EXHIBIT 10.3
WORLD MONITOR TRUST
ADVISORY AGREEMENT
ADVISORY AGREEMENT (the "Agreement") dated as of the
___ day of _____________, 1998, by and among World Monitor
Trust - Series B, a Delaware business trust (the "Trust"),
Prudential Securities Futures Management Inc., a Delaware
corporation (the "Managing Owner") and Eclipse Capital
Management, Inc., a Kentucky corporation (the "Advisor").
W I T N E S S E T H :
WHEREAS, the Trust and Series B has been organized
primarily for the purpose of trading, buying, selling,
spreading or otherwise acquiring, holding or disposing of
futures, forward and options contracts. 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 United States
Securities and Exchange Commission (the "SEC"), pursuant to
the United States 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 United States 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
-2-
and reinvest in Commodities during the term of this Agreement the
portion of the Trust's Net Asset Value (as defined in the
Prospectus) which is comprised of the assets attributable to
the Trust's Series B Interests allocated to the Advisor (the
"Series B 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 B Allocated Assets for the term of
this Agreement pursuant to the trading programs, methods,
systems, 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 B 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 B 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 B Allocated Assets that are
-3-
not invested in Commodities. The Advisor will use its good
faith best efforts in determining the investment and reinvestment
in Commodities of the Series B Allocated Assets in compliance
with the Trading Policies and Limitations, and in accordance
with the Advisor's 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) Trading Approach. The Advisor agrees that at
least 90% of the gains and income, if any, generated by its
Trading Approach for Series B will be from buying and selling
Commodities, as described on Exhibit A 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), either in whole or
-4-
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 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, 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 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, and
variations in the leverage principles and policies utilized by
the Advisor, shall not be deemed a material change in the
Advisor's Trading Approach, and prior approval of the Managing
Owner shall not be required therefor. The utilization of
forward markets in addition to those enumerated on page A-2 of
Exhibit A 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
-5-
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
financial condition which the Trust reasonably deems to be
material to the Trust; the Advisor also shall notify the Trust
of any such matters the Advisor, in its reasonable judgment,
believes may be material to the Trust relating to the Advisor
and its Trading Approach. During the term of this Agreement,
the Advisor agrees to provide the Trust with updated monthly
information related to the Advisor's performance results
within a reasonable period of time after the end of the month
to which it relates.
(g) Notice of Errors. The Advisor is responsible
for promptly reviewing all oral and written confirmations it
receives to determine that the Commodities trades were made in
accordance with the Advisor's instructions. If the Advisor
determines that an error was made in connection with a trade
or that a trade was made other than in accordance with the
Advisor's instructions, the Advisor shall promptly notify the
Managing Owner of this fact, and shall utilize its best
efforts to cause the error or discrepancy to be corrected.
(h) Liability. Neither the Advisor nor any
employee, director, officer or shareholder of the Advisor, nor
any person who controls the Advisor, shall be liable to the
-6-
Managing Owner, its officers, directors, shareholders or
employees, or any person who controls the Managing Owner, or
the Trust or the owners of Series B Interests ("Limited
Owners"), or any of their respective successors or assigns
under this Agreement, except by reason of acts or omissions in
material breach of this Agreement or due to their misconduct
or negligence or by reason of their not having acted in good
faith in the reasonable belief that such actions or omissions
were in the best interests of the Trust; it being understood
that the Advisor makes no guarantee of profit nor offers any
protection against loss, and that all purchases and sales of
Commodities shall be for the account and risk of the Trust,
and the Advisor shall incur no liability for trading profits
or losses resulting therefrom provided the Advisor would not
otherwise be liable to the Trust under the terms hereof.
(i) Initial Allocation, Additional Allocations, and
Reallocations. Initially, the Series B Allocated Assets will
equal an amount equal to the total assets of the Trust
allocable to the Series B 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 B 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. Thereafter, subject to Section 12(a)
below, the Trust may, based on the sale of additional
Interests or the exchange by Limited Owners of Interests of a
Series for Interests in another Series, (i) allocate capital
to the Advisor on a weekly basis with the Advisor's consent
during the Trust's Continuous Offering Period, as defined in
the Prospectus, (ii) reallocate the Series B Allocated Assets
away from the Advisor to another commodity trading advisor (an
"Other
-7-
Advisor"), (iii) reallocate the Series B Allocated
Assets to the Advisor with the Advisor's consent away from an
Other Advisor, or (iv) allocate additional capital with
respect to the Series B Allocated Assets to an Other Advisor.
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, from and against
any and all claims losses, judgments, liabilities, damages,
costs, expenses (including, without limitation, reasonable
investigatory and attorneys' fees) 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 B 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 B and (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
-8-
from the Series B 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 fifteen (15) days before any
amounts are paid, or (B) the Trust does not approve the amount
of the settlement within fifteen (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 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.
-9-
(c) Procedure. In the event that an Indemnitee
under this Section 2 is made a party to an action, suit or
proceeding alleging both matters for which indemnification can
be made hereunder and matters for which indemnification may
not be made hereunder, such Indemnitee shall be indemnified
only for that portion of the Losses incurred in such action,
suit or proceeding which relates to the matters for which
indemnification can be made.
(d) Expenses. Expenses incurred in defending a
threatened or pending civil, administrative or criminal
action, suit or proceeding against an Indemnitee shall be paid
by the Trust in advance of the final disposition of such
action, suit or proceeding if (i) the legal action, suit or
proceeding, if sustained, would entitle the Indemnitee to
indemnification pursuant to the terms of this Section 2, and
(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,
-10-
adjustment or composition of or in respect of the Trust under
the Federal Bankruptcy Code or any other applicable federal or
state law, or appointing a custodian, receiver, liquidator,
assignee, trustee, sequestrator (or other similar official) of
the Trust or of any substantial part of any of its properties,
or ordering the winding up or liquidation of any of its
affairs, or (ii) seek a petition for relief, reorganization or
to take advantage of any law referred to in the preceding
clause or (iii) file an involuntary petition for bankruptcy
(collectively, "Bankruptcy or Insolvency Action").
(b) Limited Assets Available. In addition, the
Advisor agrees that for any obligations due and owing to it by
the Trust, the Advisor will look solely and exclusively to
Series B 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 B 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.
-11-
(d) Subordination Agreement. The Advisor agrees and
consents (the "Consent") to look solely to each Series for
which brokerage and clearing services are being performed (the
"Contracting Series") and assets (the "Contracting Series
Assets") of the Contracting Series and to the Managing Owner
and its assets for payment. The Contracting Series 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 Contracting Series, including, without limitation,
funds delivered to the Trust for the purchase of interests in
a Series. In furtherance of the Consent, the Advisor agrees
that (i) any debts, liabilities, obligations, indebtedness,
expenses and claims of any nature and of all kinds and
descriptions (collectively, "Claims") incurred, contracted for
or otherwise existing arising from, related to or in
connection with the Trust and its assets and the Contracting
Series and the Contracting Series 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 the
Contracting Series shall not be considered Subordinated
Claims with respect to enforcement against and
distribution and repayment from the Contracting Series,
the Contracting Series Assets and the Managing Owner and
its assets; and provided further that the Advisor's valid
Claims, if any, against the Contracting Series shall be
pari passu and equal in right of
-12-
repayment and distribution with all other valid Claims against
the Contracting Series and (ii) the Advisor will not take,
demand or receive from any Series or the Trust or any of
their respective assets (other than the Contracting
Series, the Contracting Series Assets and the Managing
Owner and its assets) any payment for the Subordinated
Claims;
(2) the Claims of the Advisor with respect to
the Contracting Series shall only be asserted and
enforceable against the Contracting Series, the
Contracting Series 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 the
Contracting Series or the Trust are secured in whole or
in part, the Advisor hereby waives (under section 1111(b)
of the Bankruptcy Code (11 U.S.C. S 1111(b)) any right to
have any deficiency Claims (which deficiency Claims may
arise in the event such security is inadequate to satisfy
such Claims) treated as unsecured Claims against the
Trust or any Series (other than the Contracting Series),
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 the Contracting
Series, the Contracting Series 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
-13-
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 best efforts in connection with (i) the
preparation by the Trust of the Registration Statement and the
Prospectus (and any amendments or supplements thereto); (ii)
the filing of the Registration Statement and the Prospectus
(and any amendments or supplements thereto) with such
governmental and self-regulatory authorities as the Managing
Owner deems appropriate for the registration and sale of the
Interests and the taking of such other actions not
inconsistent with this Agreement as the Managing Owner may
determine to be necessary or advisable in order to make the
proposed offer and sale of Interests lawful in any
jurisdiction; and (iii) causing the Registration Statement
(and any amendment thereto) to become effective under the 1933
Act and the Blue Sky securities laws of such jurisdictions as
the Managing Owner may deem appropriate. The Advisor agrees
to make all necessary disclosures regarding itself, its
officers and principals, trading performance, 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
-14-
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 B'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 B Interests to the
extent reasonably requested by the Managing Owner, on the
following conditions: (i) all expenses incurred by the Advisor
in the course of such participation will be shared between and
among the Advisor, the Managing Owner, and/or Prudential
Securities, in such amounts as shall be agreed among the
parties, (ii) the Advisor shall not be obligated to take any
action which might require registration as a broker-dealer or
investment adviser under any applicable federal or state law,
and (iii) the Advisor shall not be required to assist in "road
show" or similar presentations to the extent that it
reasonably believes that doing so would interfere with its
trading, marketing or other activities.
(c) Advisor Not A Promoter. The parties acknowledge
that the Advisor has not been, either alone or in conjunction
with Prudential Securities or its affiliates, an organizer or
promoter of the Trust.
(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
-15-
termination, or if the "minimum" (i) aggregate number of
Interests or (ii) Series B 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 attached
hereto as Exhibit C.
5. Advisor Independence.
(a) Independent Contractor. The Advisor shall for
all purposes herein be deemed to be an independent contractor
with respect to the Trust, the Managing Owner and each other
commodity trading advisor that may in the future provide
commodity trading advisory services to the Trust and
Prudential Securities, and shall, unless otherwise expressly
authorized, have no authority to act for or to represent the
Trust, the Managing Owner, any other commodity trading advisor
or Prudential Securities in any way or otherwise be deemed to
be a general agent, joint venturer or partner of the Trust,
the Managing Owner, any other commodity trading advisor or
Prudential Securities, or in any way be responsible for the
acts or omissions of the Trust, the Managing Owner, any other
commodity trading advisor or Prudential Securities as long as
it is acting independently of such persons.
-16-
(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 of the Advisor is
the confidential property of the Advisor. Nothing in this
Agreement shall require the Advisor to disclose the
confidential or proprietary details of its Trading Approach.
The Trust and the Managing Owner further agree that they will
keep confidential and will not disseminate the Advisor's
trading advice to the Trust, except as, and to the extent
that, it may be determined by the Managing Owner to be (i)
necessary for the monitoring of the business of the Trust,
including the performance of brokerage services by the Trust's
commodity broker(s) or (ii) expressly required by law or
regulation.
6. Commodity Broker.
All Commodities trades for the account of the Trust shall
be made through such commodity broker or brokers as the
Managing Owner directs or otherwise as may be agreed upon in
accordance with such order execution procedures as are agreed
upon between the Advisor and the Managing Owner. The Advisor
shall not have any authority or responsibility in selecting or
supervising any broker for execution of Commodities trades of
the Trust or for negotiating commission rates to be charged
therefor. The Advisor shall
-17-
not be responsible for determining that any such bank or broker
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. The Advisor
may, however, with the consent of the Managing Owner, execute
transactions at such other broker(s), and upon such terms and
conditions, as the Advisor and the Managing Owner agree if
such broker(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 brokers other than
Prudential Securities, it will consult with the Advisor prior
to directing it to utilize such broker(s), and will not retain
the services of such broker(s) over the reasonable objection
of the Advisor.
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 B a weekly management
fee (the "Management Fee") and an incentive fee (the
"Incentive Fee") based on Series B 's Allocated Assets, as
follows:
(a) A Management Fee equal to 0.167% of Series B 's
Allocated Assets determined as of the close of business each
Friday (an annual rate of 2%). 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 B's assets made as
of the last Friday of a week shall be added back to Series B
's Allocated Assets and there shall be no reduction for (i)
the accrued Management Fees being calculated, or
-18-
(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 (as defined in the Trust Agreement). The Management
Fee determined for any week in which an Advisor manages Series
B 's 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 Series B Allocated Assets were
under the Advisor's management as compared to the total number
of days in such week, 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 Series B 's Allocated Assets allocated to the
Advisor's management resulting from the payment of
extraordinary expenses or distributions.
(b) An incentive fee of twenty percent (20%) (the
"Incentive Fee") of "New High Net Trading Profits" (as
hereinafter defined) generated on Series B 's 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"). The
fee will accrue weekly.
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
-19-
Period will be the net profits, if any, from Series B 's trading
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 B 's fixed brokerage fee and the Advisor's Management Fee, 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 B 's
assets and will be adjusted (either increased or decreased, as
the case may be) to reflect extraordinary expenses (e.g.,
litigation, costs or damages) paid during an Incentive
Measurement Period. New High Net Trading Profits will be
generated only to the extent that the Advisor's cumulative New
High Net Trading Profits exceed the highest level of
cumulative New High Net Trading Profits achieved by the
Advisor as of a previous Incentive Measurement Date. Except
as set forth below, net losses from prior quarters must be
recouped before New High Net Trading Profits can again be
generated. If a withdrawal or distribution occurs at any date
that is not an Incentive Measurement Date, the date of the
date of the withdrawal or distribution 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 an
Incentive Measurement Period shall exclude capital
contributions to Series B in an Incentive Measurement Period,
distributions or redemptions payable by Series B during an
Incentive Measurement Period, as well as losses, if any,
associated with redemptions during the Incentive Measurement
Period and prior to the Incentive Measurement Date. In
calculating New High Net Trading Profits, incentive fees paid
for a previous Incentive
-20-
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 within fifteen (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 forty five (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 B 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 Advisor will be provided by the
Managing Owner with the data used by the Managing Owner to
compute the foregoing fees within ten (10) 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.
-21-
8. Term and Termination.
(a) Term. This Agreement shall commence on the date
hereof and, unless sooner terminated, shall continue in effect
until the close of business on the later of the last day of
the month ending twelve full months following the commencement
of the Trust's trading activities or December 31, 1998.
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 twelve
(12) month term. The automatic renewal(s) set forth in the
preceding sentence hereof shall not be affected by (i) any
reallocation of the Series B Allocated Assets away from the
Advisor pursuant to this Agreement, or (ii) the retention of
Other Advisors following a reallocation, or otherwise.
(b) Automatic Termination. This Agreement shall
terminate automatically in the event that the Trust is
terminated. In addition, this Agreement shall terminate
automatically in the event that the Series B Allocated Assets
declines as of the end of any business day by 66 % from the
Series B 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 B Allocated Assets caused by distributions,
redemptions, permitted reallocations, and withdrawals, and (B)
additions to the Series B Allocated Assets caused by
additional allocations of the Trust Estate to the Advisor's
management based on sales of additional Series B Interests.
-22-
(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 thirty
(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: (A) 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; (B) 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; (C) 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 (i) any of the Trust's Trading Policies and Limitations, or
(ii) the Advisor's Trading Approach; (D) there is an
unauthorized assignment of this Agreement by the Advisor; (E)
the Advisor dissolves, merges or consolidates with another
entity or sells a substantial portion of its assets, any
portion of its Trading Approach utilized by the Trust or its
business goodwill, in each instance without the consent of the
Managing Owner; (F) Name of applicable principal(s) is not in
control of the Advisor's trading activities for the Trust; (G)
the Advisor becomes bankrupt (admitted or decreed) or
insolvent, (H) for any other reason, the Managing
-23-
Owner determines in good faith that such termination is essential
for the protection of the Trust and the Series B 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 B 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) the Managing Owner 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 B Allocated Assets, or the Managing Owner
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 B Allocated
Assets decreases to less than $3 million as the result of
redemptions, but not trading losses, as of the close of
business on any Friday; (v) the Managing Owner elects
(pursuant to Section 1 of this Agreement) to have the Advisor
use a different Trading Approach in the Advisor's management
of Trust assets from 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
-24-
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 after giving written
notice to the Managing Owner which identifies such breach and
such material breach has not been cured within 10 days
following receipt of such notice by the Managing Owner; or
(viii) other good cause is shown and the written consent of
the Managing Owner is obtained (which shall not be withheld
unreasonably).
(e) Termination Fees. In the event that this
Agreement is terminated with respect to, or by, the Advisor
pursuant to this Section 8 or the Managing Owner allocates the
Trust's assets to Other Advisors, the Advisor shall be
entitled to, and the Trust shall pay, the Management Fee and
the Incentive Fee, if any, which shall be computed (i) with
respect to the Management Fee, on a pro rata basis, based upon
the portion of the month for which the Advisor had the Series
B 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 telecopy or other equivalent means, that the
-25-
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 (3) days' prior
notice. In the event that losses incurred by the Advisor
exceed the amount of the Series B 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.
10. Other Accounts of the Advisor.
(a) Management of Other Accounts. Subject to
paragraph (c) of this Section 10, the Advisor shall be free to
manage and trade accounts for other investors (including other
public and private commodity pools) during the term of this
Agreement and to use the same or other information and Trading
Approach utilized in the performance of services for the Trust
for such other accounts so long as the Advisor's ability to
carry out its obligations and duties to the Trust pursuant to
this Agreement is not materially impaired thereby. In
addition, the Advisor, and its shareholders, directors,
officers and employees, as applicable, also will be permitted
to trade in Commodities using the Trading Approach or
otherwise for their own accounts, so long as the Advisor's
ability to carry out its obligations and duties to the Trust
pursuant to this Agreement is not materially impaired thereby.
-26-
(b) Acceptance of Additional Capital. Furthermore,
so long as the Advisor is performing services for the Trust,
it agrees that it will not accept additional capital for
management in the Commodities markets if doing so would have a
reasonable likelihood of resulting in the Advisor having to
modify materially 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. Without
limiting the generality of the foregoing, it is understood
that this paragraph shall not prohibit the acceptance of
additional capital, which acceptance requires only routine
adjustments to trading patterns in order to comply with
speculative position limits or daily trading limits.
(c) 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.
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).
-27-
(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 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.
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 Commodity Futures
Trading Commission ("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
-28-
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 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
$34,000,000, can be implemented for the benefit of the Trust
notwithstanding the possibility that, from time to time,
speculative position limits may become applicable.
12. Redemptions, Distributions, Reallocations and
Additional Allocations.
(a) Notice. The Managing Owner agrees to give the
Advisor at least one (1) business day prior notice of any pro-
posed redemptions, exchanges, distributions, reallocations,
additional allocations, or withdrawals.
(b) Allocations. Redemptions, exchanges,
withdrawals, and distributions of Series B Interests shall be
charged against Series B Allocated Assets.
13. Brokerage Confirmations and Reports.
The Managing Owner will instruct the Trust's commodity
broker or brokers to furnish the Advisor with copies of all
trade confirmations, daily equity runs, and monthly trading
statements relating to the Series B 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. The Managing
-29-
Owner also will furnish the Advisor with a copy of the form of all
reports, including but not limited to, monthly, quarterly and annual
reports, sent to the Limited Owners, and copies of all reports filed
with the SEC, the CFTC and the NFA. The Advisor shall, at the Managing
Owner's request, make a good faith effort to provide the
Managing Owner with copies of all trade confirmations (if the
broker is other than Prudential Securities), daily equity
runs, monthly trading reports or other reports sent to the
Advisor by the Trust's commodity broker regarding the Trust,
and in the Advisor's possession or control, as the Managing
Owner deems appropriate, if the Managing Owner cannot obtain
such copies on its own behalf. Upon request, the Managing
Owner will provide the Advisor with accurate information with
respect to the Series B 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 any applicable statute, law or
regulation of any jurisdiction or (ii) breach or cause to be
breached any undertaking, agreement, contract, statute, rule
or regulation to which it is a party or by which 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;
-30-
(c) it is duly registered as a commodity trading
advisor under the CE Act and is a member of the NFA as a com-
modity trading advisor and it will maintain and renew such
registration and membership during the term of this Agreement;
(d) a copy of its most recent Commodity Trading
Advisor Disclosure Document as required by Part 4 of the
CFTC's regulations has been provided to the Managing Owner on
behalf of the Trust in the form of Exhibit D hereto (and the
Managing Owner acknowledges receipt of such Disclosure
Document on behalf of the Trust) and, except as disclosed in
such Disclosure Document, all information in such Disclosure
Document (including, but not limited to, background,
performance, trading methods and trading systems) is true,
complete and accurate in all material respects and is in
conformity in all material respects with the provisions of the
CE Act, as amended, including the rules and regulations
thereunder;
(e) assuming that the Series B Allocated Assets
equal not more than $33,000,000 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 the
Trust; 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
-31-
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 or referred to the Advisor by an unaffiliated agent
other than in violation of clause (i).
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;
-32-
(c) it is registered as a commodity pool operator
under the CE Act and is a commodity pool operator member of
the NFA, and it will maintain and renew such registration and
membership during the term of this Agreement;
(d) this Agreement has been duly and validly
authorized, executed and delivered, and is a valid and binding
agreement, enforceable against each of them, in accordance
with its terms; and
(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.
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
assigns of each of them, and no other person (except as
otherwise provided herein) shall have any right or obligation
under this Agreement. The terms "successors" and "assigns"
shall not include any purchasers, as such, of Interests.
18. Amendment or Modification or Waiver.
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.
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 telecopy, 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: If to the Trust:
Prudential Securities Futures World Monitor Trust - Series B
Management Inc. c/o Prudential Securities Futures
One New York Plaza, 13th floor Management Inc.
βββ ββββ, βββ ββββ βββββ-ββββ βββ βββ ββββ βββββ, ββββ βββββ
Attention: βββββββ β. ββββββ βββ ββββ, βββ ββββ βββββ-ββββ
Facsimile: (βββ) βββ-ββββ Attention: βββββββ β. ββββββ
Facsimile: (βββ) βββ-ββββ
-34-
and in either case with a copy to:
Rosenman & Colin LLP and Prudential Securities Incorporated
βββ βββββββ ββββββ βββ βββ ββββ Plaza, 13th Floor
New York, New York 10022 βββ ββββ, βββ ββββ βββββ-ββββ
Attention: ββββ β. βββββ, Esq. Attention: ββββββ β. ββββ
Facsimile: (βββ) βββ-ββββ Facsimile: (βββ) βββ-ββββ
If to the Advisor: with a copy to:
Eclipse Capital Management, Inc. Sidley & Austin
βββββ βββββ βββββββββ, βββ. βββ One First ββββββββ βββββ
ββ. βββββ, ββββββββ βββββ βββββββ, ββββββββ βββββ
Attention: ββββββ β. ββββββ Attention: βββββ ββββββ, Esq.
Facsimile: (βββ) βββ-ββββ Facsimile: (βββ) βββ-ββββ
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. Disclosure Document Modifications.
The Advisor shall promptly furnish the Managing Owner
with a copy of all modifications to its Disclosure Document
when available for distribution. Upon receipt of any modified
Disclosure Document by the Managing Owner, the Managing Owner
will provide the Advisor with an acknowledgement of receipt
thereof.
-35-
23. Promotional Literature.
Each party agrees that prior to using any promotional
literature in which reference to the other parties hereto is
made, they shall furnish a copy of such information to the
other parties and will not make use of any promotional litera-
ture containing references to such other parties to which such
other parties object, except as otherwise required by law or
regulation.
24. 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.
25. 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.
26. 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.
-36-
27. 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.
28. 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.
29. 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 NFA or, if NFA should refuse to accept the
matter, the American Arbitration Association.
-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 - SERIES B PRUDENTIAL SECURITIES
FUTURES MANAGEMENT, INC.
By: PRUDENTIAL SECURITIES
FUTURES MANAGEMENT INC.,
Its: Managing Owner By:---------------------
βββββββ β. ββββββ
Vice-President
By:--------------------
βββββββ β. ββββββ
Vice-President
ECLIPSE CAPITAL MANAGEMENT, INC.
By:--------------------
ββββββ β. ββββββ
President
-38-
EXHIBIT A
SERIES B TRADING SYSTEM
TRADING SYSTEM OF ECLIPSE CAPITAL MANAGEMENT, INC.
The Advisor's will make its trading decisions for Series
B according to its Global Monetary Program. The Global
Monetary Program incorporates quantitative trend analysis and
technical trading principles.
The Global Monetary Program is systematic and trend-
following in nature, with the objective of capitalizing on
intermediate and long-term price trends. The Advisor makes
all trading decisions pursuant to its proprietary trend
identification, capital allocation, and risk management
models, using multiple models to accentuate overall
diversification. Trend identification models use various
technical and statistical analysis techniques to identify and
evaluate price trends. Capital allocation models determine
the percentage of trading capital allocated to various markets
and trading models.
The Advisor's risk management models were developed with
the objective of limiting losses, capturing profits, and
conserving capital in choppy, "sideways markets". The risk
management principles that the Advisor employs include: (1)
using stop orders to exit trades when markets are moving
against an established position; (2) diversifying positions
among several different futures and/or futures groups to limit
exposure in any one area; (3) using multiple entry and exit
points; (4) limiting the assets committed as margin, generally
within a range of 5% to 25% of assets managed, at minimum
exchange margin requirements, but possibly above or below that
range at certain times; and (5) prohibiting the use of
unrealized profits in a particular futures contract as margin
for additional contracts in the same or a related futures
contract.
Decisions whether to trade a particular futures contract
are based upon various factors, including liquidity,
significance in terms of desired degrees of concentration,
diversification and profit potential, both historical and at a
given time. These decisions are based upon output generated
by a proprietary risk management program but require the
exercise of judgment by principals of the Advisor. The
specific contracts traded have been selected based on
liquidity, historical volatility, and the degree of past
directional movement. The actual number of contracts held at
any particular point depends on a number of factors, including
evaluation of market volatility and potential risk versus
return. There are occasions when a trading model may indicate
that no position is appropriate in a particular contract or
contract group.
In addition to technical trading in futures contracts,
the Advisor also may employ trading techniques such as spreads
and straddles, and buy or sell futures options. The Advisor
may make non-material alterations to its trading programs
without approval from the Managing
A-1
Owner if the Advisor
determines that such changes are in the best interest of the
Series Limited Owners.
The Global Monetary Program
The Global Monetary Program is a financial, metals and
energy program that trades a global portfolio of futures,
options on futures and exchanges-of-futures-for-physical
("EFP") contracts on interest rate instruments, currencies,
stock indices, precious and base metals, and energy products.
The foreign currency portion of the portfolio may be traded in
the interbank foreign exchange market. A key component of
this program is the extensive diversification achieved by
applying multiple trading models to a wide variety of
financial markets located throughout the world.
Set forth below for calendar year 1997 is a bar graph
showing, on a weighted average basis, the volume of trades
effected by the Advisor in the foregoing commodities using
the trading strategy to be used for Series B. This weighting
will change as market conditions change, and there is every
likelihood that these weightings will be different for Series
B during future periods.
Global Monetary Program Contracts And Markets
SFE Australian Bank Bills DTB German 5-Year Bond Australian Dollar
SFE Australian 3-Year Bond MATIF Pibor British Pound
SFE Australian Ten Year Bond MATIF Notional Bond Canadian Dollar
SIMEX Euroyen CME Eurodollar French Franc
SIMEX Nikkei CBOT US Bond German ββββ
SIMEX Japanese Bond CBOT US 5-Year Japanese Yen
Tokyo Japanese Bond MONT Canadian Bond Swiss Franc
MONT Canadian Bank Bills
LIFFE Euromark MEFF Spanish Bond British Pound/German
LIFFE Eurolira London Metals Exchange 3 ββββ
LIFFE German Bund Month Copper German ββββ/French
LIFFE Italian Bond London Metals Exchange 3 Franc
LIFFE Short Sterling Month Aluminum German ββββ/Italian
LIFFE Long Gift London Metals Exchange 3 Lira
LIFFE Euroswiss Month Zinc German ββββ/Japanese
SOFFEX Swiss COMEX Gold Yen
Government Bond COMEX Silver German ββββ/Swiss
NYMEX Crude Oil Franc
NYMEX Natural Gas
* All currencies are executed in the interbank cash market
and then exchanged for physical (EPP) to the CME or FINEX
for actual futures contracts.
A-2
Global Monetary Program Volume of Trading:
Interest rate instruments: 45%
Currencies: 30%
Stock Indices: 5%
Precious & Base Metals: 10%
Energy Products 10%
(CHART)
A-3
EXHIBIT B
TRADING LIMITATIONS AND POLICIES
The following limitations and policies are applicable
to assets representing the Series B 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 B Allocated Assets, such application
of the limitations and policies is identical initially for
the Series B Allocated Assets of the Trust and the Advisor.
The Advisor sometimes may be prohibited from taking
positions for the Series B 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 B
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 B Interests. The
Managing Owner may, however, impose additional trading
limitations on the trading activities of the Series B
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 B Interests
of the Trust.
Trading Limitations
The Series B 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), 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 B 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 B Interests of the Trust;
(v) commingle its assets, except as permitted by law; or
(vi) permit the churning of its commodity accounts.
The Series B 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 B
Interests of the Trust, which currently are as follows:
B-1
(1) Series B 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 B 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 B Interests of the Trust may
occasionally make or accept delivery of a commodity
including, without limitation, currencies. The Series B
Interests of the Trust also may engage in EFP transactions
involving currencies and metals and other commodities.
(5) The Series B Interests of the Trust may, from time
to time, employ trading techniques such as spreads,
straddles and conversions.
(6) The Series B 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 B Allocated Assets for any one commodity, or
in excess of 66 % of the Trust's Series B 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 B Interests of the Trust
engages in transactions in forward currency contracts other
than with or through Prudential Securities and/or PBFI, the
Series B 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
$100,000,000, as shown by its published financial statements
for such year, and through other broker-dealer firms with an
aggregate balance in its capital, surplus and related
accounts of at least $50,000,000.
B-2
EXHIBIT C
[REPRESENTATION AGREEMENT]
C-1
EXHIBIT D
[ATTACH LATEST DISCLOSURE DOCUMENT]
D-1