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 Bridgewater Associates, Inc., a Connecticut
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 D
Interests allocated to the Advisor (the "Series D 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 D 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 D 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 D 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 D Allocated Assets that are not invested in Commodities.
The Advisor will use its good faith and reasonable efforts in
determining the investment and reinvestment in Commodities of
the Series D Allocated Assets in compliance with the Trading
Policies and Limitations, and in accordance with the Advisor's
3
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 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) Income From Trading Approach. The Advisor agrees that at
least 90% of the income, if any, generated by its Trading
Approach for Series D 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 (i) updated monthly information related to the Advisor's
estimated performance results for the Trading Approach and the
Pure Alpha Strategy, within a reasonable period of time after the
end of the month to which it relates and (ii) updated information
as of the end of each quarter that relates to the Advisor's
performance results for all of the Advisor's other trading
strategies within a reasonable period of time after the end of the
quarter 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 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 D 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
6
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 D Allocated Assets will
total an amount equal to the assets of the Trust allocable to the
Series D 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 D
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 D 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 D 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.
7
2. Indemnification.
(a) The Advisor. Subject to the provisions of Section 3, the
Advisor, each person who controls the Advisor, and each of their
respective officers, directors, shareholders and employees of 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 any of them (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 D
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 D
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 D 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
8
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 reasonable 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 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.
9
(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").
10
(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 D 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 D 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 D") and assets
(the "Series D Assets") of Series D and to the Managing Owner
and its assets for payment. The Series D 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 D,
including, without limitation, funds delivered to the Trust for the
purchase of interests in Series D. 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
11
with the Trust and its assets and Series D and the Series D
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 D shall
not be considered Subordinated Claims with respect to
enforcement against and distribution and repayment from
Series D, the Series D Assets and the Managing Owner and its
assets; and provided, further that the Advisor's valid Claims, if
any, against Series D shall be pari passu and equal in right of
repayment and distribution with all other valid Claims against
Series D 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 D, the Series D Assets and the Managing
Owner and its assets) any payment for the Subordinated Claims;
(2) the Claims of the Advisor with respect to Series D shall only
be asserted and enforceable against Series D, the Series D
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 D 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
12
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 D), 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 D, the Series D 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 reasonable 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
13
(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, 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 D'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 D 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
14
promoter of the 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 D 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
15
trading advisor or Prudential Securities in any way or
otherwise be deemed to be a general agent, joint venturer or
partner of the Trust, the Managing Owner, any other commodity
trading advisor or Prudential Securities or in any way be
responsible for the acts or omissions of the Trust, the Managing
Owner, any other commodity trading advisor or Prudential
Securities and assumes no responsibility for the marketing or
administration thereof.
(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.
16
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, Advisor shall have no
authority or responsibility in selecting or supervising floor
brokers or counterparties 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 D a management fee (the
17
"Management Fee") and an incentive fee (the "Incentive Fee")
based on the Series D Allocated Assets, as follows:
(a) A Management Fee equal to 0.0240384% of Series D's
Allocated Assets determined as of the close of business each
Friday (an annual rate of 1.25%). 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 D's Allocated Assets made as of the
last Friday of a week shall be added back to the Series D
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 D
(as defined in the Trust Agreement). The Management Fee
determined for any week in which an Advisor manages the
Series D 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 D 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. 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 D 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 D 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 D 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 D 's fixed brokerage
fee and other transactions costs, the Advisor's Management Fee,
the operating expenses for which the Series D 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 D'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
19
for an Incentive Measurement Period shall exclude capital
contributions to Series D in an Incentive Measurement Period,
paid or payable by Series D during an Incentive Measurement
Period, as well as losses, if any, associated with redemptions,
distribution, 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 Adviser shall
be reduced in the same proportion that the assets allocated away
from the Advisor through redemptions, allocations, or
deleveraging caused by the Trust or the Managing Owner bears
to the Series D Allocated Assets prior to the reallocation 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 D 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 including a statement of the actual
20
execution costs attributable to the Series D Allocated Assets generally
within fifteen 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 D's trading activities (the
end of the "Initial Term"). 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
and end on the last day of the month ending twelve months later
(the end of a "Renewal 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 D
Allocated Assets away from the Advisor pursuant to this
Agreement of (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 D Allocated Assets decline as of the end of
any business day by at least 40% from the Series D 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 D Allocated Assets caused by
distributions, redemptions, reallocations and withdrawals, and
(B) additions to the Series D 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 reasonable 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) Xxxxxxx X. Xxxxx is not in
control of the Advisor's trading activities for the Trust; (vii) the
Advisor becomes bankrupt (admitted or decreed) or insolvent;
and (viii) and (iv) 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 D 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 D
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 D 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 D Allocated Assets (A) 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 close
23
of business on any Friday or (B) allocated to the Advisor's
management during the first 12-month trading period is less than
$6.67 million without regard to redemptions, or trading gains or
losses; (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 D
Assets; or (ix) other good cause is shown and the written
consent of the Managing Owner is obtained (which shall not be
withheld or unreasonably). The Advisor also shall have the right
to terminate this Agreement upon prior written notice to the
Trust, as follows:
Required Notice Notice Date
At least 90 days Prior to the termination of the Initial Term.
At least 60 days Prior to the termination of any Renewal Term.
At least 30 days Prior to the implementation of any increase
(without the Advisor's consent) in the
aggregate of the fixed brokerage fee
(currently 6%) to be paid by Series D and the
routine operating expenses (currently capped
at 1.5%) for which Series D is responsible
to more than 7.5% of the Net Asset Value
of Series D.
(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
24
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 D 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 exceed the amount of the Series D
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. 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.
(b) Acceptance of Non-Trust Capital. So long as the as the
Advisor is performing services for the Trust, it agrees that it will
notify the Trust and the Managing Owner at least 30 days prior to
accepting an account which the Advisor believes may have a
material adverse effect on the Trust.
(c) Equitable Treatment of Accounts. The Advisor agrees, in
its management of accounts other than the account of the Trust,
that it will not knowingly or deliberately favor any other account
managed or controlled by it or any of its principals or affiliates (in
whole or in part) over the Trust. The preceding sentence shall
not be interpreted to preclude (i) the Advisor from charging
another client fees which differ from the fees to be paid to it
hereunder or (ii) an adjustment by the Advisor in the
implementation of any agreed upon Trading Approach in
accordance with the procedures set forth in Section 1 hereof
which is undertaken by the Advisor in good faith in order to
accommodate additional accounts. 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
26
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 managed
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 pursuant to its Pure Alpha Strategy or any trading
strategy which is a derivation thereof, 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 for those accounts traded pursuant to the
Pure Alpha Strategy or any trading strategy which is a derivation
thereof 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
27
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 speculative 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
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, exchanges, and two business days prior notice of
any proposed distributions, reallocations, additional allocations
or withdrawals controlled by the Managing Owner affecting the
Series D Allocated Assets.
(b) Allocations. Redemptions, exchanges, withdrawals and
distributions of Series D Interests shall be charged against the
Series D 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 D 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 clearing 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
29
Owner will provide the Advisor with accurate information
with respect to the Series D 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,
30
but not limited to, background, performance, trading
methods and trading systems) is true, complete and accurate in
all material respects and is in conformity in all material respects
with the provisions of the CE Act, including the rules and
regulations thereunder; as well as all rules and regulations of the
National Futures Association;
(e) assuming that the Series D 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 alter its Trading
Approach to a degree which would be expected to have a
material adverse effect on Series D; 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
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 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:
Bridgewater Associates, Inc. Bridgewater Associates, Inc.
0 Xxxxxxxxxxx Xxxxx 0 Xxxxxxxxxxx Xxxxx
Xxxxxxxx, Xxxxxxxxxxx 00000 Xxxxxxxx, Xxxxxxxxxxx 00000
Attention: Xxxxxxx X. Xxxxxx Attention: Xxxxx La Tronica
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.
28. No Third Party Beneficiaries.
This Agreement has been undertaken to provide services to
Series D and it is not intended to benefit any third party.
37
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 D
By: PRUDENTIAL SECURITIES FUTURES
MANAGEMENT INC.,
Its: Managing Owner
By: ________________________________
Xxxxxxx X. Xxxxxx
Executive Vice-President
BRIDGEWATER ASSOCIATES, INC.
By: ________________________________
Xxxxxxx Xxxxxx
Chief Operating Officer
38
EXHIBIT A
SERIES D TRADING APPROACH
AGGRESSIVE PURE ALPHA FUTURES ONLY STRATEGY
The Advisor's will make its trading decisions for Series D
according to its Aggressive Pure Alpha Futures Only Trading
System as described in Exhibits A and D as amended from time
to time. For purposes of this Agreement, the Aggressive Pure
Alpha Futures Only Strategy will (i) exclude cash bonds from the
portfolio mix and the capital normally allocated to cash bonds
will be reallocated to the other markets the Advisor trades, (ii)
trade only futures contracts on currencies, instead of futures and
forward contracts on currencies, unless a forward contract is
executed through Prudential Securities or its affiliates and (iii)
trade the Trust's assets at 1.5 times the normal Pure Alpha
Strategy level. In the future, upon reasonable prior notice, the
Managing Owner may authorize the Advisor to executed forward
currency transactions through counterparties, other than
Prudential Securities or its affiliates.
The reallocation of assets from cash bonds to other markets
traded by the Advisor allows the Advisor to manage the allocated
assets within the same target return as The Pure Alpha Strategy
with cash bonds. The Advisor makes no representation about
the overall performance which will result from the modifications
set forth above to its Pure Alpha Strategy.
The Trust is, however, required to prepare a pro forma
performance table concerning the Aggressive Pure Alpha
Futures Only Trading system for presentation in the Trust's
Prospectus. Solely for purposes of permitting the Trust to
prepare such presentation, the Advisor represents and warrants
that
(i) it introduced cash bonds to The Pure Alpha Strategy on
August 1, 1997; and
(ii) the use of cash bonds between August 1, 1997 and July 31,
1998 has had contributed a (0.20%) loss on the performance of
the Pure Alpha Strategy during that time period. If cash bonds
had not been used and the weighting used for other products
increased, the effect on the performance of the Pure Alpha
Strategy would have been a 0.61% gain for the same time period.
The Advisor believes it should enter block orders as part of its
trading strategy. If as the result of the Managing Owner's failure
to agree to the use of one or more floor brokers selected by the
Advisor, the Advisor is unable to enter orders for Series D as a
block order, the Advisor believes that this may affect the
performance of the Advisor for Series D.
A-1
EXHIBIT B
TRADING LIMITATIONS AND POLICIES
The following limitations and policies are applicable to assets
representing the Series D 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 D
Allocated Assets, such application of the limitations and policies
is identical initially for the Series D Allocated Assets of the Trust
and the Advisor. The Advisor sometimes may be prohibited from
taking positions for the Series D Allocated Assets which it would
otherwise acquire due to the need to comply with these
limitations and policies. The Managing Owner will monitor
compliance with the trading limitations and policies set forth
below, and it may impose additional restrictions (through
modification of such limitations and policies) upon the trading
activities of the Advisor as it, in good faith, deems appropriate in
the best interests of the Series D Interests of the Trust, subject to
the terms of the Advisory Agreement.
The Managing Owner will not approve a material change in the
following trading limitations and policies without obtaining the
prior written approval of Limited Owners owning more than 50%
of the Series D Interests. The Managing Owner may, however,
impose additional trading limitations on the trading activities of
the Series D Interests of the Trust without obtaining such
approval if the Managing Owner determines such additional
limitations to be necessary in the best interests of the Series D
Interests of the Trust.
Trading Limitations
The Series D Interests of the Trust will not: (i) engage in
pyramiding its commodities positions (i.e., the use of unrealized
profits on existing positions to provide margin for the acquisition
of additional positions in the same or a related commodity
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 the Series D Interests of the Trust is prohibited
from incurring any indebtedness on a non-recourse basis);
(iii) permit rebates to be received by the Managing Owner or its
affiliates or permit the Managing Owner or any affiliate to engage
in any reciprocal business arrangements which would
circumvent the foregoing prohibition; (iv) permit the Advisor to
share in any portion of the commodity brokerage fees paid by the
Series D Interests of the Trust; (v) commingle its assets, except
as permitted by law; or (vi) permit the churning of its commodity
accounts.
The Series D Interests of the Trust will conform in all respects to
the rules, regulations and guidelines of the markets on which its
trades are executed.
Trading Policies
Subject to the foregoing limitations, the Advisor has agreed to
abide by the trading policies of the Series D Interests of the Trust,
which currently are as follows:
B-1
(1) Series D Allocated Assets will generally be invested in
contracts which are traded in sufficient volume which, at the time
such trades are initiated, are reasonably expected to permit
entering and liquidating positions.
(2) Stop or limit orders may, in the Advisor's discretion, be
given with respect to initiating or liquidating positions in order to
attempt to limit losses or secure profits. If stop or limit orders
are used, no assurance can be given, however, that Prudential
Securities will be able to liquidate a position at a specified stop or
limit order price, due to either the volatility of the market or the
inability to trade because of market limitations.
(3) The Series D Interests of the Trust generally will not initiate
an open position in a futures contract (other than a cash
settlement contract) during any delivery month in that contract,
except when required by exchange rules, law or exigent market
circumstances. This policy does not apply to forward and cash
market transactions.
(4) The Series D Interests of the Trust may occasionally make
or accept delivery of a commodity including, without limitation,
currencies. The Series D Interests of the Trust also may engage
in EFP transactions involving currencies and metals and other
commodities.
(5) The Series D Interests of the Trust may, from time to time,
employ trading techniques such as spreads, straddles and
conversions.
(6) The Series D Interests of the Trust will not initiate open
futures or option positions which would result in net long or
short positions requiring as margin or premium for outstanding
positions in excess of 15% of the Trust's Series D Allocated
Assets for any one commodity or in excess of 66(% of the Trust's
Series D Allocated Assets for all commodities combined. Under
certain market conditions, such as an inability to liquidate open
commodities positions because of daily price fluctuations, the
Managing Owner may be required to commit Allocated Assets as
margin in excess of the foregoing limits, and in such case the
Managing Owner will cause the Advisor to reduce its open
futures and option positions to comply to these limits before
initiating new commodities positions.
(7) To the extent the Series D Interests of the Trust engage in
transactions in forward currency contracts other than with or
through Prudential Securities and/or PBFI, the Series D Interests
of the Trust will only engage in such transactions with or through
a bank which as of the end of its last fiscal year had an aggregate
balance in its capital, surplus and related accounts of at least
$100 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
