOSURE DOCUMENT.
THE DATE OF THIS DISCLOSURE DOCUMENT IS JULY 1, 1998
THE DELIVERY OF THIS DISCLOSURE DOCUMENT AT ANY TIME DOES NOT IMPLY
THAT THE INFORMATION CONTAINED HEREIN IS CORRECT AS OF ANY TIME
SUBSEQUENT TO THE DATE SHOWN ABOVE.
PAGE
EXHIBIT C
Trading Limitations
The Partnership 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 the
Partnership's commodities positions or obtaining lines of
credit for the trading of forward contracts; provided,
however, that the Partnership is prohibited from incurring
any indebtedness on a non-recourse basis); (iii) permit
rebates or give-ups to be received by the General Partner or
its affiliates, or permit the General Partner 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 Partnership; (v) commingle its
assets, except as permitted by law; or (vi) permit the
churning of its commodity accounts.
The Partnership 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 Partnership, which
currently are as follows:
(1) Partnership funds will generally be invested in
futures, forward and option contracts which are traded in
sufficient volume to permit taking 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 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 Partnership 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 Partnership may occasionally make or accept
delivery of a commodity, including, without limitation,
currencies.
(5) The Partnership will, from time to time, employ trading
techniques such as spreads, straddles and conversions.
(6) The Advisor will not initiate open positions which
would result in net long or short positions requiring margin
or premium for outstanding positions in excess of 15% of the
Partnership's Net Asset Value allocated to the Advisor for
any one commodity, or in excess of 66(% of the Partnership's
Net Asset Value allocated to the Advisor for all commodities
combined.
(7) To the extent the Partnership engages in transactions
in foreign currency forward contracts other than with or
through Prudential Securities or its affiliates, the
Partnership 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.
The General Partner will be responsible for the management
of non-commodities assets, with the assistance of Prudential
Securities or other affiliates. At least 75% of the
Partnership's Net Asset Value will be maintained in
interest-bearing U.S. Treasury obligations (primarily U.S.
Treasury bills), a significant portion of which will be
utilized for margin purposes (to the extent practicable) for
the Partnership's commodities positions. All interest
earned on such funds will be paid to the Partnership. The
balance of the Partnership's Net Asset Value will be held in
cash (to avoid the daily buying and selling of
interest-bearing obligations and to pay ongoing expenses).
