ADVISORY AGREEMENT
ADVISORY AGREEMENT (the "Agreement") dated as of
the day of September, 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 Xxxxxxxx & Company, Inc., a
Maryland 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 Value (as defined
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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
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Trading Approach. In the event that the Managing
Owner shall, in its sole discretion, determine in
good faith following consultation appropriate under
the circumstances with the Advisor that any trading
instruction issued by the Advisor violates the
Trust's Trading Policies and Limitations, then the
Managing Owner, following reasonable notice to the
Advisor appropriate under the circumstances, may
override such trading instruction and shall be
responsible therefor. Nothing herein shall be
construed to prevent the Managing Owner from
imposing any limitation(s) on the trading
activities of the Trust beyond those enumerated in
the Prospectus if the Managing Owner determines
that such limitation(s) are necessary or in the
best interests of the Trust, in which case the
Advisor will adhere to such limitations following
written notification thereof.
(c) 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 (it
being understood that the Trading Approach is not
considered to generate interest income).
(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 outside
the parameters described in Exhibit D or in the
Prospectus), either in whole or in part, the
Advisor may not do so and/or shall not be required
to do so, as appropriate, unless both the Managing
Owner and the Advisor consent thereto in writing.
(e) Notification of Material Changes. The Advisor
also agrees to give the Trust prior written notice
of any proposed material change in its Trading
Approach and agrees not to make any material change
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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, Trading Approach and
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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 reasonable 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
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guarantee of profit nor offers any protection
against loss, and that all purchases and sales of
Commodities shall be for the account and risk of
the Trust, and the Advisor shall incur no liability
for trading profits or losses resulting therefrom
provided the Advisor would not otherwise be liable
to the Trust under the terms hereof.
(i) Initial Allocation. 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 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
following filing in final form with the CFTC.
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2. Indemnification.
(a) The Advisor. Subject to the provisions of
Section 3, the Advisor and each officer, director,
shareholder and employee of the Advisor, and each
person who controls the Advisor, shall be
indemnified, defended and held harmless by the
Trust and the Managing Owner, 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, 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
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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
"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.
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(d) Expenses. Expenses incurred in defending a
threatened or pending civil, administrative or
criminal action, suit or proceeding against an
Indemnitee shall be paid by the Trust in advance of
the final disposition of such action, suit or
proceeding if (i) the legal action, suit or
proceeding, if sustained, would entitle the
Indemnitee to indemnification pursuant to the terms
of this Section 2, (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").
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(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 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
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assets and Series F and the Series F Assets, shall
be subject to the following limitations:
(1) Subordination of certain claims and rights.
(i) except as set forth below, the Claims, if any,
of the Advisor (the "Subordinated Claims") shall be
expressly subordinate and junior in right of
payment to any and all other Claims against the
Trust and any Series thereof and any of their
respective assets which may arise as a matter of
law or pursuant to any contract; provided, however,
that the Advisor's Claims (if any) against Series 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
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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;
(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)
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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, 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
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Trust, and it is not intended by the parties that
the Advisor shall have any liability as such.
(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
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in any way or otherwise be deemed to be a general
agent, joint venturer or partner of the Trust, the
Managing Owner, any other commodity trading advisor
or Prudential Securities or in any way be
responsible for the acts or omissions of the Trust,
the Managing Owner, any other commodity trading
advisor or Prudential Securities as long as it is
acting independently of such persons.
(b) Unauthorized Activities. Without limiting the
obligations of the Trust set forth under this
Agreement, nothing herein contained shall be deemed
to require the Trust to take any action contrary to
its Trust Agreement or Certificate of Trust or any
applicable statute, regulation or rule of any
exchange or self-regulatory organization.
(c) Purchase of Interests. Any of the Advisor, its
principals and employees may, in its discretion,
purchase Interests in the Trust.
(d) Confidentiality. The Trust and the Managing
Owner acknowledge that the Trading Approach,
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.
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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 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
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incentive fee (the "Incentive Fee") based on the
Series F Allocated Assets, as follows:
(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 22% (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, the
operating expenses for which Series F Allocated
Assets are responsible, and any extraordinary
expenses (e.g., litigation, costs or damages) paid
during an Incentive Measurement Period which are
specifically related to the Advisor, 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. 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 Trading Profits for
19
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
20
compute the foregoing fees generally within ten
business days of the end of the relevant period.
(e) Third Party Payments. Neither the Advisor nor
any of its officers, directors, employees or
stockholders shall receive any commissions,
compensation, remuneration or payments whatsoever
from any broker with which the Trust carries an
account for transactions executed in the Trust's
account. The parties acknowledge that a spouse of
any of the foregoing persons may receive floor
brokerage commissions in respect of trades effected
pursuant to the Advisor's Trading Approach on
behalf of the Trust, which payment shall not
violate the preceding sentence.
8. Term and Termination.
(a) Term. This Agreement shall commence on the
date hereof and, unless sooner terminated 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.
21
(b) Automatic Termination. This Agreement shall
terminate automatically in the event that the Trust
is terminated. In addition, this Agreement shall
terminate automatically in the event that the
Series 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
22
consolidates with another entity or sells a
substantial portion of its assets, any portion of
its Trading Approach utilized by the Trust or its
business goodwill, in each instance without the
consent of the Managing Owner; (vi) Xxxxx X.
Xxxxxxx and Xxxxxxx X. Xxxx are 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 qualified independent counsel
satisfactory to the Advisor and the Trust (which
consent the Trust will not withhold unreasonably)
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 deleveraging initiated by the Trust or the
Managing Owner but not trading losses, as of the
23
close of business on any Friday; (v) the Managing
Owner elects (pursuant to Section 1 of this
Agreement) to have the Advisor use a different
Trading Approach in the Advisor's management of
Trust assets from that which the Advisor is then
using to manage such assets and the Advisor objects
to using such different Trading Approach; (vi)
there is an unauthorized assignment of this
Agreement by the Trust or the Managing Owner; (vii)
there is a material breach of this Agreement by the
Trust and/or the Managing Owner 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
24
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.
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.
25
10. Other Accounts of the Advisor.
(a) Management of Other Accounts and Trading of
Proprietary Capital. Subject to paragraph (b) 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 affiliates, 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 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 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 estimated Trading
Approach 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 (i)
notify the Managing Owner promptly if the Advisor's
capacity is likely to be reached, and (ii) to
provide the Trust with reports each month
concerning assets under management.
(b) Equitable Treatment of Accounts. The Advisor
agrees, in its management of accounts other than
the account of the Trust, that it will not
knowingly or deliberately favor any other account
managed or controlled by it or any of its
principals or affiliates (in whole or in part) over
the Trust. The preceding sentence shall not be
interpreted to preclude (i) the Advisor from
charging another client fees which differ from the
fees to be paid to it hereunder or (ii) an
adjustment by the Advisor in the implementation of
any agreed upon Trading Approach in accordance with
the procedures set forth in Section 1 hereof which
is undertaken by the Advisor in good faith in order
to accommodate additional accounts. 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.
26
(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 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.
27
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 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
29
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.
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,
30
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; 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 would be expected
to have a material adverse effect on Series F; 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, as
described in its Disclosure Document, 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.
31
The within representations and warranties shall be
continuing during the term of this Agreement, and
if at any time any event has occurred which would
make or tend to make any of the foregoing not true
in any material respect with respect to the
Advisor, the Advisor promptly will notify the Trust
in writing thereof.
15. The Managing Owner's Representations and
Warranties.
The Managing Owner represents and warrants on
behalf of the Trust and itself that:
(a) each has the full capacity and authority to
enter into this Agreement and to perform its
obligations hereunder;
(b) it will not, by acting as managing owner to the
Trust or by entering into this Agreement, and the
Trust will not (i) be required to take any action
contrary to its incorporating or other formation
documents or any applicable statute, law or
regulation of any jurisdiction or (ii) breach or
cause to be breached (A) any undertaking,
agreement, contract, statute, rule or regulation to
which it or the Trust is a party or by which it or
the Trust is bound or (B) any order of any court or
governmental or regulatory agency having
jurisdiction over it or the Trust, which in the
case of (i) or (ii) would materially limit or
materially adversely affect the performance of its
or the Trust's duties under this Agreement;
(c) it is registered as a commodity pool operator
under the CE Act and is a commodity pool operator
member of the NFA, and it will maintain and renew
such registration and membership during the term of
this Agreement;
32
(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) 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.
33
17. Successors.
This Agreement shall be binding upon and inure to
the benefit of the parties hereto and the
successors and permitted assignees of each of them,
and no other person (except as otherwise provided
herein) shall have any right or obligation under
this Agreement. The terms "successors" and
"assignees" shall not include any purchasers, as
such, of Interests.
18. Amendment or Modification or Waiver.
(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.
34
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):
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:
Xxxxxxxx & Company, Inc. Sidley & Austin
000 Xxxx Xxxxxxxxxxxx Xxxxxx 000 Xxxxx Xxxxxx
Xxxxx 000 Xxx Xxxx, Xxx Xxxx 00000
Xxxxxx, Xxxxxxxx 00000 Attention: Xxxxxxx X. Xxxxxxxxxxxxx, Esq.
Attention: Xxxxxxx X. Xxxxxxx Facsimile: (000) 000-0000
Facsimile: (000) 000-0000
35
20. Governing Law.
Each party agrees that this Agreement shall be
governed by and construed in accordance with the
laws of the State of New York without regard to
conflict of laws principles.
21. Survival.
The provisions of this Agreement shall survive the
termination of this Agreement with respect to any
matter arising while this Agreement was in effect.
22. 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.
36
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.
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
XXXXXXXX & COMPANY, INC.
By: ________________________________
Xxxxxxx X. Xxxxxxx
Chief Financial Officer
38
EXHIBIT A
SERIES F TRADING APPROACH
The Financial, Metal & Energy Small Portfolio System
The Advisor will make its trading decisions for
Series F according to The Financial, Metal & Energy
Small Portfolio System, its systemized trading
strategy, as described in Exhibit D as amended from
time to time. If and when capital allocated from
the Trust exceeds $10 million, the Trading Approach
may switch from the Financial, Metal & Energy Small
Portfolio to the Financial, Metal & Energy Large
Portfolio, with the Managing Owner's consent.
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 662/3% 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
