ADVISORY AGREEMENT ADVISORY AGREEMENT (the "Agreement") dated as of the 1st day of July, 1997 by and among Prudential-Bache Capital Return Futures Fund 2, L.P., a Delaware limited partnership (the "Partnership"), Prudential Securities Futures Management Inc., a Delaware corporation (the "General Partner") and Eclipse Capital Management, Inc., a Kentucky corporation (the "Advisor"). W I T N E S S E T H : WHEREAS, the Partnership has been organized primarily for the purpose of trading, buying, selling, spreading or otherwise acquiring, holding or disposing of futures, forwards and options contracts. Physical commodities also may be traded from time to time. The foregoing commodities related transactions are collectively referred to as "Commodities"; and WHEREAS, the General Partner is authorized to utilize the services of one or more professional commodity trading advisors in connection with the Commodities trading activities of the Partnership; and WHEREAS, the Partnership wishes to re-hire the Advisor as a commodity trading advisor to the Partnership to manage a portion of the assets previously managed by another trading advisor; and WHEREAS, the Advisor's present business includes the man- agement 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 ("CE Act") and is a member of the National Futures Association ("NFA") as a commodity trading advisor and will maintain such registration and membership for the term of this Agreement; and WHEREAS, the Partnership and the Advisor desire to enter into this Agreement in order to set forth the terms and conditions upon which the Advisor will render and implement commodity advisory services in connection with the conduct by the Partnership of its Commodities trading activities during the term of this Agreement; NOW, THEREFORE, the parties agree as follows: 1. Duties of the Advisor. (a) Appointment. The Partnership hereby appoints the Advisor, and the Advisor hereby accepts appointment, as its attorney-in- fact to invest and reinvest in Commodities a portion of the Net Asset Value of the Partnership on the terms and conditions set forth herein, commencing on the date hereof. The Advisor's initial allocation shall be approximately $5.6 million. The precise definition of the term "Net Asset Value" shall be as defined in Exhibit A hereto. This limited power-of- attorney is a continuing power and shall continue in effect with respect to the Advisor until terminated hereunder. To this end, the Advisor (i) agrees to act as a commodity trading advisor retained by the General Partner on behalf of the Partnership, and specifically, to exercise discretion with respect to that portion of the Net Asset Value of the Partnership which the General Partner has allocated to the Advisor's management above, and which the General Partner may allocate to the Advisor in the future (with the Advisor's consent) upon the terms and conditions, and for the purposes, set forth in this Agreement and (ii) shall have sole authority and responsibility for independently directing the investment and reinvestment in Commodities of the portion of the Partnership's Net -2- Asset Value allocated to it for the term of this Agreement pursuant to the trading methods, systems and strategies of its Global Monetary Program (the Advisor's "Trading Approach") as such trading approach is described in the Advisor's Disclosure Document dated December 1, 1996 attached hereto as Exhibit B (the "Disclosure Document"), receipt of which is hereby acknowledged, subject to the Partnership's trading policies and limitations as set forth in Exhibit C, attached hereto, as the same may be modified or amended and provided in writing to the Advisor from time to time (the Partnership's "Trading Policies and Limitations"). The General Partner and the Partnership acknowledge that the Advisor makes no guarantee of profits or of protection against loss, and that the Advisor's Commodities transactions hereunder are for the account and risk of the Partnership. (b) Allocation of Responsibilities. The General Partner will have the responsibility for the management of the portion of the Partnership's Net Asset Value that is invested in United States Treasury bills or other investments approved by the Commodity Futures Trading Commission ("CFTC") for the investment of "customer" funds or are held in cash. The Advisor will use its good faith best efforts in determining the investment and reinvestment in Commodities of that portion of the Partnership's Net Asset Value allocated to him in compliance with the Trading Policies and Limitations, and in accordance with its Trading Approach. In the event that the General Partner shall, in its sole discretion, determine in good faith following consultation, if appropriate under the circumstances, with the Advisor that any trading instruction issued by the Advisor violates the Partnership's Trading Policies and Limitations, then the General Partner, following reasonable notice appropriate under the circumstances to the Advisor, -3- may override such trading instruction and the Advisor shall not be subject to liability for the results of any such action taken by the General Partner. Nothing herein shall be construed to prevent the General Partner from imposing any limitation(s) on the trading activities of the Partnership beyond those enumerated in Exhibit C hereto if the General Partner determines that such limitation(s) are necessary or in the best interests of the Partnership, in which case the Advisor will adhere to such limitations following written notification thereof. (c) Modification of Trading Approach. In the event the Advisor wishes to use a trading method or strategy other than or in addition to the Trading Approach in connection with trading for the Partnership (including without limitation the deletion of an agreed upon trading method or strat- egy or the addition of a trading method or strategy in addition to the then agreed upon Trading Approach), either in whole or in part, the Advisor may not do so unless it gives the General Partner prior written notice of its intention to utilize such different trading method or strategy, and the General Partner consents thereto. Failure of the General Partner to object to the Advisor's notice of any of the foregoing within ten (10) days' of the date of the Advisor's notice shall be deemed consent of the General Partner thereto. (d) Notification of Material Changes. The Advisor also agrees to give the Partnership 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 Partnership) over the objection of the General Partner, it being understood that the Advisor shall be free to institute non-material changes in its Trading Approach (as applied to the Partnership) without prior written notification. Without limiting the -4- generality of the foregoing, refinements to the Advisor's Trading Approach, the addition or deletion of Commodities to or from the Advisor's Trading Approach, and variations in the leverage principles and policies utilized by the Advisor shall not be deemed a material change in the Advisor's Trading Approach, and prior approval of the General Partner shall not be required therefor. The Advisor agrees that it will discuss with the General Partner upon request, subject to adequate assurances of confidentiality, any trading methods or strategies used by it for trading customer accounts which differ from the Trading Approach which it uses for the Partnership. (e) Request for Information. The Advisor agrees to provide the Partnership with any reasonable information concerning the Advisor that the Partnership may reasonably request, subject to receipt of adequate assurances of confidentiality by the Partnership, including, but not limited to, information regarding any change in control, key personnel, Trading Approach and financial condition which the Partnership reasonably deems to be material to the Partnership; the Advisor also shall notify the Partnership of any such matters the Advisor, in its reasonable judgment, believes may be material to the Partnership relating to the Advisor and its Trading Approach. (f) Nondisclosure. Nothing contained in this Agreement shall require the Advisor to disclose what it deems to be proprietary or confi- dential information concerning any such trading methods or strategies, including but not limited to the Trading Approach or the identity of customers. (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 -5- error was made in connection with a trade or that a trade was made other than in accordance with the Advisor's instructions, the Advisor shall promptly notify the Partnership of this fact, and shall utilize its reasonable best efforts to cause the error or discrepancy to be corrected. (h) Exculpation. The Advisor shall not be liable to the General Partner, its officers, directors, shareholders or employees, or any person who controls the General Partner, or the Partnership or its partners, or any of their respective successors or assigns under this Agreement, except by reason of the Advisor's (including any employee, director, officer or shareholder of the Advisor, or any persons who controls the Advisor) acts or omissions in material breach of this Agreement or due to its or their misconduct or negligence or by reason of not having acted in good faith in the reasonable belief that such actions or omissions were in the best interests of the Partnership; it being understood that all purchases and sales of Commodities shall be for the account and risk of the Partnership, and the Advisor shall not incur any liability for trading profits or losses resulting therefrom. 2. Indemnification. (a) The Advisor and each employee of the Advisor shall be indemnified by the Partnership against any losses, judgments, liabilities, expenses (including, without limitation, reasonable attorneys' fees) and amounts paid in settlement of any claims (collectively "Losses") sustained by the Advisor (i) in connection with any matter relating to the Partnership's Registration Statement as filed with the Securities and Exchange Commission or its final prospectus, dated July 21, 1989, ("Prospectus") to the extent provided in the "Agreement Concerning the Registration Statement and Prospectus" -6- ("Representation Agreement") dated July 21, 1989 (incorporated by reference to Exhibit 10.4 to Registrant's Annual Report on Form 10-K for the period ended December 31, 1989), (ii) in connection with any matters relating to the Partnership prior to the effective date of this Agreement, other than matters involving the Advisor's management of a portion of the Partnership assets through September 30, 1990 pursuant to an Advisory Agreement ("Advisory Agreement") dated July 21, 1989 (incorporated by reference to Exhibit 10.3 to Registrant's Annual Report on Form 10-K for the period ended December 31, 1989), the indemnification of which are covered by the Advisory Agreement, (iii) in connection with any acts or omissions of the Advisor relating to the Advisor's management of its allocable portion of the Partnership's assets from and after the date of this Agreement, or in its capacity as a trading advisor to the Partnership from and after the date of this Agreement, and (iv) as a result of a material breach of this Agreement by the Partnership or the General Partner, provided that, with respect to (iii) (A) such Losses were not the direct result of negligence, misconduct or a material breach of this Agreement on the part of the Advisor, (B) the Advisor and its employees, officers, directors, shareholders, and each person controlling the Advisor acted (or omitted to act) in good faith and in a manner reasonably believed by it and them to be in the best interests of the Partnership, and (C) any such indemnification by the Partnership will only be recoverable from the assets of the Partnership and/or the General Partner. (b) The Partnership shall be indemnified by the Advisor against any Losses sustained by the Partnership directly resulting from (i) the negligence or misconduct of, or a material breach of this Agreement by, the Advisor or its employees officers, directors, shareholders, and each person controlling the Advisor or (ii) any action or omission to act of the Advisor or its employees, officers, directors, shareholders, and each person controlling the Advisor that was not taken in good faith or in a manner reasonably -7- believed by it and them to be in the best interests of the Partnership. (c) No indemnification shall be permitted under this Section 2 for amounts paid in settlement if either (A) the party claiming indem- nification (the "Indemnitee") fails to notify the indemnifying party of the terms of any settlement proposed, at least fifteen (15) days before any amounts are paid or (B) the indemnifying party does not in its good faith business judgment approve the amount of the settlement within thirty (30) days of its receipt of notice of the proposed settlement. Notwithstanding the foregoing, the indemnifying party shall, at all times, have the right to offer to settle any matter with the approval of the Indemnitee (which approval shall not be withheld unreasonably) and if the indemnifying party successfully negotiates a settlement and tenders payment therefor to the Indemnitee, the Indemnitee must either use its reasonable best efforts to dispose of the matter in accordance with the terms and conditions of the proposed settlement or the Indemnitee may refuse to settle the matter and continue its defense in which latter event the maximum liability of the indemnifying party to the Indemnitee shall be the amount of said proposed settlement. Any indemnification under this Section 2, unless ordered by a court, shall be made by the indemnifying party only as authorized in the specific case and only upon a determination by mutually acceptable independent legal counsel in a written opinion that indemnification is proper in the circumstances because the Indemnitee has met the applicable standard of conduct set forth hereunder. (d) None of the provisions for indemnification in this Section 2 shall be applicable with respect to default judgments or confessions of judgment entered into by an Indemnitee, with its knowledge, without the prior consent of the indemnifying party. -8- (e) In the event that an Indemnitee under this Section 2 is made a party to an action, suit or proceeding alleging both matters for which indemnification can be made hereunder and matters for which indemnification may not be made hereunder, such Indemnitee shall be indemnified only for that portion of the Losses incurred in such action, suit or proceeding which relates to the matters for which indemnification can be made. (f) Expenses incurred in defending a threatened or pending civil, administrative or criminal action, suit or proceeding against an Indemnitee shall be paid in advance of the final disposition of such action, suit or proceeding if (i) the legal action, suit or proceeding, if sustained, would entitle the Indemnitee to indemnification pursuant to the terms of this Section 2, and (ii) the Indemnitee undertakes to repay the advanced funds in cases in which the Indemnitee is not entitled to indemnification pursuant to the preceding paragraph, and (iii) in the case of advancement of expenses, the Indemnitee receives a written opinion of mutually ac- ceptable independent legal counsel that advancing such expenses is proper in the circumstances. (g) The parties hereto each acknowledge that the indemnification provisions of the Advisory Agreement and the Representation Agreement defined in sub-paragraph (a) of this Section 2 survived the termination of those agreements with respect to any matters arising while those agreements were in effect, and that this Agreement is not intended to contradict or circumvent the continued effectiveness of those provisions. 3. Advisor Independence. The Advisor shall for all purposes herein be deemed to be an independent contractor with respect to the Partnership, the General Partner and each other commodity trading advisor that provides or may in the future provide -9- commodity trading advisory services to the Partnership (the other Advisors and each such other commodity trading advisor being collectively referred to herein as the "Other Advisors"), and shall, unless otherwise expressly authorized, have no authority to act for or to represent the Partnership, the General Partner or any Other Advisor in any way or otherwise be deemed to be a general agent, joint venturer or partner of the Partnership, the General Partner or any Other Advisor, or in any way be responsible for the acts or omissions of the Partnership, the General Partner or any Other Advisor as long as it is acting independently of such person. The parties acknowledge that the Advisor has not been an organizer or promoter of the Partnership and has no responsibility and shall not be subject to liability in connection therewith. Nothing herein contained shall be deemed to require the Partnership or the Advisor to take any action contrary to the Partnership's Agreement of Limited Partnership or Certificate of Limited Partnership, or the Advisor's By-Laws or Articles of Incorporation, respectively, or any appli- cable statute, regulation or rule of any exchange or self-regulatory organization. The Partnership and the General Partner acknowledge that the Advisor's Trading Approach is its confidential property. Nothing in this Agreement shall require the Advisor to disclose the confidential or proprietary details of its Trading Approach. The Partnership and the General Partner further agree that they will keep confidential and will not disseminate the Advisor's trading advice to the Partnership, except as, and to the extent that, it may be determined by the General Partner to be (i) necessary for the monitoring of the business of the Partnership, including the performance of brokerage services by the Partnership's commodity broker(s), or (ii) expressly required by law or -10- regulation. 4. Commodity Broker. All Commodities trades for the account of the Partnership shall be made through such commodity broker or brokers as the General Partner directs pursuant to such procedures as are mutually agreed upon. The Advisor shall not have any authority or responsibility in selecting or supervising any broker for execution of Commodities trades of the Partnership or for negotiating commission rates to be charged therefor. The Advisor shall not be responsible for determining that any such bank or broker used in connection with any Commodities transactions meets the financial requirements or standards imposed by the Partnership's Trading Policies and Limitations. At the present time it is contemplated that the Partnership will effect all Commodities trades through Prudential Securities Incorporated ("Prudential Securities"); provided, however, that the Advisor may execute transactions at such other broker(s), and upon such terms and conditions, as the Advisor and the General Partner agree if such broker(s) agree to "give up" all such transactions to Prudential Securities for clearance and the General Partner's consent to the use of such other executing brokers shall not be unreasonably withheld. To the extent that the Partnership determines to utilize a broker or brokers other than Prudential Securities, it will consult with the Advisor prior to directing it to utilize such broker(s), and will not retain the services of such broker(s) over the reasonable objection of the Advisor. 5. Fees. In consideration of and in compensation for the performance of the Advisor's services under this Agreement, the Advisor shall receive from the Partnership Management and Incentive Fees as set forth below within fifteen (15) days following the end of the period to which they relate, as follows: -11- (a) A management fee (the "Management Fee") of 1/6 of 1% (2% annualized) of the portion of the Partnership's Net Asset Value allocated to it as of the last day of each calendar month. For purposes of determining such Management Fee, any distributions and redemptions allocable to the Advisor made as of the last day of such month shall be added back to the Net Asset Value and there shall be no reduction for (i) the accrued Management Fee being calculated, or (ii) any fees due the Advisor under paragraph (b) below accrued as of the last day of such month or (iii) any reallocation of assets as of the last day of such month, or (iv) any accrued but unpaid extraordinary expenses. The Management Fee for any month in which the Advisor manages all or any portion of the Net Asset Value of the Partnership allocated to it for less than a full month shall be prorated, such proration to be calculated on the basis of the number of days in the month the Net Asset Value allocated to the Advisor was under the Advisor's management as compared to the total number of days in such month. (b) A quarterly incentive fee (the "Incentive Fee") of twenty percent (20%) of New High Net Trading Profits (as hereinafter defined) achieved on the portion of the Partnership's Net Asset Value allocated to the Advisor. New High Net Trading Profits for the Advisor shall be computed as of the close of trading on the last day of each calendar quarter. The first Incentive Fee which may be due and owing to the Advisor in respect of any New High Net Trading Profits shall be computed as of September 30, 1997. New High Net Trading Profits shall be computed solely on the performance of the Advisor and shall not include or be affected by the performance of any Other Advisor. "New High Net Trading Profits" (for purposes of calculating the Advisor's Incentive Fee only) for each calendar quarter is defined as the excess (if any) of (A) the Net Asset -12- Value of the Partnership allocated to the Advisor as of the last day of any calendar quarter, over (B) the Net Asset Value of the Partnership allocated to the Advisor as of the last day of the most recent preceding calendar quarter for which an Incentive Fee was earned (or the date the Advisor commenced trading the Partnership's Net Asset Value, whichever date the Net Asset Value allocated to it was higher). In com- puting New High Net Trading Profits: (1) The Net Asset Value of (A) in the preceding sentence shall be reduced by Management Fees for such quarter together with brokerage commissions and other transaction costs attributable to the Advisor's trading activities, general administrative charges attributable to the pro rata portion of the Partnership's Net Asset Value allocated to the Advisor for trading, and extraordinary expenses, if any, directly attributable to the Advisor; (2) The Net Asset Value of (B) in the preceding sentence shall be reduced by Management and Incentive Fees for such quarter together with brokerage commissions and other transaction costs attributable to the Advisor's trading activities, general administrative charges attributable to the pro rata portion of the Partnership's Net Asset Value allocated to the Advisor for trading, and extraordinary expenses, if any, directly attributable to the Advisor; (3) The difference between (A) and (B) in the preceding sentence shall be (i) decreased by all interest earned on the portion of the Partnership's Net Asset Value allocated to the Advisor between the dates referred to in (A) and (B), and (ii) increased by (x) any distributions or redemptions allocable to the Advisor and paid or payable by the Partnership as of, or subsequent to, the date in (B) through the date in -13- (A); as well as (y) losses (including losses incurred from the date of the last Incentive Fee paid or payable), if any, associated with redeemed Units allocable to the Advisor, and (iii) adjusted (either increased or decreased, as the case may be) to reflect any additional allocations or negative reallocations of the Partnership's Net Asset Value to or from the Advisor from the date in (B) to the last day of the calendar quarter as of which the current Incentive Fee calculation is made. For purposes of calculating the first Incentive Fee payable to the Advisor, the date referred to in (B) shall be the date of this Agreement. If there is a cumulative loss when a withdrawal is made from the Net Asset Value allocated to the Advisor for any reason, such loss shall be reduced by the proportionate amount of the loss attributable to the monies being withdrawn. If an Incentive Fee shall have been paid by the Partnership to the Advisor in respect of any calendar quarter and the Advisor shall incur subsequent losses on the portion of the Partnership's Net Asset Value under its management, the Advisor shall nevertheless be entitled to retain amounts previously paid to it in respect of New High Net Trading Profits. (c) Neither the Advisor nor any of its employees shall receive any commissions, compensation, remuneration or payments whatsoever from any broker with which the Partnership carries an account for trans- actions executed in the Partnership's account. 6. Term and Termination. (a) Term. This Agreement shall commence on the date hereof and, unless sooner terminated, shall continue in effect until the close of business on June 30, 1998. Thereafter, this Agreement shall be renewed automatically on the terms and conditions -14- set forth herein for additional successive twelve (12) month terms, each of which shall commence on the first day of the month subsequent to the conclusion of the preceding twelve (12) month term, unless this Agreement is terminated pursuant to paragraphs (b), (c) or (d) of this Section 6. The automatic renewal(s) set forth in the preceding sentence hereof shall not be affected by (i) any reallocation of Partnership's Net Asset Value away from the Advisor pursuant to Section 7 of this Agreement, or (ii) the retention of Other Advisors following a reallocation, or otherwise. (b) Automatic Termination. This Agreement shall terminate automatically in the event that the Partnership is terminated. This Agreement shall terminate automatically with respect to the Advisor, upon notice from the General Partner, without affecting the continuation of this Agreement with any Other Advisor in the event that the Advisor's allocable percentage of the Partnership's Net Asset Value at the close of trading on any business day is equal to or less than the Termination Amount. The "Termination Amount" shall be an amount equal to 66-2/3% of the portion of the Partnership's Net Asset Value allocated to the Advisor's management on the date it commences Commodities trading activities for the Partnership, or the first day of any calendar year, whichever day the Net Asset Value allocated to the Advisor is higher, in either case, as adjusted on an ongoing basis by the percentage decline(s) or increases in that portion of the Partnership's Net Asset Value allocated to the Advisor's management caused by distributions, redemptions and permitted reallocations, and new allocations to the Advisor covered by reallocations away from other trading advisors, respectively. Each redemption and distribution of funds shall have the effect of reducing the Termination Amount by an amount equal to the portion of such redemption or distribu- tion allocable -15- to the Advisor. Reallocations of funds away from the Advisor shall reduce the Termination Amount dollar for dollar. (c) Optional Termination Right of Partnership. This Agreement may be terminated at any time in the sole discretion of the General Partner upon at least thirty (30) days' prior written notice to the Advisor. The General Partner will use its best efforts to cause any such termination to occur as of a month-end. (d) Optional Termination Right of Advisor. The Advisor shall have the right to terminate this Agreement (1) upon written notice to the General Partner at least thirty (30) days' prior to the end of each month of this Agreement; and (2) upon thirty (30) days' prior written notice to the General Partner in the event (i) of the receipt by the Advisor of an opinion of independent counsel satisfactory to the Advisor and the Partnership that by reason of the Advisor's activities with respect to the Partnership, the Advisor is required to register as an investment adviser under the Investment Advisers Act of 1940; (ii) that the registration of the General Partner as a commodity pool operator under the CE Act, or its NFA membership as a commodity pool operator is revoked, suspended, terminated or not renewed; (iii) the General Partner imposes additional trading limitation(s) pursuant to Section 1 of this Agreement which the Advisor does not agree to follow in its management of the Partnership's Net Asset Value or the General Partner overrides a trading instruction of the Advisor; (iv) if the Net Asset Value allocated to the Advisor decreases, for any reason, to less than $2,000,000; (v) the General Partner elects (pursuant to Section 1 of this Agreement) to have the Advisor use a different Trading Approach in the Advisor's management of Partnership assets from that which the Advisor is then using to manage such assets and the Advisor objects to -16- using such different Trading Approach; (vi) there is an unauthorized assignment of this Agreement by the Partnership or the General Partner; or (vii) other good cause is shown and the written consent of the General Partner is obtained (which shall not be withheld unreasonably). (e) In the event that this Agreement is terminated pursuant to subparagraphs (b), (c) or (d) of this Section 6, the Advisor shall be entitled to, and the Partnership shall pay, the Management Fee and the Incentive Fee, if any, which shall be computed (A) with respect to the Management Fee, on a pro rata basis, based upon the portion of the month for which the Advisor had its portion of the Partnership's Net Asset Value under management, and (B) with respect to the Incentive Fee, if any, as if the effective date of termination was the last day of the then current calendar quarter. The rights of the Advisor to fees earned through the earlier to occur of the date of expiration or termination of this Agreement shall survive this Agreement until satisfied. 7. Reallocation of Funds. The General Partner may, at any month- end, in its sole discretion, upon at least thirty (30) days' prior written notice, reallocate a portion of the Partnership's Net Asset Value then allocated to the Advisor's management away from the Advisor. 8. Liquidation of Positions. The Advisor agrees to liquidate open positions in the amount that the General Partner informs the Advisor, in writing via telecopy or other equivalent means, that the General Partner considers necessary or advisable to liquidate in order to (i) effect any termination or reallocation pursuant to Sections 6 or 7, respectively, or (ii) fund its pro rata share of any redemption, distribution or Partnership expense. The -17- General Partner shall not, however, have authority to instruct the Advisor as to which specific open positions to liquidate, except as provided in Section 1 here- of. The General Partner shall provide the Advisor with such reasonable prior notice of such liquidation as is practicable under the circumstances and will endeavor to provide at least three (3) business days' prior notice. In the event that losses incurred by the Advisor exceed the assets allocated to the Advisor, the General Partner will withdraw the funds necessary to cover such excess losses pro rata from the assets under the management of all Other Advisors. 9. Other Accounts of the Advisor. (a) Subject to paragraph (b) of this Section 9, the Advisor shall be free to manage and trade accounts for other investors (including other public and private commodity pools) during the term of this Agreement and to use the same or other information and Trading Approach utilized in the performance of services for the Partnership for such other accounts so long as the Advisor's ability to carry out its obligations and duties to the Partnership pursuant to this Agreement is not materially impaired thereby. In addition, the Advisor and its employees, as applicable, also will be permitted to trade in Commodities for their own accounts, so long as the Advisor's ability to carry out its obligations and duties to the Partnership is not materially impaired thereby. (b) Furthermore, so long as the Advisor is performing services for the Partnership, 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 Partnership in a manner which might reasonably be expected to have a material adverse -18- effect on the Partnership (without limiting the generality of the foregoing, it is understood that this paragraph shall not prohibit the acceptance of additional capital, which acceptance requires only routine adjustments to trading patterns in order to comply with speculative position limits or daily trading limits). (c) The Advisor agrees, in its management of accounts other than the account of the Partnership, that it will not knowingly or deliberately favor any other account managed or controlled by him or any of its employees or affiliates (in whole or in part) over the Partnership. The preceding sentence shall not be interpreted to preclude inter alia (i) the Advisor from charging another client fees which differ from the fees to be paid to it hereunder, or (ii) an adjustment by the Advisor in the implementation of any agreed upon Trading Approach in accordance with the procedures set forth in Section 1 hereof, which is undertaken by the Advisor in good faith in order to accommodate additional accounts. The Advisor, upon reasonable request and receipt of adequate assurances of confidentiality, shall provide the General Partner with an explanation of the differences, if any, in performance between the Partnership and any other similar account pursuant to the same Trading Approach for which the Advisor or any of its affiliates acts as a commodity trading advisor (in whole or in part). (d) Upon reasonable notice from the General Partner, the Advi- sor shall permit the General Partner 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 Partnership has been treat- ed equitably with respect to advice rendered during the term of this Agreement by the Advisor for other accounts managed by the Advisor, which the parties acknowledge to mean that the General Partner may inspect, subject to -19- 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 related to such other accounts 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 ac- count is maintained and in any event, the Partnership and the General Partner shall keep all such information obtained by it from the Advisor confidential. 10. Speculative Position Limits. If, at any time during the term of this Agreement, it appears to the Advisor that it may be required to aggregate the Partnership'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 General Partner if the Partnership's positions are included in an aggregate amount which equals or exceeds one hundred percent (100%) of the applicable speculative limit. The Advisor agrees that, if its trading recom- mendations 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 Partnership and its other accounts in a good faith effort to achieve an equitable treatment of all accounts. The Advisor presently believes that its Trading Approach for the management of the Partnership's account can be implemented for the benefit of the Partnership notwithstanding the possibility that, from time to time, speculative position limits may become applicable. -20- 11. Redemptions, Distributions and Reallocations. (a) The General Partner agrees to give the Advisor at least three (3) business days' prior notice of any proposed redemptions, distributions or reallocations. (b) Redemptions and distributions shall be charged against the various Partnership accounts managed by its trading advisors, including the Advisor, in such proportions as the General Partner, in its discretion, determines to be in the Partnership's best interests. 12. Brokerage Confirmations and Reports. The General Partner will instruct the Partnership's commodity broker or brokers to furnish the Advisor with copies of all trade confirmations, daily equity runs, and monthly trading statements relating to the Partnership's assets under the management of the Advisor. The Advisor will maintain records and will monitor all open positions relating thereto; provided, however, that except as provided in Section 1(g) hereof, the Advisor shall not be responsible for any brokerage errors. The General Partner also will furnish the Advisor with a copy of all reports, including but not limited to, monthly, quarterly and annual reports, sent to the limited partners, the Securities and Exchange Commission ("SEC"), the CFTC and the NFA. The Advisor shall, at the General Partner's request, provide the General Partner with copies of all trade confirmations, daily equity runs, monthly trading reports or other reports sent to the Advisor by the Partnership's commodity broker regarding the Partnership, and in the Advisor's possession or control, as the General Partner deems appropriate, if the General Partner cannot obtain such copies on its own behalf. Upon request, the General Partner will provide the Advisor with accurate information with respect to the Partnership's then current Net Asset Value and Net Asset Value per Unit. -21- 13. The Advisor's Representations and Warranties. The Advisor represents and warrants that: (a) It has full corporate 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 Partnership, (i) be required to take any action contrary to its incorporating documents, 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; (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, and has complied, and will continue to comply, with all laws, rules and regulations having application to its business, including but not limited to rules and regulations promulgated by the CFTC and NFA. (d) A copy of its most recent Commodity Trading Advisor Dis- closure Document, as required by Part 4 of the CFTC's regulations, has been provided to the Partnership in the form of Exhibit B hereto and, except as disclosed in such Disclosure Document, all information in such Disclosure Document (including, but not limited to, background, performance, trading methods and trading systems) is true, complete and accurate in all material respects and is in conformity in all material respects with the -22- provisions of the CE Act including the rules and regulations thereunder; (e) The amount of Partnership assets to be allocated to the Advisor should not, in the reasonable judgment of the Advisor, result in the Advisor being required to alter its Trading Approach to a degree which would be expected to have a material adverse effect on the Partnership; (f) Neither the Advisor nor its stockholders, directors, officers, employees, agents, principals or affiliates, nor any of its or their respective successors or assigns: (i) shall knowingly or deliberately use or distribute for any purpose whatsoever any list containing the names and/or residence addresses of, and/or other information about, the limited partners of the Partnership; nor (ii) shall solicit any person it or they know is a limited partner of the Partnership for the purpose of soliciting commodity business from such limited partner, unless such limited partner shall have first contacted the Advisor or is already a client of the Advisor or a prospective client with which the Advisor has commenced discussions or is introduced or referred to the Advisor by an unaffiliated agent other than in violation of clause (i); (g) This Agreement has been duly and validly executed and delivered and is a valid and binding agreement, enforceable against it in accordance with its terms; (h) Thomas Moller devotes, and will continue to devote during the term of this Agreement, such portion of his time to the trading activities of, and the conduct of the business of, the Advisor as he shall reasonably believe is necessary and appropriate; and (i) There is not pending, or to the best of its knowledge, threatened or contemplated, any action, suit or proceeding before any court or arbitration panel, or -23- before or by any governmental, administrative or self-regulatory body, to which the Advisor or its stockholders, directors, officers, employees, agents, principals or affiliates is a party, or to which any of its assets is subject, which might reasonably be expected to result in any material adverse change in the condition of the Advisor (financial or otherwise), business or prospects or reasonably might be expected to affect adversely in any material respect any of the Advisor's assets or which reasonably might be expected to (A) materially impair the Advisor's ability to discharge its obligations to the Partnership, or (B) result in a matter which would require disclosure in its Disclosure Document which has not been so disclosed; and the Advisor has not received any notice of an investigation by (i) the NFA regarding noncompliance with NFA rules or the CE Act, (ii) the CFTC regarding noncompliance with the CE Act, or the rules and regulations thereunder, or (iii) any exchange regarding noncompliance with the rules of such exchange, which investigation reasonably might be expected to (1) materially impair its ability to discharge its obligations to the Partnership, or (2) result in a matter which would require disclosure in its Disclosure Document which has not been so disclosed. The within representations and warranties shall be continuing during the term of this Agreement, and, if at any time, any event has occurred which would make or tend to make any of the foregoing not true, the Advisor promptly will notify the Partnership in writing thereof. 14. The General Partner's Representations and Warranties. The General Partner represents and warrants on behalf of the Partnership and itself that: (a) It has full corporate and other capacity and authority to enter into this Agreement; -24- (b) It will not, by acting as general partner to the Partnership or by entering into this Agreement, (i) be required to take any action contrary to its incorporating or partnership documents or any applicable statute, law or regulation of any jurisdiction, or (ii) breach or cause to be breached (A) any undertaking, agreement, contract, statute, rule, regulation, to which it or the Partnership is a party or by which it or the Partnership is bound or (B) any order of any court or governmental or regulatory agency having jurisdiction over the Partnership or the General Partner, which in the case of (i) or (ii) would materially limit or materially adversely affect the performance of its or the Partnership's duties under this Agreement; (c) The Partnership and the General Partner have obtained all required governmental and regulatory licenses, registrations and approvals required by law as may be necessary to act as described in the Partnership's Registration Statement and Prospectus, including, without limitation, registration as a commodity pool operator under the CE Act and membership as a commodity pool operator in the NFA. The General Partner will maintain and renew the foregoing registrations, licenses, memberships and approvals, as appropriate, during the term of this Agreement; (d) The Partnership and the General Partner have complied, and will continue to comply, with all laws, rules and regulations having application to its or their business, including but not limited to rules and regulations promulgated by the CFTC and NFA, and there are no actions, suits or proceedings pending or, to the best of the knowledge of the Partnership or the General Partner, threatened against it or them, at law or in equity or before or by any federal, state, municipal or other governmental or regulatory department, commission, board, bureau, agency or instrumentality, or by any -25- commodity or security exchange worldwide in which an adverse decision would materially and adversely affect the ability of the Partnership or the General Partner to comply with, and perform their obligations under, this Agreement; (e) This Agreement has been duly and validly authorized, executed and delivered, and is a valid and binding agreement, enforceable against each of them, in accordance with its terms; and (f) On the date hereof, it is, and during the term of this Agreement, it will be (i) in the case of the Partnership, a duly formed and validly existing limited partnership, and (ii) in the case of the General Partner, a duly formed and validly existing corporation, in each case, in good standing under the laws of the State of Delaware, and in good standing and qualified to do business in each jurisdiction in which the nature and conduct of its business requires such qualification and the failure to be so qualified would materially adversely affect its ability to perform its obligations under this Agreement; and (g) All authorizations, consents or orders of any court, or of any federal, state or other governmental or regulatory agency or body required for the valid authorization, issuance, offer and sale of the Partnership's Units were obtained, and, to the best of its knowledge, after due inquiry no order preventing or suspending the use of the Prospectus with respect to the Units was issued by the SEC, the CFTC or the NFA. The Partnership's Registration Statement and Prospectus contained all statements which were required to be made therein, conformed in all material respects with the requirements of the Securities Act of 1933, as amended and the CE Act, and the rules and regulations of the SEC and the CFTC, respectively, thereunder, and with the rules of the NFA, and did not contain an untrue statement of a material fact or omit to state -26- a material fact required to be stated therein or necessary to make the statements therein (with respect to the Prospectus, in light of the circumstances in which they were made) not misleading; provided, however, that this representation and warranty shall not apply to any statements or omissions made in reliance upon and in conformity with information furnished to the General Partner, the Partnership or to Prudential Securities by or on behalf of the Advisor specifically for use in the Registration Statement or Prospectus, supplement thereto, or monthly report. (h) The Partnership's offering of its Units has terminated and there are not currently, and will not be in the future, any offering materials in use by the Partnership or the General Partner in connection with the offer or sale of Units in the Partnership. The within representations and warranties shall be continuing during the term of this Agreement, and, if at any time, any event has occurred which would make or tend to make any of the foregoing not true, the General Partner promptly will notify the Advisor in writing. 15. Assignment. This Agreement may not be assigned by any of the parties hereto without the express prior written consent of the other parties hereto. 16. Successors. This Agreement shall be binding upon and inure to the benefit of the parties hereto and the successors and permitted assigns of each of them, and no other person (except as otherwise provided herein) shall have any right or obligation under this Agreement. The terms "successors" and "assigns" shall not include any purchasers, as such, of Units. 17. Amendment or Modification. This Agreement may not be amended or -27- modified except by the written consent of the parties hereto. 18. Notices. Except as otherwise provided herein, all notices required to be delivered under this Agreement shall be effective only if in writing and shall be deemed given by the party required to provide notice when received by the party to whom notice is required to be given and shall be delivered personally, by registered mail, postage prepaid, return receipt requested, or by telecopy, as follows (or to such other address as the party entitled to notice shall hereafter designate by written notice to the other parties): If to the General Partner: If to the Partnership: Prudential Securities Futures Prudential-Bache Capital Return Management Inc. Futures Fund 2, L.P. One New York Plaza, 14th floor c/o Prudential Securities Futures Management Inc. New York, New York 10292-2585 One New York Plaza, 14th floor Attention: James M. Kelso New York, New York 10292-2585 Facsimile: (212) 778-6809 Attention: James M. Kelso Facsimile: (212) 778-6809 and in either case with a copy to: Prudential Securities Incorporated One New York Plaza, 14th Floor New York, New York 10292-2585 Attention: James M. Kelso Facsimile: (212) 778-6809 and, with respect to legal notices, a copy to: Rosenman & Colin LLP 575 Madison Avenue New York, New York 10022 Attention: Fred M. Santo, Esq. Facsimile: (212) 940-7079 If to the Advisor: and, with respect to legal notices, a copy to: Eclipse Capital Management, Inc. Sidley & Austin 12400 Olive Boulevard, Suite 408 One First National Plaza St. Louis, Missouri 63141 Chicago, Illinois 60603 Attention: Thomas W. Moller Attention: Jodie Nedeau, Esq. Facsimile: (314) 579-0525 Facsimile: (212) 972-9150 -28- 19. Governing Law. The parties agree that this Agreement shall be governed by and construed in accordance with the laws of the State of New York without regard to conflict of laws principles. 20. Survival. The provisions of this Agreement shall survive the termination of this Agreement with respect to any matter arising while this Agreement was in effect. 21. Disclosure Document Modifications. The Advisor shall promptly furnish the General Partner with a copy of all modifications to its Disclosure Document when available for distribution. Upon receipt of any modified Disclosure Document by the General Partner, the General Partner will provide the Advisor with an acknowledgement of receipt thereof. 22. Promotional Literature. The parties agree that prior to using any promotional or other material in which reference to the other parties hereto is made (including reports to clients), they shall furnish a copy of such information to the other parties and will not make use of any literature containing references to such other parties to which such other parties object, except as otherwise required by law or regulation. 23. No Waiver. No failure or delay on the part of any party hereto in exercising any right, power or remedy hereunder shall operate as a waiver thereof, nor shall any single or partial exercise of any such right, power or remedy preclude any other or further exercise thereof or the exercise of any other right, power or remedy. Any waiver granted hereunder must be in writing and shall be valid only in the specific instance in which given. 24. Headings. Headings to Sections herein are for the convenience of the parties only, and are not intended to be or to affect the meaning or interpretation of this -29- Agreement. 25. Complete Agreement. Except as otherwise provided herein, this Agreement constitutes the entire agreement between the parties with respect to the matters referred to herein, and no other agreement, verbal or otherwise, shall be binding upon the parties hereto. 26. Counterparts. This Agreement may be executed in one or more counterparts, each of which shall be deemed an original and all of which, when taken together, shall constitute one original instrument. IN WITNESS WHEREOF, this Agreement has been executed for and on behalf of the undersigned as of the day and year first above written. PRUDENTIAL-BACHE CAPITAL RETURN PRUDENTIAL SECURITIES FUTURES FUTURES FUND 2, L.P. MANAGEMENT INC. By: PRUDENTIAL SECURITIES FUTURES MANAGEMENT INC., By: /s/ James M. Kelso ----------------------- Its: General Partner James M. Kelso, President By: /s/ James M. Kelso ----------------------------- James M. Kelso, President ECLIPSE CAPITAL MANAGEMENT, INC. By: /s/ Thomas W. Moller ----------------------------- Thomas W. Moller, President -30- EXHIBIT "A" "Net Asset Value" means the total assets, including, but not limited to, all cash and cash equivalents (valued at cost plus accrued interest and amortization of original issue discount) less total liabilities, of the Partnership, each determined on the basis of generally accepted accounting principles in the United States, consistently applied under the accrual method of accounting ("GAAP"), including, but not limited to, the extent specifically set forth below: (a) Net Asset Value shall include any unrealized profit or loss on open Commodities Positions, and any other credit or debit accruing to the Partnership but unpaid or not received by the Partnership. (b) All open commodity futures contracts and options traded on a United States exchange are calculated at their then current market value, which shall be based upon the settlement price for that particular commodity futures contract and option traded on the applicable United States exchange on the date with respect to which Net Asset Value is being determined; provided, that if a commodity futures contract or option traded on a United States exchange could not be liquidated on such day, due to the operation of daily limits or other rules of the exchange upon which that position is traded or otherwise, the settlement price on the first subsequent day on which the position could be liquidated shall be the basis for determining the market value of such position for such day. The current market value of all open commodity futures contracts and options traded on a non- United States exchange shall be based upon the liquidating value for that particular commodity futures contract and option traded on the applicable non-United States exchange on the date with respect to which Net Asset Value is being determined; provided, that if a commodity futures contract or option traded on a non-United States exchange could not be liquidated on such day, due to the operation of rules of the exchange upon which that position is traded or otherwise, the liquidating value on the first subsequent day on which the position could be liquidated shall be the basis for determining the market value of such position for such day. The current market value of all open forward contracts entered into by the Partnership shall be the mean between the last bid and last asked prices quoted by the bank or financial institution which is a party to the contract on the date with respect to which Net Asset Value is being determined; provided, that if such quotations are not available on such date, the mean between the last bid and asked prices on the first subsequent day on which such quotations are available shall be the basis for determining the market value of such forward contract for such day. The General Partner may in its discretion value any assets of the Partnership pursuant to such other principles as it may deem fair and equitable. (c) Interest earned on the Partnership's commodity brokerage account shall be accrued at least monthly; and -31- (d) The amount of any distribution made pursuant to Article VIII of the Partnership's Partnership Agreement shall be a liability of the Partnership from the day when the distribution is declared until it is paid. -32- EXHIBIT "B" (LOGO) Eclipse Capital(r) Disclosure Document The date of this Disclosure Document is December 1, 1996 Eclipse Capital Management, Inc. is registered under the Commodity Exchange Act as a Commodity Trading Advisor. No person is authorized by Eclipse Capital Management, Inc. to give any information or make any representations not contained herein. Delivery of this Disclosure Document at any time does not imply that the information contained herein is correct as of any time subsequent to the date shown above. THE COMMODITY FUTURES TRADING COMMISSION HAS NOT PASSED UPON THE MERITS OF PARTICIPATING IN THIS TRADING PROGRAM NOR HAS THE COMMISSION PASSED ON THE ADEQUACY OR ACCURACY OF THIS DISCLOSURE DOCUMENT. THE DATE ON WHICH ECLIPSE CAPITAL MANAGEMENT, INC. FIRST INTENDS TO USE THIS DISCLOSURE DOCUMENT IS DECEMBER 1, 1996 AND THIS DISCLOSURE DOCUMENT MAY NOT BE UTILIZED PRIOR TO SUCH DATE OR AFTER SEPTEMBER 1, 1997. 12400 Olive Boulevard, Suite 408 St. Louis, Missouri 63141 Telephone (314) 579-0515 Fax (314) 579-0525 Web: http://www.eclipsecap.com/ e-mail: info@eclipsecap.com RISK DISCLOSURE STATEMENT THE RISK OF LOSS IN TRADING COMMODITIES CAN BE SUBSTANTIAL. YOU SHOULD, THEREFORE, CAREFULLY CONSIDER WHETHER SUCH TRADING IS SUITABLE FOR YOU IN LIGHT OF YOUR FINANCIAL CONDITION. IN CONSIDERING WHETHER TO TRADE OR TO AUTHORIZE SOMEONE ELSE TO TRADE FOR YOU, YOU SHOULD BE AWARE OF THE FOLLOWING: IF YOU PURCHASE A COMMODITY OPTION YOU MAY SUSTAIN A TOTAL LOSS OF THE PREMIUM AND OF ALL TRANSACTION COSTS. IF YOU PURCHASE OR SELL A COMMODITY FUTURE OR SELL A COMMODITY OPTION YOU MAY SUSTAIN A TOTAL LOSS OF THE INITIAL MARGIN FUNDS AND ANY ADDITIONAL FUNDS THAT YOU DEPOSIT WITH YOUR BROKER TO ESTABLISH OR MAINTAIN YOUR POSITION. IF THE MARKET MOVES AGAINST YOUR POSITION, YOU MAY BE CALLED UPON BY YOUR BROKER TO DEPOSIT A SUBSTANTIAL AMOUNT OF ADDITIONAL MARGIN FUNDS, ON SHORT NOTICE, IN ORDER TO MAINTAIN YOUR POSITION. IF YOU DO NOT PROVIDE THE REQUIRED FUNDS WITHIN THE PRESCRIBED TIME, YOUR POSITION MAY BE LIQUIDATED AT A LOSS, AND YOU WILL BE LIABLE FOR ANY RESULTING DEFICIT IN THE ACCOUNT. UNDER CERTAIN MARKET CONDITIONS, YOU MAY FIND IT DIFFICULT OR IMPOSSIBLE TO LIQUIDATE A POSITION. THIS CAN OCCUR, FOR EXAMPLE, WHEN THE MARKET MAKES A "LIMIT MOVE." THE PLACEMENT OF CONTINGENT ORDERS BY YOU OR YOUR TRADING ADVISOR, SUCH AS A "STOP-LOSS" OR "STOP-LIMIT" ORDER, WILL NOT NECESSARILY LIMIT YOUR LOSSES TO THE INTENDED AMOUNTS, SINCE MARKET CONDITIONS MAY MAKE IT IMPOSSIBLE TO EXECUTE SUCH ORDERS. A "SPREAD" POSITION MAY NOT BE LESS RISKY THAN A SIMPLE "LONG" OR "SHORT" POSITION. THE HIGH DEGREE OF LEVERAGE THAT IS OFTEN OBTAINABLE IN COMMODITY TRADING CAN WORK AGAINST YOU AS WELL AS FOR YOU. THE USE OF LEVERAGE CAN LEAD TO LARGE LOSSES AS WELL AS GAINS. IN SOME CASES, MANAGED COMMODITY ACCOUNTS ARE SUBJECT TO SUBSTANTIAL CHARGES FOR MANAGEMENT AND ADVISORY FEES. IT MAY BE NECESSARY FOR THOSE ACCOUNTS THAT ARE SUBJECT TO THESE CHARGES TO MAKE SUBSTANTIAL TRADING PROFITS TO AVOID DEPLETION OR EXHAUSTION OF THEIR ASSETS. THIS DISCLOSURE DOCUMENT CONTAINS, AT PAGE 17, A COMPLETE DESCRIPTION OF EACH FEE TO BE CHARGED TO YOUR ACCOUNT BY THE COMMODITY TRADING ADVISOR. THIS BRIEF STATEMENT CANNOT DISCLOSE ALL THE RISKS AND OTHER SIGNIFICANT ASPECTS OF THE COMMODITY MARKETS. YOU SHOULD THEREFORE CAREFULLY STUDY THIS DISCLOSURE DOCUMENT AND COMMODITY TRADING BEFORE YOU TRADE, INCLUDING THE DESCRIPTION OF THE PRINCIPAL RISK FACTORS OF THIS INVESTMENT, AT PAGES 6 THROUGH 10. YOU SHOULD ALSO BE AWARE THAT THIS COMMODITY TRADING ADVISOR MAY ENGAGE IN TRADING FOREIGN FUTURES OR OPTIONS CONTRACTS. TRANSACTIONS ON MARKETS LOCATED OUTSIDE THE UNITED STATES, INCLUDING MARKETS FORMALLY LINKED TO A UNITED STATES MARKET, MAY BE SUBJECT TO REGULATIONS WHICH OFFER DIFFERENT OR DIMINISHED PROTECTION. FURTHER, UNITED STATES REGULATORY AUTHORITIES MAY BE UNABLE TO COMPEL THE ENFORCEMENT OF THE RULES OF REGULATORY AUTHORITIES OR MARKETS IN NON-UNITED STATES JURISDICTIONS WHERE YOUR TRANSACTIONS MAY BE EFFECTED. BEFORE YOU TRADE YOU SHOULD INQUIRE ABOUT ANY RULES RELEVANT TO YOUR PARTICULAR CONTEMPLATED TRANSACTIONS AND ASK THE FIRM WITH WHICH YOU INTEND TO TRADE FOR DETAILS ABOUT THE TYPES OF REDRESS AVAILABLE TO BOTH YOUR LOCAL AND OTHER RELEVANT JURISDICTIONS. THIS COMMODITY TRADING ADVISOR IS PROHIBITED BY LAW FROM ACCEPTING FUNDS IN THE TRADING ADVISOR'S NAME FROM A CLIENT FOR TRADING COMMODITY INTERESTS. YOU MUST PLACE ALL FUNDS FOR TRADING IN THIS TRADING PROGRAM DIRECTLY WITH A FUTURES COMMISSION MERCHANT. 2 TABLE OF CONTENTS Introduction . . . . . . . . . . . . . . . . . . . . . . Page 4 The Advisor . . . . . . . . . . . . . . . . . . . . . . Page 4 Trading Programs . . . . . . . . . . . . . . . . . . . . Page 5 Trading Approach . . . . . . . . . . . . . . . . . . . . Page 5 Foreign Currency Trading . . . . . . . . . . . . . . . . Page 6 Risk Factors . . . . . . . . . . . . . . . . . . . . . . Page 6 Past Performance of Programs . . . . . . . . . . . . . . Page 10 Fees . . . . . . . . . . . . . . . . . . . . . . . . . . Page 17 Potential Conflicts of Interest . . . . . . . . . . . . Page 18 Client Advisory Agreement . . . . . . . . . . . . . . . Page 18 Client Brokerage Account . . . . . . . . . . . . . . . . Page 19 Miscellaneous . . . . . . . . . . . . . . . . . . . . . Page 20 3 INTRODUCTION Eclipse Capital Management, Inc. manages accounts trading primarily in foreign exchange and global interest rate futures on a discretionary basis. Its trading programs incorporate quantitative trend analysis and technical trading principles. These trading programs are speculative in nature, and potential investors should determine after reading this Disclosure Document whether any of the trading programs currently being offered by Eclipse Capital Management, Inc. are consistent with their financial situations and investment objectives. Because speculative commodity interest trading can lead to substantial losses as well as gains, each prospective investor should carefully consider the risks involved in commodity interest trading. See "Risk Factors." THE ADVISOR Eclipse Capital Management, Inc. ("Eclipse Capital") is a Kentucky corporation incorporated on July 18, 1983. It was registered on August 14, 1986 as a Commodity Trading Advisor ("CTA") under the Commodity Exchange Act as amended, and is a member as such in good standing of the National Futures Association. Its books and records are kept at its office, located at the address listed on the cover page of this document. Past performance information of Eclipse Capital and its principals is contained on pages 10 through 16 of this Disclosure Document. Thomas W. Moller, the sole shareholder of Eclipse Capital, has served as its President, Treasurer, and sole director since founding the firm. Mr. Moller received an undergraduate degree in Business and Economics from Vanderbilt University and a graduate degree in Accounting from the University of Kentucky. He was a Certified Public Accountant and has a background in financial planning and investment management. In 1980, as Chief Financial Officer of a privately held company, he designed and implemented one of the first variable rate loan hedge programs using interest rate futures contracts. In 1982 he formed Interest Rate Management, Inc., another CTA which provided interest rate hedging advisory and management services. Mr. Moller has devoted 100% of his time to Eclipse Capital since September, 1986, and is primarily involved in the areas of trading, research, and product development. Ronald R. Breitigam is Secretary and Vice President, Trading, with responsibility for the implementation of the firm's trading strategies. After graduating from Pacific Union College in 1982, Mr. Breitigam became an independent floor trader at the Mid-America Commodity Exchange. He served as an institutional broker with Thompson McKinnon (1984-1985) and PaineWebber (1986), and in 1986 formed his own trading company to work full time implementing various proprietary futures and options trading strategies. Mr. Breitigam joined Eclipse Capital in May, 1989. James W. Dille, Ph.D. is Vice President, Information Systems, with responsibility for computer- based research, development and operations. Dr. Dille has undergraduate and graduate engineering degrees from the University of Virginia. He received his masters and Ph.D. in Applied Sciences from Harvard University specializing in the areas of Decision and Control Theory and Computer Science. From 1987 through 1993 he worked for McDonnell Douglas Training Systems where he was responsible for research in the areas of computer architectures and networking. He is an affiliate professor at Washington University in St. Louis, teaching courses in numerical analysis and the simulation and analysis of complex systems. Dr. Dille joined Eclipse Capital in January, 1994. Neither Eclipse Capital nor any of its principals has ever been involved in or been the subject of any material administrative, civil or criminal action. 4 FURTHER INFORMATION REGARDING ECLIPSE CAPITAL IS AVAILABLE UPON REQUEST AT THE ADDRESS AND TELEPHONE NUMBER LISTED ON THE COVER PAGE OF THIS DISCLOSURE DOCUMENT. TRADING PROGRAMS Eclipse Capital currently offers two financially oriented trading portfolios under its Global Financial Trading approach. These programs are designed primarily for commodity pools and certain other qualified investors. Both trading programs employ a systematic trading approach using multiple trend-following models. Before selecting a particular program, a client should consider a number of different factors including portfolio composition, trading methodology, instruments traded, and minimum account size. The following descriptions have been provided to assist the potential client in selecting the most appropriate program: Global Monetary Program. This "financial, metals and energy" program has a $2 million minimum account size and trades a global portfolio of futures, options on futures and exchanges-of-futures- for-physical contracts ("EFP") 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. Global Yield Program. This "sector" program has a $2 million minimum account size and trades a specialized portfolio comprised entirely of domestic and foreign interest rate instruments. Global money markets and bond futures contracts are traded on major exchanges located throughout the world, including Chicago, Montreal, London, Paris, Madrid, Tokyo, Singapore and Sydney. TRADING APPROACH Eclipse Capital's trading programs are systematic and trend- following in nature, with the objective of capitalizing on intermediate and long-term price trends. Eclipse Capital makes all trading decisions pursuant to its proprietary trend identification, capital allocation, and risk management models. The Eclipse Capital programs make use of 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. Eclipse Capital'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 which Eclipse Capital 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 Eclipse Capital. The decision not to trade specific contracts for certain periods, or to reduce the number of contracts traded may 5 result at times in missing significant profit opportunities which otherwise would be captured by technical strategies. The specific contracts traded in each portfolio 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 in time 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, Eclipse Capital may also employ trading techniques such as spreads and straddles, and buy or sell futures options. Eclipse Capital may alter its trading programs including, without limitation, trading strategies, commodity interests and markets traded, and trading principles, without approval from clients if Eclipse Capital determines that such change is in the best interest of the accounts it manages. FOREIGN CURRENCY TRADING Foreign currency trading takes place in the interbank foreign exchange markets and in foreign currency futures and EFPs. The trading of forward contracts on foreign currencies may involve greater risks than those accompanying the trading of futures contracts on exchanges. Generally, neither the Commodity Futures Trading Commission ("CFTC") nor the banking authorities have regulated the trading of forward currency contracts. Forward contracts are not traded on exchanges. Although the foreign currency markets may not be necessarily more volatile than other commodity markets, such forward trading may involve less protection against defaults than trading on exchanges. Since such contracts are not guaranteed by an exchange or clearing house thereof, the client is subject to the risk of dealer failure or inability or refusal to perform with respect to such contracts. The failure of a dealer with which the client has contracted would likely result in a default, thereby depriving the client of unrealized profits or forcing the client to cover its commitments for resale, if any, at the current market price. In addition, the imposition of exchange and credit controls or the fixing of currency exchange rates by governmental authorities might limit forward trading to less than that which Eclipse Capital would otherwise recommend. Due to the foregoing factors and the absence of CFTC regulation, the trading of forward contracts may thus involve greater risks than those accompanying the trading of futures contracts on exchanges. No specific limitation on the percentage or amount of forward contracts, if any, engaged in by the client has been imposed. The CFTC may, in the future, seek to assert jurisdiction over forward contracts on currencies such as those traded by Eclipse Capital and attempt to prohibit certain United States entities, including the pool clients of Eclipse Capital, from engaging in transactions in such contracts. RISK FACTORS Trading commodity interest contracts involves a HIGH DEGREE OF RISK. In such trading, the liability of the client is not limited to the initial investment or the equity in a managed account, but extends to any and all losses. Although it is the intention of Eclipse Capital to reduce risk through relative diversification, there can be no guarantee that substantial losses will not in fact be incurred. Listed below are some of the risks associated with trading commodity interest contracts which a potential client should carefully consider before participating in any of Eclipse Capital's Global Financial Trading programs. (1) Trading in Commodity Interest Contracts is Speculative and Volatile. Commodity interest contract prices are highly volatile. Price movements of commodity interest contracts are influenced by, among other things, 6 changing supply and demand relationships; climate government agricultural, trade, fiscal, monetary and exchange control programs and policies; national and international political and economic events; crop diseases; the purchasing and marketing programs of different nations; and changes in interest rates. In addition, governments from time to time intervene, directly and by regulation, in certain markets, particularly those in currencies and gold. Such intervention is often intended to influence prices directly. None of these factors can be controlled by Eclipse Capital. No assurances can be given that Eclipse Capital's advice will result in profitable trades for a client or that a client will not incur substantial losses. (2) Futures Trading Is Highly Leveraged. The low margin deposits normally required in commodity interest contract trading (typically between 2% and 15% of the value of the contract purchased or sold) permit an extremely high degree of leverage. For example, if at the time of purchase 10% of the price of a contract is deposited as margin, a 10% decrease in the price of the contract would, if the contract is then closed out, result in a total loss of the margin deposit before any deduction for brokerage commissions. A decrease of more than 10% would result in a loss of more than the total margin deposit. Accordingly, a relatively small price movement in a contract may result in immediate and substantial losses to the investor. Like other leveraged investments, any trade may result in losses in excess of the amount invested. When the market value of a particular open position changes to a point where the margin on deposit in a client's account does not satisfy the applicable maintenance margin requirement imposed by the client's FCM or IB, the client, and not Eclipse Capital, will receive a margin call from the FCM or IB. If the client does not satisfy the margin call within a reasonable time (which may be as brief as a few hours), the FCM or IB will close out the client's position and the client will be responsible for all resulting losses. (3) Futures Markets May Be Illiquid. United States commodity exchanges impose "daily limits" on the amount by which the price of most futures contracts traded on such exchanges may vary during a single day. Daily limits prevent trades from being executed during a given trading day at a price above or below the daily limit. Once the price of a futures contract has moved to the limit price, it may be difficult, costly or impossible to liquidate a position. Such limits could prevent Eclipse Capital from promptly liquidating unfavorable positions and restrict its ability to exercise or offset commodity options held in a managed account. In addition, even if futures prices have not moved the daily limit, Eclipse Capital may be unable to execute trades at favorable prices if the liquidity of the market is not adequate. Daily limits have been applicable to bond futures for some time and have recently been imposed on stock index futures (although none exist on actual stocks) as a result of the market turbulence of October 1987. It is also possible for an exchange or the CFTC to suspend trading in a particular contract (as, in fact, occurred in the case of stock index futures on October 20, 1987), order immediate settlement of a particular contract or order that trading in a particular contract be conducted for liquidation only. (4) Failure of a Client's FCM. Under CFTC regulations, FCMs are required to maintain a client's assets in a segregated account. If a client's FCM fails to do so, the client may be subject to a risk of loss of his funds on deposit with his FCM in the event of its bankruptcy. In addition, under certain circumstances, such as the inability of another client of the FCM or the FCM itself to satisfy substantial deficiencies in such other client's account, a client may be subject to a risk of loss of his funds on deposit with his FCM, even if such funds are properly segregated. In the case of any such bankruptcy or client loss, a client might recover, even in respect of property specifically traceable to the client, only a pro rata share of all property available for distribution to all of the FCM's clients. 7 (5) Importance of Price Trends to Profitability. Eclipse Capital applies a trend-following trading technique, which seeks to identify significant price trends soon after they begin and participate in such trends until soon after they have begun to reverse. The profitability of any trend-following strategy depends upon the occurrence of major price moves in some futures contracts traded; generally, the majority of trend-following trades result in small losses, but attempt to achieve gains on relatively fewer trades to offset such losses. There is no guarantee that there will actually be such trends in the future. The best trend-following strategy, whatever elements it may contain, is unlikely to be profitable if there are no trends of the kind it seeks to identify. Furthermore, a strategy which is successful in the case of upward price trends may not be successful in downward trends and vice versa. Any factor which may lessen the prospect of major trends in the future (such as increased government control of, or participation in, the markets) may reduce the prospect that any trend-following strategy will be profitable. (6) Substantial Fees and Expenses. A client is subject to substantial brokerage commissions and management fees and, possibly, incentive fees. Accordingly, a client's account will have to earn substantial trading profits to avoid depletion of assets due to such commissions and fees. It is possible that substantial brokerage commissions may be generated by Eclipse Capital's trading method which could negatively impact the profitability of a client's account. A client is responsible for bearing any and all expenses, losses and fees incurred as a result of maintaining and having Eclipse Capital trade the client's account. See "Fees" and "Client Brokerage Account." (7) Limited Deduction by Noncorporate Taxpayers for Management and Incentive Fees. Under prior law, noncorporate taxpayers who itemized deductions were permitted to deduct expenses of producing income, including investment advisory fees, when computing taxable income. The Internal Revenue Code of 1986, as amended, now provides that such expenses are to be aggregated with unreimbursed employee business expenses and other expenses of producing income (collectively, "Aggregate Investment Expenses") and the aggregate amount of such expenses will be deductible only to the extent such amount exceeds 2% of a noncorporate taxpayer's adjusted gross income. Such limitation could substantially reduce the deductibility for federal income tax purpose of any amounts deemed to constitute "investment advisory fees." The fees payable to Eclipse Capital will, in all probability, be characterized as investment advisory fees subject to the above limitation. EACH CLIENT, THEREFORE, MAY PAY TAX ON MORE THAN THE NET PROFITS GENERATED BY ECLIPSE CAPITAL'S TRADING PROGRAM. EACH PROSPECTIVE CLIENT MUST CONSULT AND MUST DEPEND ON HIS OWN TAX ADVISOR REGARDING THE FEDERAL, STATE, LOCAL AND FOREIGN TAX CONSEQUENCES OF PARTICIPATING IN ECLIPSE CAPITAL'S TRADING PROGRAM. (8) Possible Effects of Speculative Position Limits. The CFTC and the United States commodity exchanges have established limits on certain commodities referred to as "speculative position limits" on the maximum net long or short speculative positions that any person may hold or control in futures or options contracts traded on United States commodity exchanges. Eclipse Capital also will be subject to position limits on the basis of all accounts (proprietary or client) under its management. (9) Adverse Effects of Increased Regulation of Financial Futures. As a result of the stock market decline during October 1987 and general volatility, there has been considerable public discussion, and congressional investigation, of the desirability of imposing major additional regulation on the financial and (in particular) the stock index futures 8 markets, including proposals for reduced speculative position limits and significantly increased margin requirements. Some commentators have suggested eliminating the stock index futures market or "program trading" -- i. e., arbitraging between the stock index futures and the underlying stock markets - altogether. Although it is not possible to predict what, if any, regulatory changes will in fact be imposed on the financial and stock index futures markets, any such regulations could significantly restrict Eclipse Capital's access to, and ability to allocate and reallocate assets to and from, financial and stock index futures positions, to the material detriment of Eclipse Capital's trading programs. Any such regulations may also impair the liquidity of the financial and stock index futures markets, increasing the transaction costs associated with stock index futures contracts. (10) General Uncertainty Concerning Future Regulatory Changes. In addition to possible changes in the regulation of the stock index and financial futures markets, other regulatory changes could have a material and adverse effect on clients' managed accounts' prospects for profitability. The United States securities and commodities markets are subject to ongoing and substantial regulatory changes, and it is impossible to predict what statutory, administrative or exchange imposed restrictions may become applicable in the future. (11) Forward Trading is Unregulated. Forward contracts are not traded on exchanges. Rather, banks and dealers act as principals in these markets. Neither the CFTC nor banking authorities currently regulate trading in forward contracts on currencies, and there is no limitation on the daily price movements of forward contracts. Speculative position limits are also not applicable to forward trading. (12) Trading in Options on Commodity Futures. Trading in all options on commodities was prohibited in 1978 due to perceived abuses, but commodities options trading has been permitted since October 1, 1982 pursuant to a "pilot program" established by the CFTC. Commodity options trading in the United States has now been made permanent and United States commodity exchanges are permitted to trade an unlimited number of such options (subject to CFTC approval). There can be no assurance that any trading approach can successfully incorporate significant levels of options trading or the variety of new options which have recently become, and are expected in the near future to become, available for trading. Although successful trading in options on futures contracts requires many of the same skills required for successful futures trading, the risks involved are somewhat different. (13) Foreign Futures and Options Trading. Participation in foreign futures and foreign options transactions involves the execution and clearing of trades on or subject to the rules of a foreign board of trade. Neither the CFTC, NFA nor any domestic exchange regulates activities of any foreign boards of trade, including the execution, delivery and clearing of transactions, or has the power to compel enforcement of the rules of a foreign board of trade or any applicable foreign laws. Generally, the foreign transaction will be governed by applicable foreign law. This is true even if the exchange is formally linked to a domestic market so that a position taken on the market may be liquidated by a transaction on another market. Moreover, such laws or regulations will vary depending on the foreign country in which the foreign futures or foreign options transaction occurs. For these reasons, customers who trade foreign futures or foreign options contracts may not be afforded certain of the protective measures provided by the Commodity Exchange Act, the Commission's Regulations and the Rules of the National Futures Association and any domestic exchange, including the right to use the reparation proceedings before the Commission and arbitration proceedings provided by the National Futures Association or any domestic futures exchange. In particular, funds received from customers for foreign futures or foreign options transactions may not be provided the same protection as funds received in respect of transactions on United States futures exchanges. 9 The price of any foreign futures or foreign options contract and, therefore, the potential profit and loss thereon, may be affected by fluctuating foreign exchange rates between the time an order is placed and the time it is liquidated, offset or exercised. (14) Potential Conflicts of Interest. Eclipse Capital's trading programs will be subject to certain potential conflicts of interest. See "Potential Conflicts of Interest." (15) Special Disclosure for Notionally-Funded Accounts. You should request your commodity trading advisor to advise you of the amount of cash or other assets (actual funds) which should be deposited to the advisor's trading program for your account to be considered "fully-funded." This is the amount upon which the commodity trading advisor will determine the number of contracts traded in your account and should be an amount sufficient to make it unlikely that any further cash deposits would be required from you over the course of your participation in the commodity trading advisor's program. You are reminded that the account size you have agreed to in writing (the "nominal" or "notional" account size) is not the maximum possible loss that your account may experience. You should consult the account statements received from your futures commission merchant in order to determine the actual activity in your account, including profits, losses and current cash equity balance. To the extent that the equity in your account is at any time less than the nominal account size you should be aware of the following: 1. Although your gains and losses, fees and commissions measured in dollars will be the same, they will be greater when expressed as a percentage of account equity. 2. You may receive more frequent and larger margin calls. 3. The disclosures which accompany the performance summary may be used to convert the rates-of-return ("RORs") in the performance summary to the corresponding RORs for particular partial funding levels. The preceding list of risk factors does not purport to be a complete explanation of the risks involved in investing in Eclipse Capital's trading programs. Each prospective client who intends to trade commodity interest contracts should carefully read this Disclosure Document, the Risk Disclosure Statement on the first page of this Disclosure Document, and the risk disclosure statements of the relevant FCM or IB with particular care and give due consideration to the risks described therein. In addition, each prospective client is urged to consult with the prospective client's financial advisor. PERFORMANCE HISTORY The CFTC requires a commodity trading advisor to disclose to prospective customers the actual performance record of all accounts for which the trading advisor and its principals have had the authority to cause transactions to be effected without clients' specific authorization. All performance information set forth below is current through September, 1996. In the following performance summaries, Eclipse Capital has adopted a method of computing rate of return, referred to as the Time Weighting of Additions and Withdrawals method. 10 PERFORMANCE SUMMARY - GLOBAL MONETARY PROGRAM Name of CTA: Eclipse Capital Management, Inc. Program: Global Monetary Program Inception of trading by CTA: April 1986 Inception of trading in program:	 August 1990 Number of accounts open: 10 Number of accounts closed while profitable: 9 Number of accounts closed while unprofitable: 4 Assets under management in program (excluding Notional): $53,350,671 Assets under management in program (including Notional): $55,850,671 Assets under management in all programs (excluding Notional): $109,410,873 Assets under management in all programs (including Notional): $111,910,873 Largest monthly drawdown: -14.62% (July 1994) Largest peak to valley drawdown: -26.97% (March to September 1994) Monthly / Annual Rates Of Return (%) MONTH 1996 1995 1994 1993 1992 1991 January 5.45 -2.28 1.34 4.23 -6.77 1.15 February -0.07 1.19 3.00 9.34 -5.38 8.01 March -0.30 4.52 6.09 -2.11 5.51 23.70 April 5.58 0.84 -3.43 1.42 -5.29 -3.29 May 1.96 8.09 -2.91 -1.02 -0.24 -13.06 June 0.11 -2.34 0.28 3.03 11.74 12.41 July 0.58 1.04 -11.70 3.09 16.56 8.99 August 3.04 6.80 -5.12 0.81 8.13 -0.51 September 2.77 -0.57 -1.42 3.61 -10.27 3.23 October 0.34 0.90 2.06 1.88 -0.96 November 2.16 4.50 -0.03 2.33 2.50 December -0.64 -2.24 2.84 -2.50 16.96 Annual 20.60 20.21 -11.37 30.37 12.95 69.76 (9 Months) Eclipse Capital began using the Fully-Funded Subset method to calculate Rates of Return for periods subsequent to August 1, 1996. PAST PERFORMANCE IS NOT NECESSARILY INDICATIVE OF FUTURE RESULTS. 11 PERFORMANCE SUMMARY - GLOBAL YIELD PROGRAM Name of CTA: Eclipse Capital Management, Inc. Program: Global Yield Program Inception of trading by CTA: April 1986 Inception of trading in program: April 1992 Number of accounts open: 1 Number of accounts closed while profitable: 5 Number of accounts closed while unprofitable: 6 Assets under management in program (excluding Notional): $55,684,720 Assets under management in program (including Notional): $55,684,720 Assets under management in all programs (excluding Notional): $109,410,873 Assets under management in all programs (including Notional): $111,910,873 Largest monthly drawdown: -14.41% (July 1994) Largest peak to valley drawdown: -26.10% (May 1994 to January 1995) Monthly / Annual Rates Of Return (%) MONTH 1996 1995 1994 1993 1992 January 1.54 -6.53 2.44 6.76 February 0.05 -3.90 2.06 6.65 March -1.00 1.88 5.97 -1.47 April 1.67 2.08 0.25 0.63 -3.22 May 0.39 15.83 -0.92 -1.50 -0.60 June -4.13 -1.05 -0.89 4.08 4.59 July 1.64 0.22 -6.53 2.86 12.79 August 3.86 -1.36 -1.85 5.50 2.39 September 3.34 -0.03 0.37 -0.32 -0.77 October 0.28 -2.28 2.25 0.17 November 4.72 2.58 1.46 0.18 December 2.78 -0.65 1.95 -3.02 Annual 7.37 14.23 0.02 32.40 12.20 (9 Months) (9 Months) PAST PERFORMANCE IS NOT NECESSARILY INDICATIVE OF FUTURE RESULTS. 12 PERFORMANCE SUMMARY - FOREIGN EXCHANGE PROGRAM (Not open to new investment) Name of CTA: Eclipse Capital Management, Inc. Program: Foreign Exchange Program Inception of trading by CTA: April 1986 Inception of trading in program:	 March 1992 Number of accounts open: 0 Number of accounts closed while profitable: 3 Number of accounts closed while unprofitable: 2 Assets under management in program (excluding Notional): $0 Assets under management in program (including Notional): $0 Assets under management in all programs (excluding Notional): $109,410,873 Assets under management in all programs (including Notional): $111,910,873 Largest monthly drawdown: -20.86% (September 1992) Largest peak to valley drawdown: -20.86% (August 1992 to September 1992) Monthly / Annual Rates Of Return (%) MONTH 1995 1994 1993 1992 January 3.15 -2.67 -2.64 February 3.94 0.61 7.86 March 2.79 1.99 -3.95 -1.95 April -4.30 3.21 -4.71 May -1.23 -0.48 -1.17 June 4.19 1.98 16.44 July -2.71 -1.06 11.57 August -2.67 -5.01 10.55 September -1.48 4.79 -19.39 October 3.00 0.58 3.76 November 3.42 -1.55 1.92 December -2.75 3.22 0.12 Annual 10.20 -4.93 6.35 13.18 (3 Months) (10 Months) PAST PERFORMANCE IS NOT NECESSARILY INDICATIVE OF FUTURE RESULTS. 13 PERFORMANCE SUMMARY - FINANCIAL FUTURES ACCOUNT (Not open to new investment) Name of CTA: Eclipse Capital Management, Inc. Program: Financial Futures Account Inception of trading by CTA: April 1986 Inception of trading in program:	 April 1986 Number of accounts open: 0 Number of accounts closed while profitable: 99 Number of accounts closed while unprofitable: 314 Assets under management in program (excluding Notional): $0 Assets under management in program (including Notional): $0 Assets under management in all programs (excluding Notional): $109,410,873 Assets under management in all programs (including Notional): $111,910,873 Largest monthly drawdown: -20.91% (October 1991) Largest peak to valley drawdown: -69.20 (February 1989 to April 1992) Monthly / Annual Rates Of Return (%) MONTH 1996 1995 1994 1993 1992 1991 January 6.19 -4.40 -1.17 0.98 -20.89 -14.51 February 0.06 2.22 15.82 29.00 -14.23 -2.14 March -0.14 -5.18 12.35 -5.47 2.83 13.97 April 2.77 -3.67 1.72 -11.66 -9.98 May 0.93 3.84 3.16 0.81 -12.42 June -5.13 -9.43 13.27 23.77 5.11 July -17.46 0.17 44.02 6.84 August -17.31 2.12 16.00 -1.64 September 6.00 5.29 -14.15 0.62 October -2.14 -1.02 -6.02 -20.91 November 4.97 0.00 -12.78 14.85 December -5.48 2.77 4.59 14.09 Annual 4.41 -7.33 -18.16 60.35 -5.43 -13.42 (6 Months) (3 Months) PAST PERFORMANCE IS NOT NECESSARILY INDICATIVE OF FUTURE RESULTS 14 NOTES TO PERFORMANCE SUMMARIES In the preceding performance summaries, Asset Under Management (excluding Notional) represents the total actual equity (including cash and cash equivalents) deposited in the accounts at the carrying FCM plus committed funds. Asset Under Management (including Notional) represents the total actual equity (including cash and cash equivalents) deposited in the accounts at the carrying FCM plus committed funds plus notional funds. Largest Monthly Drawdown is the largest monthly loss experienced by any single account in the relevant program in any calendar month expressed as a percentage of the total equity in such account in the program and includes the month and year of such drawdown. Largest Peak to Valley Drawdown is the largest calendar month-end to calendar month-end loss experienced by any single account in the program expressed as a percentage of total equity (including notional equity) in such account in the program. Prior to August 1, 1996, Monthly Rate of Return is calculated by dividing net performance by the sum total of the starting equity plus the time-weighted additions minus the time-weighted withdrawals for the period. Beginning in 1994, additions and withdrawals occurred other than at the beginning of the month and, consequently, additions and withdrawals made other than at the beginning of the month are time-weighted. Time weight is calculated by multiplying an addition by the number of days in the period it was available for trading and/or a withdrawal by the number of days in the period it was not available for trading, and dividing by the total number of days in the period. Prior to August 1, 1996, the time weighting of additions and withdrawals method yields the same rates of return as the Fully-Funded Subset Method (described below) since Eclipse Capital did not manage notional funds prior to August 1, 1996. For the periods beginning after August 1, 1996, Eclipse Capital has adopted a new method of computing rate-of-return and performance disclosure, referred to as the Fully-Funded Subset method, pursuant to an Advisory published by the CFTC. The Fully-Funded Subset refers to that subset of accounts included in the applicable composite which is funded entirely by Actual Funds (as defined in the Advisory). To qualify for use of the Fully- Funded Subset method, the Advisory requires that certain computations be made in order to arrive at the Fully-Funded Subset and that the accounts for which performance is so reported meet two tests which are designed to provide assurance that the Fully-Funded Subset and the resultant RORs are representative of the trading program. Eclipse Capital has performed these computations for periods subsequent to August 1, 1996. In July of 1994, because of a large addition occurring at mid-month and the timing of profits and losses during the month, the composite of the Global Yield Program shows a better return than accounts open for the entire month, due to the use of the time-weighted method. The composite rate of return shown for July is -6.53%. The composite return of the Global Yield Program without this account would have been -9.69%. The return for the new account alone was -1.61%. In March of 1995, all remaining accounts in the Financial Futures Account closed early in the month. Using the time-weighted method of calculating the rate of return resulted in a material distortion of the performance result. Therefore, for this month, the rate of return was calculated by dividing the net performance by the beginning net asset value. 15 Annual Rate of Return is calculated by dividing the change in the net asset value of a hypothetical $1,000 investment (VAMI) during the period by the VAMI at the beginning of the period or at the commencement of trading. VAMI is calculated by multiplying (1 plus the period rate of return %) times the prior period value of a hypothetical $1,000 investment (VAMI). PERFORMANCE SUMMARY MATRIX - GLOBAL MONETARY PROGRAM ACTUAL RATE RATES OF RETURN BASED ON VARIOUS FUNDING LEVELS OF RETURN (3) (1) 20.00% 25.00% 33.33% 50.00% 100.00% 15.00% 18.75% 25.00% 37.50% 75.00% 10.00% 12.50% 16.67% 25.00% 50.00% 5.00% 6.25% 8.33% 12.50% 25.00% -5.00% -6.25% -8.33% -12.50% -25.00% - -10.00% -12.50% -16.67% -25.00% -50.00% - -15.00% -18.75% -25.00% -37.50% -75.00% - -20.00% -25.00% -33.33% -50.00% -100.00% 100% 80% 60% 40% 20% LEVEL OF FUNDING (2) Footnotes to Rate Conversion Chart: (1) This column represents the range of actual rates of return for fully- funded accounts reflected in accompanying Performance Summary for the Global Monetary Program. (2) This represents the percentage of actual funds divided by the fully- funded trading level. (3) This represents the rate of return experienced by a customer at various levels of funding traded by Eclipse Capital. The rates of return for accounts that are not fully-funded are inversely proportional to the actual rates of return based on the percentage level of funding. 16 FEES In exchange for providing its investment management services, Eclipse Capital's standard fee structure consists of two types of fees. Eclipse Capital charges a monthly management fee equal to 1/4 of 1% (3% annually) of an account's month-end equity plus its notional assets, if any (collectively, the "Trading Level"), which will be paid whether or not an account is profitable. All management fees are expressed as a percentage of nominal account size but may vary when expressed as a percentage of actual funds. For example, a management fee of 3% of a nominal account size will equal 6% when expressed as a percentage of actual funds for a 50% funded account. For purposes of calculating management fees, a "month" shall be a calendar month. Accounts opened or closed on a day other than the first day of the month will be charged a prorated management fee based on the actual number of days the account was open during the month. Eclipse Capital also charges a managed account client a quarterly incentive fee equal to 20% of the increase in an account's Trading Profits for the quarter. The quarterly incentive fee will be payable only on cumulative profits in an account. If an account incurs a loss after an incentive fee payment is made, Eclipse Capital will retain the payment but will receive no further incentive fee in subsequent quarters until the account again achieves Trading Profits that exceed the highest previous Trading Profit at the end of a previous incentive period. For purposes of calculating incentive fees, a "quarter" shall be deemed to begin on the first day of the month in which an account is opened and shall end on the last day of the third consecutive calendar month thereafter. For example, if an account was opened in August, August would be the first month of the first quarter for incentive fee calculations. Quarters for such an account would end in October, January, April and July. Management fees will be accrued, but brokerage commissions on open positions in an account will not be accrued, in calculating incentive fees. Clients who have opened accounts with Eclipse Capital at different times may pay different fees, or similar fees at different rates, due to changes in Eclipse Capital's fee structure since it commenced management of client accounts. Eclipse Capital reserves the right to charge more or less than its stated fees. The fees charged to clients may vary due to account size, trading program selected, brokerage commissions, pre- existing relationships with clients, etc. Management fees may range between 0% and 8%. Incentive fees may range between 0% and 33%. Eclipse Capital may elect to contract with independent parties (provided they possess the registrations required under the Commodity Exchange Act, as amended, and other applicable laws) in order to raise accounts for Eclipse Capital to manage. Eclipse Capital may share a portion of its management and/or incentive fees with such independent parties in exchange for fund-raising services. In no event will such agreement have the effect of increasing the fees paid by clients. Trading Profits. Trading Profits during a quarter means the sum of (a) the net of any profits and losses realized by all trades closed out during the quarter, and (b) the net of any unrealized profits and losses on open positions as of the end of the quarter, minus (c) the net of any unrealized profits or losses on open positions as of the end of the preceding quarter, (d) all expenses incurred or accrued during the quarter and (e) cumulative net realized losses, if any, carried forward from preceding quarters. The withdrawal of equity from the account will result in a proportionate reduction in any cumulative net realized losses accrued as of the date of such withdrawal; the reduction will be in the same proportion that the amount withdrawn bears to the account equity prior to the withdrawal. Any interest earned on assets in the account is not included in calculating Trading Profits. 17 The incentive fee is due and payable on the last business day of any quarter in which Eclipse Capital has earned an incentive fee and with respect to a withdrawal made prior to a quarter-end. The management fee is due and payable on the last business day of each month. After the end of each month, Eclipse Capital will prepare a Statement of Account setting forth the amount of any fees payable to it and furnish the Statement of Account to the client's broker. The client will be required to execute the Fee Payment Authorization appearing on the signature page of the Eclipse Capital Client Advisory Agreement and Trading Authorization authorizing such payments by the broker from the client's account. POTENTIAL CONFLICTS OF INTEREST Trading Own Accounts. Eclipse Capital, its principals or its employees may invest in funds managed by Eclipse Capital, may trade commodity interest contracts for their own proprietary accounts and may test other trading programs and methods. For such accounts Eclipse Capital may use trading approaches which are different from the trading programs described in this Disclosure Document. Therefore, it is possible that Eclipse Capital and/or its principals and employees may, from time to time, compete with a client account for similar commodity interest contract positions in one or several markets, or may take positions in their proprietary accounts which are opposite, or ahead of, the positions taken in a client account. Eclipse Capital will permit clients to inspect such trading records during normal business hours on the premises of Eclipse Capital. Trading Multiple Accounts. Eclipse Capital may in the future manage and trade additional accounts, including commodity pools. Eclipse Capital will not, however, knowingly or deliberately favor one account over any other such account. Because of price volatility, occasional variations in liquidity, and differences in order execution, it is impossible for Eclipse Capital to obtain identical trade execution for all of its clients. Such variations and differences may produce differences in performance among client accounts over time. In an effort to treat its clients fairly when block orders for client accounts are filled at different prices, Eclipse Capital assigns trades on a systematic basis. No Other Conflicts. There are no actual or potential conflicts of interest presently known to Eclipse Capital or its principals other than those disclosed herein. CLIENT ADVISORY AGREEMENT A client wishing to participate in Eclipse Capital's trading programs must authorize Eclipse Capital to manage his trading account pursuant to a grant of a limited power-of-attorney contained in Eclipse Capital's Client Advisory Agreement and Trading Authorization. The agreement permits Eclipse Capital to place all buy and sell orders for foreign exchange forward contracts, futures contracts, options on futures contracts, and other commodity interests, and to make or take delivery in fulfillment of such interests. In addition, the client will instruct the FCM carrying his account to transfer from the client's account amounts sufficient to pay Eclipse Capital's fees, which will be billed by Eclipse Capital directly to the client's account (see "Fees"). However, except as indicated above, the Client Advisory Agreement and Trading Authorization allows only the client to withdraw funds from his account. Eclipse Capital reserves the right to terminate the Client Advisory Agreement and Trading Authorization at any time. 18 CLIENT BROKERAGE ACCOUNT A client who wishes to participate in an Eclipse Capital trading program must open an account with the FCM of his choice, or alternatively in the case of foreign exchange trading, establish an adequate line of credit with a bank of his choice, which is acceptable to Eclipse Capital. Eclipse Capital manages funds for clients at a number of FCMs and generally accepts new accounts at one of the established FCMs. The client will be required to sign the appropriate new account forms, risk disclosure statements, and customer agreements of his FCM. A client does not deposit any funds with Eclipse Capital. Rather, the client makes all deposits of funds with his FCM. A client is also free to select an acceptable Introducing Broker ("IB") of his choice, if any, through which his accounts will be carried by his FCM. Eclipse Capital has no affiliation or direct or indirect business relationship with any FCM or any IB whereby it may benefit, directly or indirectly, from the maintenance of a client's account with any FCM or IB. Eclipse Capital will not receive or participate in brokerage commissions charged to client accounts. The only compensation earned or to be earned, directly or indirectly, by Eclipse Capital from any of the accounts it manages will be from fees described herein or otherwise specifically negotiated with the client. The client accepts that Eclipse Capital will have the right to direct all trades to any FCM or floor broker it chooses for execution with instructions to "give-up" to the customer's clearing broker. At present, Eclipse Capital has no affiliation or business arrangement with any particular FCM or with any floor brokers affiliated with any particular FCMs, although it may in the future. The clearing broker will then pay the floor brokerage and additional "give- up" fees, unless otherwise approved by the client, to the executing FCM or floor broker from the client's account. In addition, clients will be required to sign documentation which specifically authorizes Eclipse Capital to execute orders utilizing a give-up procedure and to enter into give-up agreements with the executing and clearing brokers involved, and authorizing Eclipse Capital to act on behalf of the client in negotiating those agreements. The client, and not Eclipse Capital, is directly responsible for paying to the client's FCM or IB, as appropriate, all margins, option premiums, brokerage commissions and fees and expenses incurred in connection with transactions effected for the client's managed account by Eclipse Capital. Brokerage commissions may be substantial. No assurance can be given by Eclipse Capital as to any minimum or maximum number of transactions which will be entered into for the client's managed account during any period for which a managed account is managed by Eclipse Capital. The FCM or IB, as the case may be, at its own expense, will provide the client with a monthly statement of equity, as well as a record of the management and incentive fees paid to Eclipse Capital and the brokerage commissions paid to the FCM or IB. In addition, the FCM will supply the client with a confirmation of every trade executed for the client's managed account and purchase and sale statements setting forth the realized gain or loss on each such liquidated position and the brokerage commissions charged. A portion of the client's funds initially deposited with the client's FCM may be used to purchase United States Treasury bills for the client's account. The Treasury bills may be utilized as original margin for transactions in futures contracts and for short option positions. However, Treasury bills may not be used as variation margin or for the purchase of option contracts. Accordingly, a portion of the client's assets in the account must be in the form of cash. A client retains ultimate control over his account at his FCM and may close out such account completely at any time upon notice to his FCM in accordance with the terms of his client agreement with his FCM and applicable exchange rules. 19 Though Eclipse Capital will attempt to correct trading errors as soon as they are discovered, it will not be responsible for poor executions or trading errors committed by brokers or FCMs. FURTHER INFORMATION Any questions should be directed to Eclipse Capital at the address and telephone number listed on the cover page of this disclosure document. MISCELLANEOUS BECAUSE OF THE COMPLEXITY OF THE TAX LAWS AND THE DIFFERENT CONSIDERATIONS APPLICABLE TO EACH MANAGED ACCOUNT AND CLIENT, THIS DISCLOSURE DOCUMENT DOES NOT PROVIDE TAX ADVICE. EACH CLIENT SHOULD CONSULT HIS OR ITS OWN TAX ADVISORS TO DETERMINE THE TAX CONSEQUENCES OF AN INVESTMENT IN A MANAGED ACCOUNT. THIS DISCLOSURE DOCUMENT DOES NOT PURPORT TO DISCUSS ALL OF THE RISKS CONCERNING TRADING IN COMMODITY FUTURES OR ECLIPSE CAPITAL'S GLOBAL FINANCIAL TRADING PROGRAMS. IN ADDITION TO THIS DISCLOSURE DOCUMENT, AN ADDITIONAL RISK DISCLOSURE DOCUMENT AND VARIOUS RELATED DOCUMENTS OF THE RELEVANT FCM OR IB WILL BE PROVIDED FOR YOUR INSPECTION AND REVIEW. 20 EXHIBIT "C" Trading Limitations The Partnership will not: (i) engage in pyramiding its Commodities positions (i.e., the use of unrealized profits on existing positions to provide margin for the acquisition of additional positions in the same or a related commodity), but may take into account open trading equity on existing positions in determining generally whether to acquire additional Commodities positions; (ii) borrow or loan money (except with respect to the initiation or maintenance of the Partnership's Commodities positions or obtaining lines of credit for the trading of forward contracts; provided, however, that the Partnership is prohibited from incurring any indebtedness on a non-recourse basis); (iii) permit rebates or give-ups to be received by the General Partner or its affiliates, or permit the General Partner or any affiliate to engage in any reciprocal business arrangements which would circumvent the foregoing prohibition; (iv) permit the Advisor to share in any portion of the commodity brokerage fees paid by the Partnership; (v) commingle its assets, except as permitted by law; or (vi) permit the churning of its commodity accounts. The Partnership will conform in all respects to the rules, regulations and guidelines of the markets on which its trades are executed. Trading Policies Subject to the foregoing limitations, the Advisor has agreed to abide by the trading policies of the Partnership, which currently are as follows: (1) Partnership funds will generally be invested in futures, forward and option contracts which are traded in sufficient volume to permit taking and liquidating positions. (2) Stop or limit orders may, in the Advisor's discretion, be given with respect to initiating or liquidating positions in order to limit losses or secure profits. If stop or limit orders are used, no assurance can be given, however, that Prudential Securities will be able to liquidate a position at a specified stop or limit order price, due to either the volatility of the market or the inability to trade because of market limitations. (3) The Partnership generally will not initiate an open position in a futures contract (other than a cash settlement contract) during any delivery month in that contract, except when required by exchange rules, law or exigent market circumstances. This policy does not apply to forward and cash market transactions. (4) The Partnership may occasionally make or accept delivery of a commodity, including, without limitation, currencies. (5) The Partnership will, from time to time, employ trading techniques such as spreads, straddles and conversions. (Exhibit "C" - cont'd) (6) The Advisor will not initiate open positions which would result in net long or short positions requiring margin or premium for outstanding positions in excess of 15% of the Partnership's Net Asset Value allocated to the Advisor for any one commodity, or in excess of 66% of the Partnership's Net Asset Value allocated to the Advisor for all Commodities combined. (7) To the extent the Partnership engages in transactions in foreign currency forward contracts other than with or through Prudential Securities or its affiliates, the Partnership will only engage in such transactions with or through a bank which as of the end of its last fiscal year had an aggregate balance in its capital, surplus and related accounts of at least $100,000,000, as shown by its published financial statements for such year, and through other broker-dealer firms with an aggregate balance in its capital, surplus and related accounts of at least $50,000,000. The General Partner will be responsible for the management of non- Commodities assets, with the assistance of Prudential Securities or other affiliates. At least 75% of the Partnership's Net Asset Value will be maintained in interest-bearing U.S. Treasury obligations (primarily U.S. Treasury bills), a significant portion of which will be utilized for margin purposes (to the extent practicable) for the Partnership's Commodities positions. All interest earned on such funds will be paid to the Partnership. The balance of the Partnership's Net Asset Value will be held in cash (to avoid the daily buying and selling of interest-bearing obligations and to pay ongoing expenses). -2-