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annual management fee of three-fourths of 1 percent of the
aggregate value of Tandrill’s investments with Manhattan Metals
(including the value of commodities subject to futures contracts),
the value of premiums paid for options, and cash on hand. Such fee
was capped at a maximum of $50,000, or $12,500 per calendar
quarter, for the period ending September 30, 1980, and at a maximum
of $25,000 per year, or $6,250 per calendar quarter, thereafter.
The Management Agreement had no fixed termination date; it
could be terminated on 30 days’ notice by either party. The
agreement provided that, if petitioner terminated the agreement
before September 30, 1980, Tandrill would pay Manhattan Metals the
difference between $50,000 and the sum of the quarterly fees that
had been paid to Manhattan Metals for that period.
Manhattan Metals was not required to perform services
exclusively for Tandrill. Petitioner understood that although
Manhattan Metals would conduct Tandrill's trading activities and
that Mr. Illingworth would be in charge of deciding the
partnership’s trading positions, Mr. Illingworth would be assisted
in doing so by others. Petitioner had no interest in managing
Tandrill’s day-to-day trading activities; he merely wanted the
right to make suggestions and review documents.
At the time that the trades were undertaken, petitioner did
not understand the exact nature of Tandrill's trading activities,
or the mechanics and theories of commodities trading. Although Mr.
Illingworth sent petitioner periodic updates regarding Tandrill’s
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