ADVISORY AGREEMENT
ADVISORY AGREEMENT (the "Agreement") dated as of the
___ day of _____, 1999, by and among World Monitor Trust II, a
Delaware business trust (the "Trust"), Prudential Securities Futures
Management Inc., a Delaware corporation (the "Managing Owner")
and Beacon Management Corporation (USA), a Delaware
corporation (the "Advisor").
W I T N E S S E T H:
WHEREAS, the Trust has been organized primarily for the
purpose of trading, buying, selling, spreading or otherwise
acquiring, holding or disposing of futures, forward and options
contracts with respect to commodities. Other transactions also
may be effected from time to time, including among others, those as
more fully identified in Exhibit A hereto. The foregoing
commodities and other transactions are collectively referred to as
"Commodities"; and
WHEREAS, the Managing Owner is authorized to utilize the
services of one or more professional commodity trading advisors in
connection with the Commodities trading activities of the various
Series (as defined below) of the Trust; and
WHEREAS, the Trust proposes to make an initial public
offering (the "Offering") of limited liability beneficial interests in the
Trust (the "Interests") evidenced by different series of Interests
(each, a "Series") through Prudential Securities Incorporated
("Prudential Securities"), an affiliate of the Managing Owner, and in
connection therewith, the Trust intends to file with the U. S.
Securities and Exchange Commission (the "SEC"), pursuant to the
Securities Act of 1933, as amended (the "1933 Act"), a registration
statement on Form S-1 to register the Interests,
and as part thereof
a prospectus (which registration statement, together with all
amendments thereto, shall be referred to herein as the "Registration
Statement" and which prospectus, in final form, shall be referred to
herein as the "Prospectus"); and
WHEREAS, the Trust will prepare and file applications for
registration of the Interests under the securities or Blue Sky laws of
such jurisdictions as the Managing Owner deems appropriate; and
WHEREAS, the Advisor's present business includes the
management of Commodities accounts for its clients; and
WHEREAS, the Advisor is registered as a commodity trading
advisor under the Commodity Exchange Act, as amended (the "CE
Act"), and is a member of the National Futures Association (the
"NFA") as a commodity trading advisor and will maintain such
registration and membership for the term of this Agreement; and
WHEREAS, the Trust 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 on behalf of the Trust during the term of this Agreement;
NOW, THEREFORE, the parties agree as follows:
1. Duties of the Advisor.
(a) Appointment. The Trust hereby appoints the
Advisor, and the Advisor hereby accepts appointment, as its limited
attorney-in-fact to exercise discretion to invest and reinvest in
Commodities during the term of this Agreement the portion of the
Trust's Net Asset
2
Value (as defined in the Prospectus) which is
comprised of the assets attributable to the Trust's Series F Interests
allocated to the Advisor (the "Series F Allocated Assets") on the
terms and conditions and for the purposes set forth herein. This
limited power-of-attorney is a continuing power and shall continue
in effect with respect to the Advisor until terminated hereunder.
The Advisor shall have sole authority and responsibility for
independently directing the investment and reinvestment in
Commodities of the Series F Allocated Assets for the term of this
Agreement pursuant to the trading programs, methods, systems,
and strategies described in Exhibit A hereto, which the Trust and
the Managing Owner have selected to be utilized by the Advisor in
trading the Series F Allocated Assets (collectively referred to as the
Advisor's "Trading Approach"), subject to the trading policies and
limitations as set forth in the Prospectus and attached hereto as
Exhibit B (the "Trading Policies and Limitations"), as the same may
be modified from time to time and provided in writing to the
Advisor. The portion of the Series F Allocated Assets to be
allocated by the Advisor at any point in time to one or more of the
various trading strategies comprising the Advisor's Trading
Approach will be determined as set forth in Exhibit A hereto, as it
may be amended from time to time, with the consent of the parties,
it being understood that trading gains and losses automatically will
alter the agreed upon allocations. Upon receipt of a new allocation,
the Advisor will determine and, if required, adjust its trading in light
of the new allocation.
(b) Allocation of Responsibilities. The Managing
Owner will have the responsibility for the management of any
portion of the Series F Allocated Assets that are not invested in
Commodities. The Advisor will use its good faith and best efforts in
determining the investment and reinvestment in Commodities of the
Series F Allocated Assets in compliance with the Trading Policies
and Limitations, and in accordance with the Advisor's Trading
3
Approach. In the event that the Managing Owner shall, in its sole
discretion, determine in good faith following consultation
appropriate under the circumstances with the Advisor that any
trading instruction issued by the Advisor violates the Trust's
Trading Policies and Limitations, then the Managing Owner,
following reasonable notice to the Advisor appropriate under the
circumstances, may override such trading instruction and shall be
responsible therefor. Nothing herein shall be construed to prevent
the Managing Owner from imposing any limitation(s) on the trading
activities of the Trust beyond those enumerated in the Prospectus if
the Managing Owner determines that such limitation(s) are
necessary or in the best interests of the Trust, in which case the
Advisor will adhere to such limitations following written notification
thereof.
(c) Gains From Trading Approach. The Advisor agrees
that at least 90% of the gains and income, if any, generated by its
Trading Approach for Series F will be from buying and selling
Commodities, as described in Exhibit D hereto.
(d) Modification of Trading Approach. In the event the
Advisor requests to use, or the Managing Owner requests the
Advisor to use, a trading program, system, method or strategy other
than or in addition to the trading programs, systems, methods or
strategies comprising the Trading Approach in connection with
trading for the Trust (including, without limitation, the deletion or
addition of an agreed upon trading program, system, method or
strategy to the then agreed upon Trading Approach or a
modification in the leverage employed), either in whole or in part,
the Advisor may not do so and/or shall not be required to do so, as
appropriate, unless both the Managing Owner and the Advisor
consent thereto in writing.
(e) Notification of Material Changes. The Advisor also
agrees to give the Trust prior written notice of any proposed
material change in its Trading Approach and agrees
4
not to make any material change in such Trading Approach (as applied
to the Trust) over the objection of the Managing Owner, it being
understood that the Advisor shall be free to institute non-material
changes in its Trading Approach (as applied to the Trust) without
prior written notification. Without limiting the generality of the
foregoing, refinements to the Advisor's Trading Approach, and the
deletion (but not the addition) of commodities (other than the
addition of commodities then being traded (i) on organized
domestic commodities exchanges, (ii) on foreign commodities
exchanges recognized by the Commodity Futures Trading
Commission (the "CFTC") as providing customer protections
comparable to those provided on domestic exchanges or (iii) in the
interbank foreign currency market) to or from the Advisor's Trading
Approach, shall not be deemed a material change in the Advisor's
Trading Approach, and prior approval of the Managing Owner shall
not be required therefor. The utilization of forward markets in
addition to those enumerated in Exhibit D hereto would be deemed
a material change to the Advisor's Trading Approach and prior
approval shall be required therefor.
Subject to adequate assurances of confidentiality, the
Advisor agrees that it will discuss with the Managing Owner upon
request any trading methods, programs, systems or strategies used
by it for trading customer accounts which differ from the Trading
Approach used for the Trust, provided, that nothing contained in
this Agreement shall require the Advisor to disclose what it deems
to be proprietary or confidential information.
(f) Request for Information. The Advisor agrees to
provide the Trust with any reasonable information concerning the
Advisor that the Trust may reasonably request (other than the
identity of its customers or proprietary or confidential information
concerning the Trading Approach), subject to receipt of adequate
assurances of confidentiality by the Trust, including, but not limited
to, information regarding any change in control, key personnel,
5
Trading Approach and financial condition which the Trust
reasonably deems to be material to the Trust; the Advisor also shall
notify the Trust of any such matters the Advisor, in its reasonable
judgment, believes may be material to the Trust relating to the
Advisor and its Trading Approach. During the term of this
Agreement, the Advisor agrees to provide the Trust with updated
monthly information related to the Advisor's performance results
within a reasonable period of time after the end of the month to
which it relates.
(g) Notice of Errors. The Advisor is responsible for
promptly reviewing all oral and written confirmations it receives to
determine that the Commodities trades were made in accordance
with the Advisor's instructions. If the Advisor determines that an
error was made in connection with a trade or that a trade was made
other than in accordance with the Advisor's instructions, the
Advisor shall promptly notify the Managing Owner of this fact and
shall utilize its best efforts to cause the error or discrepancy to be
corrected.
(h) Liability. Neither the Advisor nor any employee,
director, officer or shareholder of the Advisor, nor any person who
controls the Advisor, shall be liable to the Managing Owner, its
officers, directors, shareholders or employees, or any person who
controls the Managing Owner, or the Trust or the owners of Series F
Interests ("Limited Owners"), or any of their respective successors
or assignees under this Agreement, except by reason of acts or
omissions in material breach of this Agreement or due to their
misconduct or negligence or by reason of their not having acted in
good faith in the reasonable belief that such actions or omissions
were in the best interests of the Trust; it being understood that the
Advisor makes no guarantee of profit nor offers any protection
against loss, and that all purchases and sales of Commodities shall
be for the account and risk of the Trust, and the Advisor shall incur
no liability for trading profits or losses resulting therefrom provided
the Advisor would not
6
otherwise be liable to the Trust under the terms hereof.
(i) Initial Allocation. Initially, the Series F Allocated
Assets will total an amount equal to the assets of the Trust
allocable to the Series F Interests, including all cash and cash
equivalents held by the Trust in respect of such Interests reduced
by all liabilities of the Trust incurred specifically in respect of the
Series F Interests and further reduced by a pro-rata share of the
total liabilities of the Trust which are not otherwise specifically
allocable to another Series of Interests, at the conclusion of the
Trust's Initial Offering Period (as described in the Prospectus).
(j) Additional Allocations and Reallocations. Subject
to Section 10 below, the Trust may, on a weekly basis during the
Trust's Continuous Offering Period, as described in the Prospectus,
(A) allocate additional assets to the Advisor, (B) reallocate the
Series F Allocated Assets away from the Advisor to another
commodity trading advisor (an "Other Advisor"), (C) reallocate
assets to the Advisor from an Other Advisor, or (D) allocate
additional capital with respect to the Series F Allocated Assets to an
Other Advisor.
(k) Delivery of Disclosure Document. The Advisor
agrees to provide to the Managing Owner with any amendment or
supplement to the Disclosure Document attached hereto as Exhibit
D (an "Update") as soon as such Update is available for
distribution.
2. Indemnification.
(a) The Advisor. Subject to the provisions of Section 3,
the Advisor, and each officer, director, shareholder and employee of
the Advisor, and each person who controls the Advisor, shall be
indemnified, defended and held harmless by the Trust and the
Managing
7
Owner, jointly and severally from and against any and all
claims, losses, judgments, liabilities, damages, costs, expenses
(including, without limitation, reasonable investigatory and
attorneys' fees and reasonable expenses) and amounts paid in
settlement of any claims in compliance with the conditions
specified below (collectively, "Losses") sustained by the Advisor (i)
in connection with any acts or omissions of the Advisor, or any of
its officers, directors or employees relating to its management of
the Series F Allocated Assets, including in connection with this
Agreement or otherwise as a result of the Advisor's performance of
services on behalf of the Trust or its role as trading advisor to
Series F Allocated Assets and/or (ii) as a result of a material breach
of this Agreement by the Trust or the Managing Owner, provided
that, (i) such Losses were not the result of negligence, misconduct
or a material breach of this Agreement on the part of the Advisor,
and its officers, directors, shareholders and employees, and each
person controlling the Advisor, (ii) the Advisor, and its officers,
directors, shareholders and employees, and each person
controlling the Advisor, acted in good faith and in a manner
reasonably believed by it and them to be in or not opposed to the
best interests of the Trust and (iii) any such indemnification will
only be recoverable from the Series F Allocated Assets and the
assets of the Managing Owner and not from any other assets of any
other Series of the Trust, provided further, that no indemnification
shall be permitted under this Section 2 for amounts paid in
settlement if either (A) the Advisor fails to notify the Trust of the
terms of any settlement proposed, at least 15 days before any
amounts are paid or (B) the Trust does not approve the amount of
the settlement within 15 days (such approval not to be withheld
unreasonably). Notwithstanding the foregoing, the Trust shall at all
times have the right to offer to settle any matter with the approval of
the Advisor (which approval shall not be withheld unreasonably),
and if the Trust successfully negotiates a settlement and tenders
payment therefor to the party claiming indemnification (the
8
"Indemnitee"), the Indemnitee must either use its best efforts to
dispose of the matter in accordance with the terms and conditions
of the proposed settlement or the Indemnitee may refuse to settle
the matter and continue its defense in which latter event the
maximum liability of the Trust to the Indemnitee shall be the amount
of said proposed settlement. Any indemnification by the Trust
under this Section 2, unless ordered by a court, shall be made by
the Trust only as authorized in the specific case and only upon a
determination by mutually acceptable independent legal counsel in
a written opinion that indemnification is proper in the
circumstances because the Indemnitee has met the applicable
standard of conduct set forth hereunder.
(b) Default Judgments and Confessions of Judgment.
None of the foregoing provisions for indemnification shall be
applicable with respect to default judgments or confessions of
judgment entered into by the Indemnitee, with its knowledge,
without the prior consent of the Trust.
(c) Procedure. In the event that an Indemnitee under
this Section 2 is made a party to an action, suit or proceeding
alleging both matters for which indemnification can be made
hereunder and matters for which indemnification may not be made
hereunder, such Indemnitee shall be indemnified only for that
portion of the Losses incurred in such action, suit or proceeding
which relates to the matters for which indemnification can be made.
(d) Expenses. Expenses incurred in defending a
threatened or pending civil, administrative or criminal action, suit or
proceeding against an Indemnitee shall be paid by the Trust in
advance of the final disposition of such action, suit or proceeding if
(i) the legal action, suit or proceeding, if sustained, would entitle the
Indemnitee to indemnification pursuant to the
9
terms of this Section
2, (ii) the Advisor undertakes to repay the advanced funds to the
Trust in cases in which the Indemnitee is not entitled to
indemnification pursuant to this Section 2 and (iii) in the case of
advancement of expenses by the Trust, the Indemnitee obtains a
written opinion of mutually acceptable independent legal counsel
that advancing such expenses is proper in the circumstances.
3. Limits on Claims.
(a) Prohibited Acts. The Advisor agrees that it will not
take any of the following actions against the Trust: (i) seek a decree
or order by a court having jurisdiction in the premises (A) for relief
in respect of the Trust in an involuntary case or proceeding under
the federal Bankruptcy Code or any other federal or state
bankruptcy, insolvency, reorganization, rehabilitation, liquidation or
similar law or (B) adjudging the Trust a bankrupt or insolvent or
seeking reorganization, rehabilitation, liquidation, arrangement,
adjustment or composition of or in respect of the Trust under the
federal Bankruptcy Code or any other applicable federal or state law
or appointing a custodian, receiver, liquidator, assignee, trustee,
sequestrator (or other similar official) of the Trust or of any
substantial part of any of its properties or ordering the winding up
or liquidation of any of its affairs or (ii) seek a petition for relief,
reorganization or to take advantage of any law referred to in the
preceding clause or (iii) file an involuntary petition for bankruptcy
(collectively, "Bankruptcy or Insolvency Action").
(b) Limited Assets Available. In addition, the Advisor
agrees that for any obligations due and owing to it by the Trust, the
Advisor will look solely and exclusively to Series F Allocated Assets
or to the assets of the Managing Owner, if it has liability in its
capacity as Managing Owner, to satisfy its claims and will not seek
to attach or otherwise assert a claim
2
against the other assets of the
Trust, whether there is a Bankruptcy or Insolvency Action taken or
otherwise. The parties agree that this provision will survive the
termination of this Agreement, whether terminated in a Bankruptcy
or Insolvency Action or otherwise.
(c) No Limited Owner Liability. This Agreement has
been made and executed by and on behalf of the Trust and the
Managing Owner for the benefit of the Series F Interests of the Trust
and the obligations of the Trust and/or the Managing Owner set
forth herein are not binding upon any of the Limited Owners
individually but are binding only upon the assets and property
identified above, and no resort shall be had to the assets of other
Series issued by the Trust or the Limited Owners' personal property
for the satisfaction of any obligation or claim hereunder.
(d) Subordination Agreement. The Advisor agrees and
consents (the "Consent") to look solely to each Series for which
advisory services are being performed ("Series F") and assets (the
"Series F Assets") of Series F and to the Managing Owner and its
assets for payment. The Series F Assets include only those funds
and other assets that are paid, held or distributed to the Trust on
account of and for the benefit of the Series F, including, without
limitation, funds delivered to the Trust for the purchase of interests
in Series F. In furtherance of the Consent, the Advisor agrees that
any debts, liabilities, obligations, indebtedness, expenses and
claims of any nature and of all kinds and descriptions (collectively,
"Claims") incurred, contracted for or otherwise existing arising
from, related to or in connection with the Trust and its assets and
Series F and the Series F Assets, shall be subject to the following
limitations:
11
(1) Subordination of certain claims and rights. (i)
except as set forth below, the Claims, if any, of the Advisor
(the "Subordinated Claims") shall be expressly subordinate
and junior in right of payment to any and all other Claims
against the Trust and any Series thereof and any of their
respective assets which may arise as a matter of law or
pursuant to any contract; provided, however, that the
Advisor's Claims (if any) against Series F shall not be
considered Subordinated Claims with respect to enforcement
against and distribution and repayment from Series F, the
Series F Assets and the Managing Owner and its assets; and
provided, further that the Advisor's valid Claims, if any,
against Series F shall be pari passu and equal in right of
repayment and distribution with all other valid Claims against
Series F and (ii) the Advisor will not take, demand or receive
from any Series or the Trust or any of their respective assets
(other than Series F, the Series F Assets and the Managing
Owner and its assets) any payment for the Subordinated
Claims;
(2) the Claims of the Advisor with respect to
Series F shall only be asserted and enforceable against
Series F, the Series F Assets and the Managing Owner and its
assets, and such Claims shall not be asserted or enforceable
for any reason whatsoever against any other Series, the Trust
generally or any of their respective assets;
(3) if the Claims of the Advisor against Series F or
the Trust are secured in whole or in part, the Advisor hereby
waives (under section 1111(b) of the Bankruptcy Code (11
U.S.C. S 1111(b)) any right to have any deficiency Claims
(which deficiency Claims may arise in the event such security
is inadequate to satisfy such Claims) treated as unsecured
Claims against the Trust or any Series (other than Series F), as
the case may be;
12
(4) in furtherance of the foregoing, if and to the
extent that the Advisor receives monies in connection with the
Subordinated Claims from a Series or the Trust (or their
respective assets), other than Series F, the Series F Assets
and the Managing Owner and its assets, the Advisor shall be
deemed to hold such monies in trust and shall promptly remit
such monies to the Series or the Trust that paid such amounts
for distribution by the Series or the Trust in accordance with
the terms hereof; and
(5) the foregoing Consent shall apply at all times
notwithstanding that the Claims are satisfied and
notwithstanding that the agreements in respect of such Claims
are terminated, rescinded or canceled.
4. Obligations of the Trust, the Managing Owner and the
Advisor.
(a) The Registration Statement and Prospectus. Each
of the Trust and the Managing Owner agrees to cooperate and use
its good faith and best efforts in connection with (i) the preparation
by the Trust of the Registration Statement and the Prospectus (and
any amendments or supplements thereto), (ii) the filing of the
Registration Statement and the Prospectus (and any amendments
or supplements thereto) with such governmental and self-regulatory
authorities as the Managing Owner deems appropriate for the
registration and sale of the Interests and the taking of such other
actions not inconsistent with this Agreement as the Managing
Owner may determine to be necessary or advisable in order to make
the proposed offer and sale of Interests lawful in any jurisdiction
and (iii) causing the Registration Statement (and any amendment
thereto) to become effective under the 1933 Act and the Blue Sky
securities laws of such jurisdictions as the Managing Owner may
deem appropriate. The Advisor agrees to make all necessary
disclosures regarding itself, its officers and principals, trading
performance,
13
Trading Approach, customer accounts (other than the
names of customers, unless such disclosure is required by law or
regulation) and otherwise as may be required, in the reasonable
judgment of the Managing Owner, to be made in the Registration
Statement and Prospectus and in applications to any such
jurisdictions. No description of or other information relating to the
Advisor may be distributed by the Managing Owner without the
prior written consent of the Advisor; provided that, distribution of
performance information relating to Series F's account shall not
require consent of the Advisor.
(b) Road Shows. The Advisor agrees to make
representatives of its marketing department available to participate
in "road show" and similar presentations in connection with the
offering of the Series F Interests to the extent reasonably requested
by the Managing Owner, on the following conditions: (i) all
expenses incurred by the Advisor in the course of such
participation will be shared between and among the Advisor, the
Managing Owner and/or Prudential Securities, in such amounts as
shall be agreed among the parties, (ii) the Advisor shall not be
obligated to take any action which might require registration as a
broker-dealer or investment adviser under any applicable federal or
state law and (iii) the Advisor shall not be required to assist in "road
show" or similar presentations to the extent that it reasonably
believes that doing so would interfere with its trading, marketing or
other activities.
(c) Advisor Not A Promoter. The parties acknowledge
that the Advisor has not been, either alone or in conjunction with
Prudential Securities or its affiliates, an organizer or promoter of the
Trust, and it is not intended by the parties that the Advisor shall
have any liability as such.
14
(d) Filings. The Trust may at any time determine not to
file the Registration Statement with the SEC or withdraw the
Registration Statement from the SEC or any other governmental or
self-regulatory authority with which it is filed or otherwise terminate
the Registration Statement or the offering of Interests. Upon any
such withdrawal or termination, or if the "minimum" (i) aggregate
number of Interests or (ii) Series F Interests required to be sold
pursuant to the Prospectus is not sold, this Agreement shall
terminate and, except for the payment of expenses as set forth in
subparagraph 4(b) above and in paragraph 2, neither the Trust nor
the Managing Owner shall have any obligations to the Advisor with
respect to this Agreement nor shall the Advisor have any
obligations to the Trust or the Managing Owner with respect to this
Agreement.
(e) Representation Agreement. On or prior to
commencement of the offering of Interests pursuant to the
Prospectus, the parties agree to execute a Representation
Agreement relating to the offering of the Interests (the
"Representation Agreement") substantially in the form of Exhibit C
to this Agreement.
5. Advisor Independence.
(a) Independent Contractor. The Advisor shall for all
purposes herein be deemed to be an independent contractor with
respect to the Trust, the Managing Owner and each other
commodity trading advisor that may in the future provide
commodity trading advisory services to the Trust and Prudential
Securities and shall, unless otherwise expressly authorized, have
no authority to act for or to represent the Trust, the Managing
Owner, any other commodity trading advisor or Prudential
Securities in any way or otherwise be deemed to be a general agent,
joint venturer or partner of the Trust, the Managing Owner, any
other commodity trading advisor or Prudential Securities or in any
way be responsible for the acts or omissions of the Trust, the
Managing Owner, any other commodity trading advisor
15
or Prudential Securities as long as it is acting independently of such
persons.
(b) Unauthorized Activities. Without limiting the
obligations of the Trust set forth under this Agreement, nothing
herein contained shall be deemed to require the Trust to take any
action contrary to its Trust Agreement or Certificate of Trust or any
applicable statute, regulation or rule of any exchange or self-
regulatory organization.
(c) Purchase of Interests. Any of the Advisor, its
principals and employees may, in its discretion, purchase Interests
in the Trust.
(d) Confidentiality. The Trust and the Managing Owner
acknowledge that the Trading Approach including methods,
models, and strategies of the Advisor is the confidential property of
the Advisor. Nothing in this Agreement shall require the Advisor to
disclose the confidential or proprietary details of its Trading
Approach. The Trust and the Managing Owner further agree that
they will keep confidential and will not disseminate the Advisor's
trading advice to the Trust, except as, and to the extent that, it may
be determined by the Managing Owner to be (i) necessary for the
monitoring of the business of the Trust, including the performance
of brokerage services by the Trust's commodity broker(s), or (ii)
expressly required by law or regulation.
6. Commodity Broker.
All Commodities traded for the account of the Trust shall
be made through such commodity broker or brokers, or
counterparty or counterparties, as the Managing Owner directs
16
or otherwise in accordance with such order execution procedures as
are agreed upon between the Advisor and the Managing Owner.
Except as set forth below, the Advisor shall not have any authority
or responsibility in selecting or supervising any floor broker or
counterparty for execution of Commodities trades of the Trust or for
negotiating floor brokerage commission rates or other
compensation to be charged therefor. The Advisor shall not be
responsible for determining that any such broker or counterparty
used in connection with any Commodities transactions meets the
financial requirements or standards imposed by the Trust's Trading
Policies and Limitations. At the present time, it is contemplated
that the Trust will execute and clear all Commodities trades through
Prudential Securities and its affiliates. The Advisor may, however,
with the consent of the Managing Owner, such consent not to be
unreasonably withheld, execute transactions at such other firm(s)
and upon such terms and conditions as the Advisor and the
Managing Owner agree if such firm(s) agree to "give up" all such
transactions to Prudential Securities for clearance. To the extent
that the Trust determines to utilize a broker or counterparty other
than Prudential Securities, it will consult with the Advisor prior to
directing it to utilize such broker or counterparty and will not retain
the services of such firm over the reasonable objection of the
Advisor.
7. Fees.
In consideration of and in compensation for the
performance of the Advisor's services under this Agreement, the
Advisor shall receive from Series F a management fee (the
"Management Fee") and an incentive fee (the "Incentive Fee")
based on the Series F Allocated Assets, as follows:
17
(a) A Management Fee equal to 0.0384615% of
Series F's Allocated Assets determined as of the close of business
each Friday (an annual rate of 2.0%). The sum of the amounts
determined each Friday will be paid monthly. For purposes of
determining the Management Fee, any distributions, redemptions or
reallocation of the Series F's Allocated Assets made as of the last
Friday of a week shall be added back to the Series F Allocated
Assets, and there shall be no reduction for (i) the weekly
Management Fees being calculated, (ii) any accrued but unpaid
incentive fees due the Advisor under paragraph (b) below for the
quarter in which such fees are being computed or (iii) any accrued
but unpaid extraordinary expenses unrelated to Series F (as defined
in the Trust Agreement). The Management Fee determined for any
week in which an Advisor manages the Series F Allocated Assets
for less than a full week shall be prorated, such proration to be
calculated on the basis of the number of days in the week the
Series F Allocated Assets were under the Advisor's management as
compared to the total number of days in such week with such
proration to include appropriate adjustments for any funds taken
away from the Advisor's management during the week for reasons
other than distributions or redemptions, including, but not limited
to, the reduction of the Series F Allocated Assets allocated to the
Advisor's management resulting from the payment of extraordinary
expenses. Management fees paid pursuant to this section are non-
refundable.
(b) An incentive fee of 20% (the "Incentive Fee") of
"New High Net Trading Profits" (as hereinafter defined) generated
on the Series F Allocated Assets, including realized and unrealized
gains and losses thereon, as of the close of business on the last
Friday of each calendar quarter (the "Incentive Measurement Date").
For purposes of computing the Net Asset Value of the Series F
Allocated Assets only, the Incentive Fee will be accrued weekly.
18
New High Net Trading Profits (for purposes of calculating
the Advisor's Incentive Fee only) will be computed as of the
Incentive Measurement Date and will include such profits (as
outlined below) since the Incentive Measurement Date of the most
recent preceding calendar quarter for which an incentive fee was
earned (or, with respect to the first Incentive Fee, as of the
commencement of operations) (the "Incentive Measurement
Period"). New High Net Trading Profits for any Incentive
Measurement Period will be the net profits, if any, from trading of
the Series F Allocated Assets during such period (including (i)
realized trading profit (loss) plus or minus (ii) the change in
unrealized trading profit (loss) on open positions) and will be
calculated after the determination of Series F's fixed brokerage
fee and other transaction costs attributable to the Series F
Allocated Assets, the Advisor's Management Fee, and the operating
expenses for which Series F Allocated Assets is responsible, but
before deduction of any Incentive Fees payable during the Incentive
Measurement Period. New High Net Trading Profits will not include
interest earned or credited on Series F's assets and will be adjusted
(either increased or decreased, as the case may be) to reflect
extraordinary expenses (e.g., litigation, costs or damages) paid
during an Incentive Measurement Period. New High Net Trading
Profits will be generated only to the extent that the Advisor's
cumulative New High Net Trading Profits exceed the highest level of
cumulative New High Net Trading Profits achieved by the Advisor
as of a previous Incentive Measurement Date. Except as set forth
below, net losses from prior quarters must be recouped before New
High Net Trading Profits can again be generated. If a withdrawal or
distribution occurs or if this Agreement is terminated at any date
that is not an Incentive Measurement Date, the date of the
withdrawal or distribution or termination will be treated as if it were
an Incentive Measurement Date, but any Incentive Fee accrued in
respect of the withdrawn assets on such date shall not be paid to
the Advisor until the next scheduled Incentive Measurement Date.
New High Net
19
Trading Profits for an Incentive Measurement Period
shall exclude capital contributions to Series F in an Incentive
Measurement Period, distributions or redemptions paid or payable
by Series F during an Incentive Measurement Period, as well as
losses, if any, associated with redemptions, distributions, and
reallocations of assets during the Incentive Measurement Period and
prior to the Incentive Measurement Date (i.e., to the extent that
assets are allocated away from the Advisor, any loss carryforward
attributable to the Advisor shall be reduced in the same proportion
that the assets allocated away from the Advisor through
redemptions, distributions or allocations caused by the Trust or the
Managing Owner bears to the Series F Allocated Assets prior to the
re-allocation and New High Net Trading Profits shall reflect this
reduction in loss carryforward). In calculating New High Net
Trading Profits, incentive fees paid for a previous Incentive
Measurement Period will not reduce cumulative New High Net
Trading Profits in subsequent periods.
(c) Timing of Payment. Management Fees and
Incentive Fees shall be paid generally within 15 business days
following the end of the period for which they are payable. The first
incentive fee which may be due and owing to the Advisor in respect
of any New Trading Profits will be due and owing as of the last
Friday of the first calendar quarter during which the Trading
Advisor managed the Allocated Assets for at least 45 days. If an
Incentive Fee shall have been paid by the Trust to the Advisor in
respect of any calendar quarter and the Advisor shall incur
subsequent losses on the Series F Allocated Assets, the Advisor
shall nevertheless be entitled to retain amounts previously paid to it
in respect of New High Net Trading Profits.
(d) Fee Data. The Managing Owner will provide the
Advisor with the data used by the Managing Owner to compute the
foregoing fees generally within ten business days
20
of the end of the relevant period.
(e) Third Party Payments. Neither the Advisor, nor any
of its officers, directors, employees or stockholders, shall receive
any commissions, compensation, remuneration or payments
whatsoever from any broker with which the Trust carries an account
for transactions executed in the Trust's account. The parties
acknowledge that a spouse of any of the foregoing persons may
receive floor brokerage commissions in respect of trades effected
pursuant to the Advisor's Trading Approach on behalf of the Trust,
which payment shall not violate the preceding sentence.
8. Term and Termination.
(a) Term. This Agreement shall commence on the date
hereof and, unless sooner terminated pursuant to paragraph (b), (c),
or (d) of this Section 8, shall continue in effect until the close of
business on the last day of the month ending fifteen full months
following the commencement of Series F's trading activities.
Thereafter, unless this Agreement is terminated pursuant to
paragraphs (b), (c) or (d) of this Section 8, this Agreement shall be
renewed automatically on the same terms and conditions set forth
herein for successive additional one-year terms, each of which shall
commence on the first day of the month subsequent to the
conclusion of the preceding term. Subject to Section 8(d)(iv)
hereof, the automatic renewal(s) set forth in the preceding sentence
hereof shall not be affected by (i) any allocation of the Series F
Allocated Assets away from the Advisor pursuant to this Agreement
or (ii) the retention of Other Advisors following a reallocation or
otherwise.
(b) Automatic Termination. This Agreement shall
terminate automatically in the event that the Trust is terminated. In
addition, this Agreement shall terminate automatically
21
in the event that the Series F Allocated Assets decline as of the
end of any business day by at least 40% from the Series F Allocated
Assets (i) as of the first day of this Agreement or (ii) as of the
first day of any calendar year, as adjusted on an ongoing basis by (A) any
decline(s) in the Series F Allocated Assets caused by distributions,
redemptions, reallocations and withdrawals, and (B) additions to
the Series F Allocated Assets caused by additional allocations.
(c) Optional Termination Right of Trust. This
Agreement may be terminated at any time at the election of the
Managing Owner in its sole discretion upon at least 30 days' prior
written notice to the Advisor. The Managing Owner will use its best
efforts to cause any termination to occur as of a month-end. This
Agreement also may be terminated upon prior written notice,
appropriate under the circumstances, to the Advisor in the event
that: (i) the Managing Owner determines in good faith following
consultation appropriate under the circumstances with the Advisor
that the Advisor is unable to use its agreed upon Trading Approach
to any material extent, as such Trading Approach may be refined or
modified in the future in accordance with the terms of this
Agreement for the benefit of the Trust; (ii) the Advisor's registration
as a commodity trading advisor under the CE Act or membership as
a commodity trading advisor with the NFA is revoked, suspended,
terminated or not renewed; (iii) the Managing Owner determines in
good faith following consultation appropriate under the
circumstances with the Advisor that the Advisor has failed to
conform, and after receipt of written notice, continues to fail to
conform in any material respect, to (A) any of the Trust's Trading
Policies and Limitations or (B) the Advisor's Trading Approach; (iv)
there is an unauthorized assignment of this Agreement by the
Advisor; (v) the Advisor dissolves, merges or consolidates with
another entity or sells a substantial portion of its assets, any
portion of its Trading Approach utilized by the Trust or its business
goodwill, in each instance without the
22
consent of the Managing Owner; (vi) Xxxxx X. Xxxxxxxxxx
Xx. is not in control of the Advisor's trading
activities for the Trust; (vii) the Advisor becomes
bankrupt (admitted or decreed) or insolvent; (viii) for any other
reason, the Managing Owner determines in good faith that such
termination is essential for the protection of the Trust and the
Series F Interests, including, without limitation a good faith
determination by the Managing Owner that the Advisor has
breached a material obligation to the Trust under this Agreement
relating to the trading of the Series F Allocated Assets.
(d) Optional Termination Right of Advisor. The Advisor
shall have the right to terminate this Agreement at any time upon
written notice to the Trust, appropriate under the circumstances, in
the event (i) of the receipt by the Advisor of an opinion of
independent counsel satisfactory to the Advisor and the Trust that
by reason of the Advisor's activities with respect to the Trust it is
required to register as an investment adviser under the Investment
Advisers Act of 1940 and it is not so registered; (ii) that the
registration of the Managing Owner as a commodity pool operator
under the CE Act or its NFA membership as a commodity pool
operator is revoked, suspended, terminated or not renewed; (iii) that
the Managing Owner (A) imposes additional trading limitation(s)
pursuant to Section 1 of this Agreement which the Advisor does not
agree to follow in its management of the Series F Allocated Assets
or (B) overrides trading instructions of the Advisor or does not
consent to a material change to the Trading Approach requested by
the Advisor; (iv) if the amount of the Series F Allocated Assets
decreases to less than $4 million as the result of redemptions,
distribution, reallocation of assets, or deliveraging initiated by the
Trust or the Managing Owner but not trading losses, as of the close
of business on any Friday; (v) the Managing Owner elects (pursuant
to Section 1 of this Agreement) to have the Advisor use a different
Trading Approach in the Advisor's management of Trust assets
from
23
that which the Advisor is then using to manage such assets
and the Advisor objects to using such different Trading Approach;
(vi) there is an unauthorized assignment of this Agreement by the
Trust or the Managing Owner; (vii) there is a material breach of this
Agreement by the Trust and/or the Managing Owner and after giving
written notice to the Managing Owner which identifies such breach
and such material breach has not been cured within ten days
following receipt of such notice by the Managing Owner; (viii) an
Other Advisor is allocated a portion of the Series F Assets; (ix)
the Advisor provides the Managing Owner with written notice,
at least 90 days' prior to the end of the then current term,
of the Advisor's desire and intention to terminate
this Agreement as of the end of the then current term;
or (x) other good cause is shown and the written
consent of the Managing Owner is obtained
(which shall not be withheld unreasonably).
(e) Termination Fees. In the event that this Agreement
is terminated with respect to, or by, the Advisor pursuant to this
Section 8 or the Managing Owner allocates the Trust's assets to
Other Advisors, the Advisor shall be entitled to, and the Trust shall
pay, the Management Fee and the Incentive Fee, if any, which shall
be computed (i) with respect to the Management Fee, on a pro rata
basis, based upon the portion of the month for which the Advisor
had the Series F Allocated Assets under management and (ii) with
respect to the Incentive Fee, if any, as if the effective date of
termination was the last day of the then current calendar quarter.
The rights of the Advisor to fees earned through the earlier to occur
of the date of expiration or termination shall survive this Agreement
until satisfied.
(f) Termination and Open Positions. Once terminated,
the Advisor shall have no responsibility for existing positions,
including delivery issues, if any, which may result from such
positions.
24
9. Liquidation of Positions.
The Advisor agrees to liquidate open positions in the
amount that the Managing Owner informs the Advisor, in writing via
facsimile or other equivalent means, that the Managing Owner
considers necessary or advisable to liquidate in order to (i) effect
any termination or reallocation pursuant to Sections 1 or 8,
respectively or (ii) fund its pro rata share of any redemption,
distribution or Trust expense. The Managing Owner shall not,
however, have authority to instruct the Advisor as to which specific
open positions to liquidate, except as provided in Section 1 hereof.
The Managing Owner shall provide the Advisor with such
reasonable prior notice of such liquidation as is practicable under
the circumstances and will endeavor to provide at least three days
prior notice. In the event that losses incurred as a result of such
liquidation by the Advisor exceed the amount of the Series F
Allocated Assets, the Managing Owner agrees to cover such excess
losses from its assets, but in no event from the assets of the other
Series issued by the Trust. The Advisor shall have no liability for
any such losses.
10. Other Accounts of the Advisor.
(a) Management of Other Accounts and Trading of
Proprietary Capital. Subject to paragraph (c) of this Section 10, the
Advisor shall be free to (i) manage and trade accounts for other
investors (including other public and private commodity pools), and
(ii) trade for its own account, and for the accounts of its
shareholders, directors, officers and employees, as applicable,
using the same or other information and Trading Approach utilized
in the performance of services for the Trust, so long as in the
Advisor's reasonable judgment the aggregate amount of capital
being managed or traded by the Adviser does not (i) materially
25
impair the Advisor's ability to carry out its obligations and duties to
the Trust pursuant to this Agreement or (ii) create a reasonable
likelihood of the Advisor having to modify materially its agreed
upon Trading Approach being used for the Trust in a manner which
might reasonably be expected to have a material adverse effect on
the Trust. The aggregate amount of capital referred to in the
preceding sentence hereinafter shall be called "Advisor's Capacity,"
and currently is estimated by the Advisor to be $500 million.
The Advisor shall not be required to accept capital from the Trust in
an amount which exceeds $50 million if such excess amount will
cause the Advisor to be managing or trading funds pursuant to its
Trading Approach which exceed the Advisor's Capacity.
(b) Acceptance of Non-Trust Capital. So long as the
Advisor is performing services for the Trust, it agrees that it will not
manage or trade funds which exceed the Advisor's Capacity.
Without limiting the generality of the foregoing, it is understood
that this paragraph shall not prohibit routine adjustments to trading
patterns in order to comply with speculative position limits or daily
trading limits. The Advisor agrees to notify the Managing Owner
when the Advisor's Capacity is likely to be reached, and when it
agrees to manage or trade additional funds of at least $100 million.
(c) Equitable Treatment of Accounts. The Advisor
agrees, in its management of accounts other than the account of
the Trust, that it will not knowingly or deliberately favor any other
account managed or controlled by it or any of its principals or
affiliates (in whole or in part) over the Trust. The preceding
sentence shall not be interpreted to preclude (i) the Advisor from
charging another client fees which differ from the fees to be paid to
it hereunder or (ii) an adjustment by the Advisor in the
implementation of any agreed upon Trading Approach in
accordance with the procedures set forth in Section 1 hereof which
is undertaken by the Advisor
26
in good faith in order to accommodate
additional accounts. Notwithstanding the foregoing, the Advisor
also shall not be deemed to be favoring another commodity interest
account over the Trust's account if the Advisor, in accordance with
specific instructions of the owner of such account, shall trade such
account at a degree of leverage or in accordance with trading
policies which shall be different from that which would normally be
applied or if the Advisor, in accordance with the Advisor's money
management principles, shall not trade certain commodity interest
contracts for an account based on the amount of equity in such
account. The Advisor, upon reasonable request and receipt of
adequate assurances of confidentiality, shall provide the Managing
Owner with an explanation of the differences, if any, in performance
between the Trust and any other similar account pursuant to the
same Trading Approach for which the Advisor or any of its
principals or affiliates acts as a commodity trading advisor (in
whole or in part), provided, however, that the Advisor may, in its
discretion, withhold from any such inspection the identity of the
client for whom any such account is maintained.
(d) Inspection of Records. Upon the reasonable
request of and upon reasonable notice from the Managing Owner,
the Advisor shall permit the Managing Owner to review at the
Advisor's offices, in each case at its own expense, during normal
business hours such trading records as it reasonably may request
for the purpose of confirming that the Trust has been treated
equitably with respect to advice rendered during the term of this
Agreement by the Advisor for other accounts managed by the
Advisor, which the parties acknowledge to mean that the Managing
Owner may inspect, subject to such restrictions as the Advisor may
reasonably deem necessary or advisable so as to preserve the
confidentiality of proprietary information and the identity of its
clients, all trading records of the Advisor as it reasonably may
request during normal business hours. The Advisor may, in its
discretion, withhold from any such report or
27
inspection the identity
of the client for whom any such account is maintained and in any
event the Trust and the Managing Owner shall keep all such
information obtained by them from the Advisor confidential unless
disclosure thereof legally is required or has been made public.
Such right will terminate one year after the termination of this
Agreement and does not permit access to computer programs,
records, or other information used in determining trading decisions.
11. Speculative Position Limits.
If, at any time during the term of this Agreement, it
appears to the Advisor that it may be required to aggregate the
Trust's Commodities positions with the positions of any other
accounts it owns or controls for purposes of applying the
speculative position limits of the CFTC, any exchange, self-
regulatory body or governmental authority, the Advisor promptly
will notify the Managing Owner if the Trust's positions under its
management are included in an aggregate amount which equals or
exceeds the applicable speculative limit. The Advisor agrees that if
its trading recommendations pursuant to its agreed upon Trading
Approach are altered because of the potential application of
speculative position limits, the Advisor will modify its trading
instructions to the Trust and its other accounts in a good faith effort
to achieve an equitable treatment of all accounts; to wit, the Advisor
will liquidate Commodities positions and/or limit the taking of new
positions in all accounts it manages, including the Trust, as nearly
as possible in proportion to the assets available for trading of the
respective accounts (including "notional" equity) to the extent
necessary to comply with applicable speculative position limits.
The Advisor presently believes that its Trading Approach for the
management of the Trust's account, assuming that the allocation is
not more than $50 million, can be implemented for the benefit of the
Trust notwithstanding the possibility that, from time to time,
speculative position limits may become applicable.
28
12. Redemptions, Distributions, Reallocations and Additional
Allocations.
(a) Notice. The Managing Owner agrees to give the
Advisor at least one business day prior notice of any proposed
redemptions or exchanges, and two business days prior notice of
any proposed distributions, reallocations, additional allocations or
withdrawals controlled by the Managing Owner affecting the
Series F Allocated Assets.
(b) Allocations. Redemptions, exchanges, withdrawals
and distributions of Series F Interests shall be charged against the
Series F Allocated Assets.
13. Brokerage Confirmations and Reports.
The Managing Owner will instruct the Trust's brokers and
counterparties to furnish the Advisor with copies of all trade
confirmations, daily equity runs and monthly trading statements
relating to the Series F Allocated Assets. The Advisor will maintain
records and will monitor all open positions relating thereto;
provided, however, that the Advisor shall not be responsible for any
errors by the Trust's brokers or counterparties. The Managing
Owner also will furnish the Advisor with a copy of the form of all
reports, including but not limited to, monthly, quarterly and annual
reports, sent to the Limited Owners and copies of all reports filed
with the SEC, the CFTC and the NFA. The Advisor shall, at the
Managing Owner's request, make a good faith effort to provide the
Managing Owner with copies of all trade confirmations (if the broker
is other than Prudential Securities), daily equity runs, monthly
trading reports or other reports sent to the Advisor by the Trust's
commodity broker regarding the Trust and in the Advisor's
possession or control as the Managing Owner deems appropriate if
the Managing Owner cannot obtain such copies on its own behalf.
Upon request, the Managing Owner will provide the Advisor with
accurate information with respect to the Series F Allocated Assets.
29
14. The Advisor's Representations and Warranties.
The Advisor represents and warrants that:
(a) it has full capacity and authority to enter into this
Agreement and to provide the services required of it hereunder;
(b) it will not by entering into this Agreement and by
acting as a commodity trading advisor to the Trust (i) be required to
take any action contrary to its incorporating or other formation
documents or, to the best of its knowledge, any applicable statute,
law or regulation of any jurisdiction or (ii) breach or cause to be
breached, to the best of its knowledge, any undertaking, agreement,
contract, statute, rule or regulation to which it is a party or by which
it is bound which, in the case of (i) or (ii), would materially limit or
materially adversely affect its ability to perform its duties under this
Agreement;
(c) it is duly registered as a commodity trading advisor
under the CE Act and is a member of the NFA as a commodity
trading advisor and it will maintain and renew such registration and
membership during the term of this Agreement;
(d) a copy of its most recent Commodity Trading
Advisor Disclosure Document as required by Part 4 of the CFTC's
regulations has been provided to the Managing Owner on behalf of
the Trust in the form of Exhibit D hereto (and the Managing Owner
acknowledges receipt of such Disclosure Document on behalf of
the Trust) and, except as disclosed in such Disclosure Document,
all information in such Disclosure Document (including, but not
limited to, background, performance, trading methods and trading
systems) is true, complete and accurate in all material respects and
is in conformity in all material respects with
30
the provisions of the
CE Act, including the rules and regulations thereunder; as well as
all rules and regulations of the National Futures Association;
(e) assuming that the Series F Allocated Assets equal
not more than $50 million as of the commencement of trading, the
amount of such assets should not, in the reasonable judgment of
the Advisor, result in the Advisor being required to manage funds in
an amount which will exceed the Advisor's Capacity; and
(f) neither the Advisor nor its stockholders, directors,
officers, employees, agents, principals, affiliates nor any of its or
their respective successors or assigns: (i) shall knowingly use or
distribute for any purpose whatsoever any list containing the names
and/or residence addresses of, and/or other information about, the
Limited Owners of the Trust nor (ii) shall solicit any person it or
they know is a Limited Owner of the Trust for the purpose of
soliciting commodity business from such Limited Owner, unless
such Limited Owner shall have first contacted the Advisor or is
already a client of the Advisor or a prospective client with which the
Advisor has commenced discussions or is introduced to or referred
to the Advisor by an unaffiliated agent other than in violation of
clause (i).
(g) the Advisor has taken all reasonable steps
necessary to assure that its business operations and any services
under the Advisor's control provided pursuant to this Agreement
will not be materially interrupted by the advent of the Year 2000
date.
The within representations and warranties shall be
continuing during the term of this Agreement, and if at any time any
event has occurred which would make or tend to make any of the
foregoing not true in any material respect with respect to the
Advisor, the Advisor promptly will notify the Trust in writing
thereof.
31
15. The Managing Owner's Representations and Warranties.
The Managing Owner represents and warrants on behalf
of the Trust and itself that:
(a) each has the full capacity and authority to enter into
this Agreement and to perform its obligations hereunder;
(b) it will not, by acting as managing owner to the Trust
or by entering into this Agreement, and the Trust will not (i) be
required to take any action contrary to its incorporating or other
formation documents or any applicable statute, law or regulation of
any jurisdiction or (ii) breach or cause to be breached (A) any
undertaking, agreement, contract, statute, rule or regulation to
which it or the Trust is a party or by which it or the Trust is bound
or (B) any order of any court or governmental or regulatory agency
having jurisdiction over it or the Trust, which in the case of (i) or (ii)
would materially limit or materially adversely affect the performance
of its or the Trust's duties under this Agreement;
(c) it is registered as a commodity pool operator under
the CE Act and is a commodity pool operator member of the NFA,
and it will maintain and renew such registration and membership
during the term of this Agreement;
(d) this Agreement has been duly and validly
authorized, executed and delivered and is a valid and binding
agreement, enforceable against each of them, in accordance with its
terms;
(e) on the date hereof, it is, and during the term of this
Agreement, it will be (i) in the case of the Trust, a duly formed and
validly existing Delaware Business Trust and (ii)
32
in the case of the Managing Owner, a duly formed
and validly existing corporation, in each case, in
good standing under the laws of the State of Delaware
and in good standing and qualified to do business in each
jurisdiction in which the nature and conduct of its business
requires such qualification and where the failure to be so qualified
would materially adversely affect its ability to perform its
obligations under this Agreement; and
(f) its business operations and any services provided
pursuant to this Agreement will not be materially interrupted by the
advent of the Year 2000 date.
The within representations and warranties shall be
continuing during the term of this Agreement, and if at any time any
event has occurred which would make or tend to make any of the
foregoing not true in any material respect, the Managing Owner
promptly will notify the Advisor in writing.
16. Assignment.
This Agreement may not be assigned by any of the
parties hereto without the express prior written consent of the other
parties hereto, except that the Advisor need not obtain the consent
of any Other Advisor.
17. Successors.
This Agreement shall be binding upon and inure to the
benefit of the parties hereto and the successors and permitted
assignees of each of them, and no other person (except as
otherwise provided herein) shall have any right or obligation under
this Agreement. The terms "successors" and "assignees" shall not
include any purchasers, as such, of Interests.
33
18. Amendment or Modification or Waiver.
(a) Changes to Agreement. This Agreement may not be
amended or modified, nor may any of its provisions be waived,
except upon the prior written consent of the parties hereto, except
that an amendment to, a modification of or a waiver of any
provision of the Agreement as to the Advisor need not be
consented to by any Other Advisor.
(b) 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.
19. Notices.
Except as otherwise provided herein, all notices required
to be delivered under this Agreement shall be effective only if in
writing and shall be deemed given by the party required to provide
notice when received by the party to whom notice is required to be
given and shall be delivered personally or by registered mail,
postage prepaid, return receipt requested or by facsimile, as follows
(or to such other address as the party entitled to notice shall
hereafter designate by written notice to the other parties):
34
If to the Managing Owner or the Trust:
Prudential Securities Futures
Management Inc
Xxx Xxx Xxxx Xxxxx, 00xx Xxxxx
Xxx Xxxx, Xxx Xxxx 00000-0000
Attention: Xxxxxx X. Xxxxxxxxx and
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 One Xxxxxxx Xxxxx, 00xx Xxxxx
Xxx Xxxx, Xxx Xxxx 00000 000 Xxxxx Xxxxxx
Attention: Xxxx X. Xxxxx, Esq. Xxx Xxxx, Xxx Xxxx 00000
Facsimile: (000) 000-0000 Attention: Xxxxx Xxxxxxxxx
Facsimile: (000) 000-0000
If to the Advisor: with a copy to:
Beacon Management Xxxxx, Xxxxx & Xxxxx
Corporation (USA) 000 Xx. XxXxxxx Xxxxxx
00 Xxxxxxx Xxxxxx Xxxxxxx, Xxxxxxxx 00000-0000
Xxxxxxxxx, Xxx Xxxxxx 00000 Attention: Xxxxxx X. Xxxxxxx, Esq.
Attention: Xxx Xxxx Facsimile: (000) 000-0000
Facsimile: (000)000-0000
20. Governing Law.
Each party agrees that this Agreement shall be governed
by and construed in accordance with the laws of the State of New
York without regard to conflict of laws principles.
21. Survival.
The provisions of this Agreement shall survive the
termination of this Agreement with respect to any matter arising
while this Agreement was in effect.
35
22. Promotional Literature.
Each party agrees that prior to using any promotional
literature in which reference to the other parties hereto is made, it
shall furnish in advance a copy of such information to the other
parties and will not make use of any promotional literature
containing references to such other parties to which such other
parties object, except as otherwise required by law or regulation.
23. No Liability of Limited Owners.
This Agreement has been made and executed by and on
behalf of the Trust, and the obligations of the Trust and/or the
Managing Owner set forth herein are not binding upon any of the
Limited Owners individually, but rather, are binding only upon the
assets and property of the Trust and, to the extent provided herein,
upon the assets and property of the Managing Owner.
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 and
the Representation Agreement constitute the entire agreement
between the parties with respect to the matters referred to herein,
and no other agreement, verbal or otherwise, shall be binding upon
the parties hereto.
36
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 together, shall constitute one original
instrument.
27. Arbitration, Remedies.
Each party hereto agrees that any dispute relating to the
subject matter of this Agreement shall be settled and determined by
arbitration in the City of New York pursuant to the rules of the NFA
or, if the NFA should refuse to accept the matter, the American
Arbitration Association.
IN WITNESS WHEREOF, this Agreement has been executed for
and on behalf of the undersigned as of the day and year first above
written.
WORLD MONITOR TRUST II-Series F
By: PRUDENTIAL SECURITIES FUTURES
MANAGEMENT INC.,
Its: Managing Owner
By: ________________________________
Xxxxxxx X. Xxxxxx
Executive Vice-President
BEACON MANAGEMENT
CORPORATION (USA)
By: ________________________________
37
EXHIBIT A
SERIES F TRADING APPROACH
MEKA
The Advisor will make its trading decisions for Series F
according to Meka, its systemized trading strategy, as described in
Exhibit D as amended from time to time.
A-1
EXHIBIT B
TRADING LIMITATIONS AND POLICIES
The following limitations and policies are applicable to assets
representing the Series F Allocated Assets of the Trust as a whole
and at the outset to the Advisor individually; since the Advisor
initially will manage 100% of the Trust's Series F Allocated Assets,
such application of the limitations and policies is identical initially
for the Series F Allocated Assets of the Trust and the Advisor. The
Advisor sometimes may be prohibited from taking positions for the
Series F Allocated Assets which it would otherwise acquire due to
the need to comply with these limitations and policies. The
Managing Owner will monitor compliance with the trading
limitations and policies set forth below, and it may impose
additional restrictions (through modification of such limitations and
policies) upon the trading activities of the Advisor as it, in good
faith, deems appropriate in the best interests of Series F of the
Trust, subject to the terms of the Advisory Agreement.
The Managing Owner will not approve a material change in the
following trading limitations and policies without obtaining the
prior written approval of Limited Owners owning more than 50% of
the Series F Interests. The Managing Owner may, however, impose
additional trading limitations on the trading activities of the Series F
Interests of the Trust without obtaining such approval if the
Managing Owner determines such additional limitations to be
necessary in the best interests of Series F of the Trust.
Trading Limitations
Series F of the Trust will not: (i) engage in pyramiding its
commodities positions (i.e., the use of unrealized profits on existing
positions to provide margin for the acquisition of additional
positions in the same or a related commodity provided, however,
unrealized profits may be considered in determining the current
Allocated Assets) but may take into account open trading equity on
existing positions in determining generally whether to acquire
additional commodities positions; (ii) borrow or loan money (except
with respect to the initiation or maintenance of commodities
positions or obtaining lines of credit for the trading of forward
currency contracts; provided, however, that Series F of the Trust is
prohibited from incurring any indebtedness on a non-recourse
basis); (iii) permit rebates to be received by the Managing Owner or
its affiliates or permit the Managing Owner or any affiliate to engage
in any reciprocal business arrangements which would circumvent
the foregoing prohibition; (iv) permit the Advisor to share in any
portion of the commodity brokerage fees paid by the Series F
Interests of the Trust; (v) commingle its assets, except as permitted
by law; or (vi) permit the churning of its commodity accounts.
Series F of the Trust will conform in all respects to the rules,
regulations and guidelines of the markets on which its trades are
executed.
Trading Policies
Subject to the foregoing limitations, the Advisor has agreed to
abide by the trading policies of Series F of the Trust, which
currently are as follows:
B-1
(1) Series F Allocated Assets will generally be invested in
contracts which are traded in sufficient volume which, at the time
such trades are initiated, are reasonably expected to permit entering
and liquidating positions.
(2) Stop or limit orders may, in the Advisor's discretion, be
given with respect to initiating or liquidating positions in order to
attempt to limit losses or secure profits. If stop or limit orders are
used, no assurance can be given, however, that Prudential
Securities will be able to liquidate a position at a specified stop or
limit order price, due to either the volatility of the market or the
inability to trade because of market limitations.
(3) Series F of the Trust generally will not initiate an open
position in a futures contract (other than a cash settlement
contract) during any delivery month in that contract, except when
required by exchange rules, law or exigent market circumstances.
This policy does not apply to forward and cash market transactions.
(4) Series F of the Trust may occasionally make or accept
delivery of a commodity including, without limitation, currencies.
Series F of the Trust also may engage in EFP transactions involving
currencies and metals and other commodities.
(5) Series F of the Trust may, from time to time, employ
trading techniques such as spreads, straddles and conversions.
(6) Series F of the Trust will not initiate open futures or
option positions which would result in net long or short positions
requiring as margin or premium for outstanding positions in excess
of 15% of the Trust's Series F Allocated Assets for any one
commodity or in excess of 66 2/3% of the Trust's Series F Allocated
Assets for all commodities combined. Under certain market
conditions, such as an inability to liquidate open commodities
positions because of daily price fluctuations, the Managing Owner
may be required to commit Allocated Assets as margin in excess of
the foregoing limits, and in such case the Managing Owner will
cause the Advisor to reduce its open futures and option positions
to comply to these limits before initiating new commodities
positions.
(7) To the extent Series F of the Trust engages in
transactions in forward currency contracts other than with or
through Prudential Securities and/or PBFI, Series F of the Trust will
only engage in such transactions with or through a bank which as
of the end of its last fiscal year had an aggregate balance in its
capital, surplus and related accounts of at least $100 million, 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 million.
B-2
EXHIBIT C
[REPRESENTATION AGREEMENT]
C-1
EXHIBIT D
[ATTACH LATEST DISCLOSURE DOCUMENT]
D-1
