<PAGE>
MORGAN STANLEY DEAN WITTER SPECTRUM SERIES
(THIS IS ONE OF TWO PROSPECTUSES FOR THE PARTNERSHIPS IN THE SPECTRUM SERIES.)
<TABLE>
<CAPTION>
MINIMUM NUMBER NET
OF UNITS THAT MAXIMUM ASSET
MUST BE SOLD AVAILABLE VALUE
TO BREAK ESCROW UNITS PER UNIT
------------------ -------------- ---------
$
<S> <C> <C> <C>
MORGAN STANLEY DEAN WITTER SPECTRUM CURRENCY L.P. ......... 600,000 12,000,000.000 10.00
MORGAN STANLEY DEAN WITTER SPECTRUM COMMODITY L.P. ........ not applicable 7,000,000.000 7.61
(FORMERLY, MORGAN STANLEY TANGIBLE ASSET FUND L.P.)
</TABLE>
Each partnership trades futures, forwards and options contracts pursuant to
trading programs employed by the trading advisors for that partnership. You may
purchase units as of the last day of each month. The price you pay for each unit
will equal 100% of the net asset value per unit on the date of purchase. The
total number of units available and the net asset value per unit for Spectrum
Commodity as of December 31, 1999 is set forth above. The net asset value per
unit of Spectrum Currency is its initial offering price.
<TABLE>
<S> <C>
Minimum Initial Purchase...................... $5,000 or $2,000 (for IRAs only)
in one or more partnerships
Minimum Per Partnership....................... $1,000
Minimum Purchase for Existing Investors....... $500
</TABLE>
Before you invest you will be required to represent and warrant that you meet
applicable state minimum financial suitability standards. You are encouraged to
discuss your investment with financial, legal and tax advisors before you
invest.
Your subscription funds will be held in escrow at The Chase Manhattan Bank, New
York, New York until they are transferred to the partnership whose units you
have purchased.
THESE ARE SPECULATIVE SECURITIES. YOU COULD LOSE ALL OR SUBSTANTIALLY ALL OF
YOUR INVESTMENT IN THE PARTNERSHIPS. READ THIS PROSPECTUS CAREFULLY AND CONSIDER
THE "RISK FACTORS" SECTION BEGINNING ON PAGE 9. IN PARTICULAR, YOU SHOULD BE
AWARE THAT:
- Each partnership's futures, forwards and options trading is speculative and
trading performance is expected to be volatile.
- Each partnership's trading is leveraged, which accentuates the trading
profit or trading loss on a trade.
- Past performance is not necessarily indicative of future results.
- You may not redeem your units until you have been an investor for at least
six months.
- If you redeem units within 24 months after they are purchased, you will pay
a redemption charge except in defined circumstances.
- Units will not be listed on an exchange and no other secondary market will
exist for the units.
- The fixed expenses of each partnership will require the partnership to earn
annual net trading profits, after taking into account estimated interest
income, of the following percentages of average annual net assets:
<TABLE>
<CAPTION>
Without a With a 2%
Redemption Charge Redemption Charge
----------------- -----------------
% %
<S> <C> <C>
Spectrum Currency.......................... 4.34 6.38
Spectrum Commodity......................... 3.34 5.38
</TABLE>
NEITHER THE SECURITIES AND EXCHANGE COMMISSION NOR ANY STATE SECURITIES
COMMISSION HAS APPROVED OR DISAPPROVED OF THESE SECURITIES OR DETERMINED IF THIS
PROSPECTUS IS TRUTHFUL OR COMPLETE. ANY REPRESENTATION TO THE CONTRARY IS A
CRIMINAL OFFENSE.
THE COMMODITY FUTURES TRADING COMMISSION HAS NOT PASSED UPON THE MERITS OF
PARTICIPATING IN ANY ONE OF THESE POOLS NOR HAS THE COMMISSION PASSED UPON THE
ADEQUACY OR ACCURACY OF THIS DISCLOSURE DOCUMENT.
MORGAN STANLEY DEAN WITTER
DEAN WITTER REYNOLDS INC.
March 6, 2000
<PAGE>
COMMODITY FUTURES TRADING COMMISSION
RISK DISCLOSURE STATEMENT
YOU SHOULD CAREFULLY CONSIDER WHETHER YOUR FINANCIAL CONDITION PERMITS YOU
TO PARTICIPATE IN A COMMODITY POOL. IN SO DOING, YOU SHOULD BE AWARE THAT
FUTURES AND OPTIONS TRADING CAN QUICKLY LEAD TO LARGE LOSSES AS WELL AS GAINS.
SUCH TRADING LOSSES CAN SHARPLY REDUCE THE NET ASSET VALUE OF THE POOL AND
CONSEQUENTLY THE VALUE OF YOUR INTEREST IN THE POOL. IN ADDITION, RESTRICTIONS
ON REDEMPTIONS MAY AFFECT YOUR ABILITY TO WITHDRAW YOUR PARTICIPATION IN THE
POOL.
FURTHER, COMMODITY POOLS MAY BE SUBJECT TO SUBSTANTIAL CHARGES FOR
MANAGEMENT, AND ADVISORY AND BROKERAGE FEES. IT MAY BE NECESSARY FOR THOSE POOLS
THAT ARE SUBJECT TO THESE CHARGES TO MAKE SUBSTANTIAL TRADING PROFITS TO AVOID
DEPLETION OR EXHAUSTION OF THEIR ASSETS. THIS DISCLOSURE DOCUMENT CONTAINS A
COMPLETE DESCRIPTION OF EACH EXPENSE TO BE CHARGED TO EACH POOL BEGINNING AT
PAGE 17 AND A STATEMENT OF THE PERCENTAGE RETURN NECESSARY TO BREAK EVEN, THAT
IS TO RECOVER THE AMOUNT OF YOUR INITIAL INVESTMENT, AT PAGE 7.
THIS BRIEF STATEMENT CANNOT DISCLOSE ALL THE RISKS AND OTHER FACTORS
NECESSARY TO EVALUATE YOUR PARTICIPATION IN THESE COMMODITY POOLS. THEREFORE,
BEFORE YOU DECIDE TO PARTICIPATE IN ANY OF THESE COMMODITY POOLS, YOU SHOULD
CAREFULLY STUDY THIS DISCLOSURE DOCUMENT, INCLUDING A DESCRIPTION OF THE
PRINCIPAL RISK FACTORS OF THIS INVESTMENT, BEGINNING AT PAGE 9.
YOU SHOULD ALSO BE AWARE THAT EACH OF THESE COMMODITY POOLS MAY TRADE
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 TO
THE POOL AND ITS PARTICIPANTS. 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 TRANSACTIONS FOR EACH POOL MAY
BE EFFECTED.
-------------------
NOTICE TO INVESTORS
THE SPECTRUM SERIES CONSISTS OF SIX CONTINUOUSLY OFFERED LIMITED
PARTNERSHIPS. TWO OF THOSE PARTNERSHIPS, SPECTRUM CURRENCY AND SPECTRUM
COMMODITY, ARE DISCUSSED IN THIS PROSPECTUS. THE OTHER FOUR PARTNERSHIPS,
SPECTRUM SELECT, SPECTRUM TECHNICAL, SPECTRUM STRATEGIC, AND SPECTRUM GLOBAL
BALANCED, ARE DISCUSSED IN A SEPARATE PROSPECTUS. IF YOU ARE CONSIDERING AN
INVESTMENT IN ANY OF THOSE FOUR OTHER PARTNERSHIPS, YOU SHOULD READ THE
PROSPECTUS RELATING TO THOSE PARTNERSHIPS.
<PAGE>
TABLE OF CONTENTS
PART ONE
DISCLOSURE DOCUMENT
<TABLE>
<CAPTION>
PAGE
--------
<S> <C>
Summary................................... 1
Risk Factors.............................. 9
Trading and Performance Risks........... 9
The partnerships' trading is
speculative and volatile............ 9
Each partnership's trading is
leveraged........................... 9
Options trading can be more volatile
than futures trading................ 9
You should not rely on the past
performance of a partnership in
deciding to purchase units.......... 9
Spectrum Currency does not have an
operating history................... 9
Spectrum Currency is a new fund and
will be subject to special risks
during its start-up period.......... 9
Spectrum Commodity is subject to
greater risk of loss during periods
of low inflation.................... 10
Market illiquidity may cause less
favorable trade prices.............. 10
Trading on foreign exchanges presents
greater risks to each partnership
than trading on U.S. exchanges...... 10
The unregulated nature of the forwards
markets creates counterparty risks
that do not exist in futures trading
on exchanges........................ 10
The partnerships are subject to
speculative position limits......... 11
The partnerships could lose assets and
have their trading disrupted if a
commodity broker or others become
bankrupt............................ 11
Euro conversion limits Spectrum
Currency's ability to trade
individual currencies and could
result in trading losses............ 11
Partnerships and Offering Risks......... 11
Each partnership incurs substantial
charges............................. 11
Incentive fees may be paid by a
partnership even though the
partnership sustains trading
losses.............................. 11
Restricted investment liquidity in the
units............................... 12
Conflicts of interest in each
partnership's structure............. 12
</TABLE>
<TABLE>
<CAPTION>
PAGE
--------
<S> <C>
An investment in units may not
diversify an overall portfolio...... 12
No assurance that units of Spectrum
Currency will be sold............... 12
Trading Advisor Risks................... 12
Reliance on the trading advisors to
trade successfully.................. 12
Market factors may adversely influence
the trading programs................ 12
Possible consequences of using
multiple trading advisors for
Spectrum Currency................... 12
Spectrum Commodity is a single-advisor
fund and lacks the diversity of a
multi-advisor fund.................. 12
Increasing the assets managed by a
trading advisor may adversely affect
performance......................... 13
Limited partners will not be aware of
changes to trading programs......... 13
Limited term of management agreements
may limit access to a trading
advisor............................. 13
Taxation Risks.......................... 13
Even though the partnerships do not
intend to make distributions, you
will be liable for taxes on your
share of any trading profits and any
other income of the partnerships in
which you have invested............. 13
The partnerships' tax returns could be
audited............................. 13
Conflicts of Interest..................... 13
Fiduciary Responsibility and Liability.... 15
Description of Charges.................... 17
Use of Proceeds........................... 20
The Spectrum Series....................... 22
Selected Financial Data................... 28
Management's Discussion and Analysis of
Financial Condition and Results of
Operations.............................. 29
Quantitative and Qualitative Disclosures
About Market Risk....................... 32
The General Partner....................... 35
The Trading Advisors...................... 40
Exchange Right............................ 65
Redemptions............................... 66
The Commodity Brokers..................... 68
</TABLE>
(i)
<PAGE>
<TABLE>
<CAPTION>
PAGE
--------
<S> <C>
Litigation................................ 69
The Limited Partnership Agreements........ 70
Plan of Distribution...................... 74
Subscription Procedure.................... 76
Purchases by Employee Benefit Plans--
ERISA Considerations.................... 78
Material Federal Income Tax
Considerations.......................... 79
State and Local Income Tax Aspects........ 85
Legal Matters............................. 85
Experts................................... 85
Where You Can Find More Information....... 85
PART TWO
STATEMENT OF
ADDITIONAL INFORMATION
The Futures, Options, and Forwards
Markets................................. 86
Potential Advantages...................... 90
Supplemental Performance
Information............................. 99
Glossary of Terms......................... 107
Financial Statements...................... F-1
Exhibit A - Form of Amended and
Restated Limited Partnership
Agreements.......................... A-1
Annex A - Request for Redemption...... A-23
Exhibit B - Specimen Form of
Subscription and Exchange Agreement
and Power of Attorney............... B-1
Exhibit C - Subscription Agreement
Update Form......................... C-1
</TABLE>
(ii)
<PAGE>
THE DATE OF THIS PROSPECTUS IS MARCH 6, 2000.
SUMMARY
Because this is a summary, it does not contain all of the information that
may be important to you. You should read this entire prospectus and its exhibits
before you decide to invest.
MORGAN STANLEY DEAN WITTER SPECTRUM SERIES
The Spectrum Series consists of six continuously offered limited
partnerships. Two of those partnerships, Spectrum Currency and Spectrum
Commodity, are discussed in this prospectus. The other four partnerships,
Spectrum Select, Spectrum Technical, Spectrum Strategic, and Spectrum Global
Balanced, are discussed in a separate prospectus. If you are considering an
investment in any of those four other partnerships, you should read the
prospectus relating to those partnerships.
Each partnership was organized in the State of Delaware:
<TABLE>
<CAPTION>
PARTNERSHIPS DATE ORGANIZED
- ------------ --------------------
<S> <C>
Spectrum Currency October 20, 1999
Spectrum Commodity (formerly, Morgan
Stanley Tangible Asset Fund L.P.) July 31, 1997
</TABLE>
The offices of each partnership are located at Two World Trade Center, 62nd
Floor, New York, New York 10048, telephone (212) 392-8899.
Each partnership provides the opportunity to invest in futures contracts
managed by an experienced, professional trading advisor. Since each
partnership's assets are traded by different trading advisors, each employing a
different trading program, you should review the specific information relating
to each partnership and its trading advisors to better understand how a
partnership may fit into your overall investment plan. If you decide to invest
in more than one partnership, you may allocate your investment among any one or
more of the partnerships and, after an initial six month holding period, you may
shift your investment among one or more of the Spectrum Series partnerships,
including Spectrum Select, Spectrum Technical, Spectrum Strategic, and Spectrum
Global Balanced.
A futures contract is an agreement to buy or sell a fixed amount of a
commodity or other underlying product, instrument or index at a predetermined
price at a specified time in the future. In order to secure its obligation to
make or take delivery under a futures contract, the trader must deposit funds,
referred to as margin, with the commodity broker through which it trades. An
option on a futures contract gives the buyer of the option, in exchange for a
one-time payment known as premium, the right, but not the obligation, to buy or
sell a futures contract at a specified price within a specified period of time.
The seller of an option on a futures contract receives the premium payment and
has the obligation to buy or sell the futures contract at the specified price
within the specified period of time. Futures contracts and options on futures
contracts are traded on U.S. and foreign exchanges. A forward contract is an
agreement directly between two parties to buy or sell a fixed amount of an
underlying product at an agreed price at an agreed date in the future. Forward
contracts are not traded on exchanges, but rather are traded in the dealer
markets. A partnership may take long positions in futures, forwards and options
contracts in which the partnership is obligated to take delivery of the
underlying commodity, product, instrument or index. A partnership also may take
short positions in those contracts in which the partnership has an obligation to
deliver the underlying commodity, product, instrument or index. Futures,
forwards and options contracts are traded in a number of commodities, products,
instruments, and indices, including foreign currencies, financial instruments,
precious and industrial metals, energy products, agricultural commodities, stock
indices and "soft" commodities like cotton and cocoa. For additional information
on the futures, options, and forwards markets, see "Statement of Additional
Information" beginning on page 86.
The investment objective of each partnership is to achieve capital
appreciation and to provide investors with the opportunity to diversify a
portfolio of traditional investments consisting of stocks and
1
<PAGE>
bonds. While each partnership has the same over-all investment objective, each
trading advisor and its trading programs trades differently. Each partnership
has distinct trading advisors and trading programs. You should review and
compare the specifics of each partnership, its terms, and its trading advisors
before selecting one or more partnerships in which to invest. If you are also
considering an investment in the other four Spectrum Series partnerships,
Spectrum Select, Spectrum Technical, Spectrum Strategic, and Spectrum Global
Balanced, you should review the prospectus relating to those partnerships and
make similar comparisons.
MORGAN STANLEY DEAN WITTER SPECTRUM CURRENCY L.P.
This new partnership will allocate its assets between two trading advisors:
John W. Henry & Company, Inc. and Sunrise Capital Partners, LLC. The trading
advisors employ proprietary trading programs that seek to identify favorable
price relationships between and among various global currency markets through
the analysis of technical market information. The trading advisors collectively
trade world currencies primarily in the forward dealer markets, but also in the
futures and options markets.
MORGAN STANLEY DEAN WITTER SPECTRUM COMMODITY L.P. (FORMERLY, MORGAN STANLEY
TANGIBLE ASSET FUND L.P.)
This partnership currently allocates its assets to a single trading advisor,
Morgan Stanley Dean Witter Commodities Management Inc. The trading advisor
employs a proprietary trading approach that seeks to identify increasing price
trends through the disciplined analysis of technical market information. The
trading advisor trades futures and may trade forwards in a portfolio of
agricultural commodities, precious and base metals, soft commodities and energy
products.
WHO MAY SUBSCRIBE
INVESTMENT CONSIDERATIONS
You should purchase units in a partnership only if you understand the risks
involved in the investment and only if your financial condition permits you to
bear those risks, including the risk of losing all or substantially all of your
investment in the partnership. You should invest in the units only with the risk
capital portion of your investment portfolio.
MINIMUM INVESTMENT
If you are a new investor in the Spectrum Series of partnerships, you must
invest at least $5,000, unless you are investing through an IRA, in which case
your minimum investment is $2,000. You may allocate your investment among any
one or more of the partnerships in the Spectrum Series, including Spectrum
Select, Spectrum Technical, Spectrum Strategic, and Spectrum Global Balanced,
which are discussed in a separate prospectus, but you must invest at least
$1,000 in a partnership. Once you become an investor in any Spectrum
Series partnership, you may increase that investment with an additional
contribution of at least $500.
If you are an investor in another limited partnership for which Demeter
Management Corporation serves as the general partner and commodity pool
operator, you may redeem your interest in that other partnership and use the
proceeds to invest in any one or more of the Spectrum Series of partnerships.
The general partner may, in its sole discretion, reject any subscription in
whole or in part.
FINANCIAL SUITABILITY
Unless otherwise specified in the subscription agreement under "State
Suitability Requirements," you must have either: a net worth of at least
$75,000, exclusive of home, furnishings, and automobiles; or both a net worth of
at least $30,000, exclusive of home, furnishings, and automobiles, and an annual
income of at least $30,000. You should be aware, however, that certain States
impose more restrictive suitability and/
2
<PAGE>
or higher minimum investment requirements. Before you invest you will be
required to represent and warrant that you meet the applicable State minimum
financial suitability standard set forth in the subscription agreement, which
may also require a greater minimum investment.
LIMITED REVOCATION RIGHT
After you subscribe for units in any Spectrum Series partnership, you will
have limited rights to revoke your subscription. You may only revoke a
subscription and receive a full refund of the subscription amount, plus any
accrued interest, within five business days after execution of the subscription
agreement or no later than 3:00 P.M., New York City time, on the date of the
applicable monthly closing, whichever comes first, by delivering written notice
to your Morgan Stanley Dean Witter financial advisor.
THE OFFERING OF UNITS
SPECTRUM CURRENCY'S INITIAL OFFERING
12,000,000 Units of Spectrum Currency are being offered for sale at $10 per
unit at its initial closing, which is currently scheduled to be held as of
April 30, 2000. The period from the date of this prospectus through
September 30, 2000 is the initial offering period for Spectrum Currency. The
initial offering period, however, may be extended to November 30, 2000 in the
sole discretion of the general partner. The general partner must receive and
accept subscriptions for at least 600,000 units during the initial offering
period in order for Spectrum Currency to commence trading operations. If
investors do not subscribe for at least 600,000 units of Spectrum Currency
during the initial offering period, the offering will terminate and each
subscriber's customer account will be credited for the full subscription amount,
with interest.
THE SPECTRUM SERIES CONTINUOUS OFFERING
Spectrum Commodity is continuously offering, and Spectrum Currency, once it
has held its initial closing, will continuously offer, units of limited
partnership interest for sale at monthly closings held as of the last day of
each month. You can purchase units at a price equal to 100% of a partnership's
month-end net asset value. The general partner calculates each partnership's net
asset value per unit on a monthly basis by dividing the partnership's month-end
net assets by the number of its month-end outstanding units. A partnership's net
assets is its assets minus its liabilities.
ESCROW TERMS
During Spectrum Currency's initial offering period and during each
partnership's continuous offering, your subscription will be transferred to, and
held in escrow by, The Chase Manhattan Bank, New York, New York. Subscription
funds held in escrow will be invested in the escrow agent's money market account
and will earn interest at the rate then paid by the bank on that money market
account. If the general partner accepts your subscription, the escrow agent will
pay the subscription amount to the appropriate partnerships and pay any interest
earned on those funds to Dean Witter. In turn, Dean Witter will credit your
customer account with the interest. If the general partner rejects a
subscription, your account will be credited in an amount equal to the rejected
subscription amount, together with any interest earned on those funds while held
in escrow.
SUMMARY OF RISK FACTORS YOU SHOULD CONSIDER
- These are speculative securities.
- You could lose all or substantially all of your investment in the
partnerships.
- Past performance is not necessarily indicative of future results.
- Each partnership's futures, forwards and options trading is speculative
and trading performance is expected to be volatile.
- Each partnership's trading is leveraged, which accentuates the trading
profit or loss on a trade.
3
<PAGE>
- You may not redeem your units until you have been an investor for at least
six months.
- If you redeem units within 24 months after they are purchased, you will
pay a redemption charge except in defined circumstances.
- Units will not be listed on an exchange and no other secondary market will
exist for the units.
- Each partnership pays substantial charges and fees and must earn
substantial trading profits in order to pay these expenses.
- Profits earned by a partnership will be taxable to an investor even though
the general partner does not intend to make any distributions.
MAJOR CONFLICTS OF INTEREST
- Because the general partner, Dean Witter, Morgan Stanley, Morgan Stanley
International, and Morgan Stanley Dean Witter Commodities Management are
affiliates of each other, the fees payable to those parties and the other
terms relating to the operation of the partnerships and the sale of units
were not negotiated by an independent party.
- Because your Morgan Stanley Dean Witter financial advisor receives a
portion of the brokerage fees paid by the partnerships, your financial
advisor has a conflict of interest in advising you in the purchase or
redemption of units.
- The trading advisors, commodity brokers and general partner may trade
futures, forwards and options for their own accounts and, thus, they may
compete with a partnership for positions. Also, the other commodity pools
managed by the general partner and the trading advisors compete with the
partnerships for positions. These conflicts can result in less favorable
prices on the partnerships' transactions.
THE GENERAL PARTNER
The general partner of each partnership is Demeter Management Corporation, a
Delaware corporation. The general partner is or has been the general partner of
35 commodity pools and currently operates 25 other commodity pools. As of
December 31, 1999, the general partner managed $1.4 billion of client assets.
The general partner's main business office is located at Two World Trade Center,
62nd Floor, New York, New York 10048, telephone (212) 392-8899.
THE COMMODITY BROKERS
The commodity brokers for the partnerships are responsible for assuring that
the partnerships' trades are properly processed and recorded or "cleared" by the
clearinghouse affiliated with the exchange on which the trade took place, and
for holding the partnerships' funds deposited with the commodity brokers as
margin for the trades.
Dean Witter is the non-clearing commodity broker for each partnership. As
non-clearing broker, Dean Witter holds each partnership's funds and provides
margin funds to the clearing brokers for the partnership's futures, forwards and
options positions.
Carr Futures Inc. serves as the clearing commodity broker for Spectrum
Currency. The clearing commodity broker for Spectrum Commodity is Morgan
Stanley & Co. Incorporated, except that all trades for Spectrum Commodity on the
London Metal Exchange are cleared by Morgan Stanley & Co. International Limited.
The clearing commodity broker is responsible for processing and clearing the
futures and options transactions placed by a trading advisor for the account of
a partnership. Carr Futures also acts as the dealer on each foreign currency
forward contract for the partnerships.
4
<PAGE>
ORGANIZATIONAL CHART
Following is an organizational chart for each partnership, showing the
relationships among the various parties involved with this offering. With the
exception of Carr Futures, JWH, and Sunrise, all parties are affiliates of
Morgan Stanley Dean Witter & Co.
EDGAR REPRESENTATION OF DATA POINTS USED IN PRINTED GRAPHIC
<TABLE>
<CAPTION>
MORGAN STANLEY DEAN WITTER & CO.
<S> <C> <C> <C> <C> <C>
wholly-owned wholly-owned
Dean Witter
SELLING AGENT AND Selling Demeter
NON-CLEARING COMMODITY Agreement GENERAL PARTNER
BROKER
general
partnership
Customer interest
Agreement
Morgan Stanley Customer
and Agreement
Morgan Stanley
International
CLEARING COMMODITY
BROKERS
FOR SPECTRUM
COMMODITY
Customer Customer Customer
Agreement Agreement Agreement
F/X Agreement
Carr Futures Spectrum Currency
CLEARING COMMODITY BROKER Spectrum Commodity Management
FOR SPECTRUM CURRENCY Agreements
Management
Agreements
Trading Advisors
<CAPTION>
<S> <C> <C>
general 25 other
partnership commodity
interest pools*
Customer
Agreement
Carr Futures
CLEARING COMMODITY BROKER
FOR SPECTRUM CURRENCY
</TABLE>
- ---------
* Demeter presently serves as general partner for 25 other commodity pools.
Dean Witter acts as the non-clearing commodity broker for all of the pools,
and Carr Futures acts as the clearing commodity broker for all of the pools
except Spectrum Commodity. Morgan Stanley acts as the clearing commodity
broker for Spectrum Commodity, and Morgan Stanley International serves as
the clearing commodity broker for that pool's trades that take place on the
London Metal Exchange. Dean Witter has also served as selling agent for all
but one of the pools managed by Demeter. All of the pools, including the
partnerships, are managed and traded independently of one another.
5
<PAGE>
FEES TO BE PAID BY THE PARTNERSHIPS
The partnerships pay the following monthly fees:
<TABLE>
<CAPTION>
MANAGEMENT FEE BROKERAGE FEE
(ANNUAL RATE) INCENTIVE FEE(1) (ANNUAL RATE)
-------------- ---------------- -------------
<S> <C> <C> <C>
% % %
Spectrum Currency 3 or 4(2) 15 4.60
Spectrum Commodity 2.5 20 4.60
</TABLE>
- ---------
(1) Spectrum Currency pays its trading advisors a monthly incentive fee, and
Spectrum Commodity pays its trading advisor an annual incentive fee.
(2) JWH-Registered Trademark- receives a monthly management fee at a 4% annual
rate. Sunrise receives a monthly management fee at a 3% annual rate.
The management fee payable to each trading advisor and the brokerage fee
payable to Dean Witter are based on a percentage of net assets and will be paid
monthly regardless of a partnership's performance. The partnerships pay each
trading advisor an incentive fee only if trading profits are earned on the
portion of net assets managed by the trading advisor. You should understand that
because Spectrum Currency has two trading advisors, it may pay one of its
trading advisors an incentive fee even though the partnership as a whole is not
profitable.
Neither you nor the partnerships will pay any selling commissions, or
organizational, initial, or continuing offering expenses in connection with the
offering of units by the partnerships. Dean Witter will pay all costs incurred
in connection with the organization of Spectrum Currency and its initial
offering of units. Dean Witter will also pay all costs incurred in connection
with the continuing offering of units of each partnership, and will pay the
ordinary administrative expenses of each partnership. Each partnership will pay
any extraordinary expenses it may incur.
6
<PAGE>
BREAK EVEN ANALYSIS
Following is a table that sets forth the fees and expenses that you would
incur on an initial investment of $5,000 in each partnership and the amount that
your investment must earn, after taking into account estimated interest income,
in order to break even after one year and more than two years. The fees and
expenses applicable to each partnership are described above.
<TABLE>
<CAPTION>
SPECTRUM SPECTRUM
CURRENCY COMMODITY
-------- ---------
<S> <C> <C>
$ $
Management Fee.............................................. 175.00 125.00
Brokerage Fee............................................... 230.00 230.00
Less: Interest Income (1)................................... (188.00) (188.00)
Incentive Fee (2)........................................... -- --
Redemption Charge (3)....................................... 102.04 102.04
Amount of trading profits a partnership must earn for you to
recoup your initial investment at the end of one year
after paying a redemption charge.......................... 319.04 269.04
Trading profits as percentage of net assets that a
partnership must earn for you to recoup your initial
investment at the end of one year after paying a
redemption charge......................................... 6.38% 5.38%
Amount of trading profits a partnership must earn each year
for you to recoup your initial investment after two years
with no redemption charge................................. 217.00 167.00
Trading profits as percentage of net assets that a
partnership must earn each year for you to recoup your
initial investment after two years with no redemption
charge.................................................... 4.34% 3.34%
</TABLE>
- ---------
(1) The partnerships do not directly invest in interest-bearing instruments.
Instead, each partnership is paid interest by Dean Witter at the blended
rate Dean Witter earns on its U.S. Treasury bill investments with all
customer segregated funds, as if 80% of the partnership's average daily net
assets for the month were invested at that rate. The rate used in the
calculations was estimated based upon current rates of approximately 4.70%.
(2) Incentive fees are paid to a trading advisor only on trading profits on the
assets of the partnership managed by that trading advisor. Trading profits
are determined after deducting all partnership expenses attributable to the
partnership assets managed by the trading advisor, other than any
extraordinary expenses, and do not include interest income. Therefore,
incentive fees will be zero at the partnership's breakeven point on the
assets managed by the trading advisor. Further, there do not need to be
trading profits to cover the redemption charge because the interest earned
by the partnership during the year will exceed the redemption charge to the
investor. Note, however, that because one trading advisor to a partnership
could be profitable and earn an incentive fee while the other trading
advisors are unprofitable such that the partnership has an overall trading
loss, it is possible for a partnership to pay an incentive fee at a time
when it has incurred overall losses.
(3) Units redeemed at the end of one year from the date of purchase are
generally subject to a 2% redemption charge; after two years there are no
redemption charges.
REDEMPTION CHARGES INCURRED BY YOU
You will pay a redemption charge of 2% of the net asset value of the units
redeemed if you redeem within the first twelve months after the units were
purchased, and 1% if you redeem units within the thirteenth through
twenty-fourth months after the units were purchased. Units are not subject to a
redemption charge after you have owned them for more than 24 months.
You will not incur a redemption charge if you redeem units during the first
24 months after they were issued in the following circumstances:
- If you purchase at least $500,000 of units.
- If you redeem units immediately following notice of an increase in
brokerage, management or incentive fees.
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- If you redeem units in connection with an exchange for units in another
Spectrum Series partnership.
- If you acquire units with the proceeds from the redemption of interests in
a non-Spectrum Series partnership for which Demeter serves as the general
partner, you will not be subject to a redemption charge on those units
when they are redeemed.
- If you previously redeemed units and paid a redemption charge or held
those units for at least 24 months, you will not have to pay a redemption
charge on subsequently purchased units provided they are purchased within
12 months of the redemption of the old units and the purchase price of the
new units does not exceed the net proceeds received from the prior
redemption.
REDEMPTIONS
Once you have been an investor in any Spectrum Series partnership, including
Spectrum Select, Spectrum Technical, Spectrum Strategic, and Spectrum Global
Balanced, for more than six months, you are permitted to redeem any part of your
investment, even if subsequent purchases have been held for less than six
months. However, you will pay a redemption charge of 2% of the net asset value
redeemed if your redeemed units were purchased within 12 months of the date of
redemption, and 1% if purchased within 13 to 24 months of the date of
redemption. You will not be subject to a redemption charge after you have owned
your units for more than 24 months. Unless you are redeeming your entire
interest in a partnership, redemptions may only be made in whole units, with a
minimum of 50 units required for each redemption.
EXCHANGE RIGHT
You may redeem units in any partnership after you have been an investor for
six months and use the proceeds to purchase units in one or more of the other
partnerships in the Spectrum Series, including Spectrum Select, Spectrum
Technical, Spectrum Strategic, and Spectrum Global Balanced, at a price equal to
100% of the net asset value per unit, without incurring any redemption or other
charge on the transaction.
DISTRIBUTIONS
The General Partner currently does not intend to make any distribution of
partnership profits.
TAX CONSIDERATIONS
Even though the general partner currently does not intend to make
distributions, your allocable share of the trading profits and other income of
the partnerships in which you invest will be taxable to you.
The trading activities of each partnership, in general, generate capital
gains and loss and ordinary income. 40% of any trading profits on U.S.
exchange-traded contracts are taxed as short-term capital gains at your ordinary
income tax rate, while 60% of such gains are taxed at your long-term capital
gains tax rate. We expect that each partnership's trading gains from other
contracts will be primarily short-term capital gains. This tax treatment applies
regardless of how long you hold your units.
You may deduct losses on units against capital gains income. You may deduct
losses in excess of capital gains against ordinary income only to the extent of
$3,000 per year. Consequently, you could pay tax on a partnership's interest
income even though you have lost money on your units.
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RISK FACTORS
This section includes all of the principal risks that you will face with an
investment in the partnerships. Each risk factor applies equally to each
partnership, except where specifically noted.
TRADING AND PERFORMANCE RISKS
THE PARTNERSHIPS' TRADING IS SPECULATIVE AND VOLATILE. The rapid
fluctuations in the market prices of futures, forwards and options makes an
investment in the partnerships volatile. Volatility is caused by changes in
supply and demand relationships; weather; agricultural, trade, fiscal, monetary
and exchange control programs; domestic and foreign political and economic
events and policies; and changes in interest rates. If a trading advisor
incorrectly predicts the direction of prices, large losses may occur. As can be
seen from the information in the performance capsules for the partnerships on
pages 25 to 26, each partnership has experienced volatility in its performance
on both a monthly and an annual basis.
EACH PARTNERSHIP'S TRADING IS LEVERAGED. The trading advisors for each
partnership use substantial leverage when trading, which could result in
immediate and substantial losses. For example, if 10% of the face value of a
contract is deposited as margin for that contract, a 10% decrease in the value
of the contract would cause a total loss of the margin deposit. A decrease of
more than 10% in the value of the contract would cause a loss greater than the
amount of the margin deposit.
The leverage employed by the partnerships in their trading can vary
substantially from month to month. As an example of the leverage employed by
Spectrum Commodity, the average of the underlying value of its month-end
positions for the period January 1999 to December 1999, as compared to its
average month-end net assets during that period, was 1.4 times net assets. Since
Spectrum Currency is a new partnership without an operating history, comparable
information is not available for that partnership but it is expected that
Spectrum Currency will be more highly leveraged than Spectrum Commodity. While
the leverage employed on a trade will accentuate the trading profit or loss on
that trade, one partnership's overall leverage as compared to another
partnership's overall leverage does not necessarily mean that it will be more
volatile than the other partnership. This can be seen by a review of the monthly
rates of return for the partnerships on pages 25 to 26.
OPTIONS TRADING CAN BE MORE VOLATILE THAN FUTURES TRADING. Each partnership
may trade options on futures. Although successful options trading requires many
of the same skills as successful futures trading, the risks are different.
Successful options trading requires a trader to accurately assess near-term
market volatility because that volatility is immediately reflected in the price
of outstanding options. Correct assessment of market volatility can therefore be
of much greater significance in trading options than it is in many long-term
futures strategies where volatility does not have as great an effect on the
price of a futures contract.
During the period January 1999 to December 1999, Spectrum Commodity did not
engage in any options trading. You should be aware, however, that in the future
the partnerships may engage in options trading.
YOU SHOULD NOT RELY ON THE PAST PERFORMANCE OF A PARTNERSHIP IN DECIDING TO
PURCHASE UNITS. Since the future performance of a partnership is unpredictable,
each partnership's past performance is not necessarily indicative of future
results.
SPECTRUM CURRENCY DOES NOT HAVE AN OPERATING HISTORY. The CFTC requires a
commodity pool operator to disclose to prospective pool participants the actual
performance record of the pool for which the operator is soliciting
participants. YOU SHOULD NOTE THAT SPECTRUM CURRENCY HAS NOT COMMENCED TRADING
AND DOES NOT HAVE ANY PERFORMANCE HISTORY.
SPECTRUM CURRENCY IS A NEW FUND AND WILL BE SUBJECT TO SPECIAL RISKS DURING
ITS START-UP PERIOD. During its start-up period, Spectrum Currency's performance
may be more volatile because it will not have had time to develop a
fully-diversified portfolio. The more concentrated the trading, the greater the
possibility of volatility, which can result in greater losses. The general
partner believes the start-up period could last for one to three months after
the initial closing.
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SPECTRUM COMMODITY IS SUBJECT TO GREATER RISK OF LOSS DURING PERIODS OF LOW
INFLATION. During periods of low or no commodity price inflation, Spectrum
Commodity is more likely to experience losses because it is a long-only
commodity fund. As a long-only commodity fund, the partnership will not be
profitable unless some commodity prices increase. For example, Spectrum
Commodity experienced losses during its initial year of trading, as 1998 was a
year characterized by a deflationary environment with respect to the commodities
traded by the partnership, except orange juice.
MARKET ILLIQUIDITY MAY CAUSE LESS FAVORABLE TRADE PRICES. Although the
trading advisors for each partnership generally will purchase and sell actively
traded contracts where last trade price information and quoted prices are
readily available, the prices at which a sale or purchase occur may differ from
the prices expected because there may be a delay between receiving a quote and
executing a trade, particularly in circumstances where a market has limited
trading volume and prices are often quoted for relatively limited quantities. In
addition, most U.S. futures exchanges have established "daily price fluctuation
limits" which preclude the execution of trades at prices outside of the limit,
and, from time to time, the CFTC or the exchanges may suspend trading in market
disruption circumstances. In these cases it is possible that a partnership could
be required to maintain a losing position that it otherwise would execute and
incur significant losses or be unable to establish a position and miss a profit
opportunity.
TRADING ON FOREIGN EXCHANGES PRESENTS GREATER RISKS TO EACH PARTNERSHIP THAN
TRADING ON U.S. EXCHANGES.
- Spectrum Commodity has traded, and Spectrum Currency will trade, on
exchanges located outside the U.S. Trading on U.S. exchanges is subject to
CFTC regulation and oversight, including for example minimum capital
requirements for commodity brokers, regulation of trading practices on the
exchanges, prohibitions against trading ahead of customer orders,
prohibitions against filling orders off exchanges, prescribed risk
disclosure statements, testing and licensing of industry sales personnel
and other industry professionals, and record keeping requirements. Trading
on foreign exchanges is not regulated by the CFTC or any other U.S.
governmental agency or instrumentality and may be subject to regulations
that are different from those to which U.S. exchange trading is subject,
provide less protection to investors than trading on U.S. exchanges and
may be less vigorously enforced than regulations in the U.S.
- Positions on foreign exchanges also are subject to the risk of exchange
controls, expropriation, excessive taxation or government disruptions.
- A partnership could incur losses when determining the value of its foreign
positions in U.S. dollars because of fluctuations in exchange rates.
Each partnership must deposit margin with respect to the partnership's
futures and options contracts on both U.S. exchanges and on foreign exchanges
and Spectrum Currency must deposit margin with respect to its foreign currency
forward contracts to assure the partnership's performance on those contracts.
The average percentage of month-end margin requirements for the period January
1999 to December 1999 for Spectrum Commodity that relate to futures contracts on
foreign exchanges as compared to the partnership's total average month-end
margin requirements was 19.6%. Spectrum Currency does not have an operating
history, therefore comparable information is not currently available. This
information will provide you with a sense of the magnitude of Spectrum
Commodity's trading on foreign exchanges, and, therefore, the relevance of the
risks described in the prior paragraph. You should be aware, however, that the
percentage of Spectrum Commodity's margin requirements that relate to positions
on foreign exchanges varies from month to month and can be significantly higher
or lower than the percentage set forth above.
THE UNREGULATED NATURE OF THE FORWARDS MARKETS CREATES COUNTERPARTY RISKS
THAT DO NOT EXIST IN FUTURES TRADING ON EXCHANGES. Unlike futures contracts,
forwards contracts are entered into between private parties off an exchange and
are not regulated by the CFTC or by any other U.S. government agency. Because
forwards contracts are not traded on an exchange, the performance of those
contracts is not guaranteed by an exchange or its clearinghouse and Spectrum
Currency will be at risk to the ability of the counterparty to the trade to
perform on the forwards contract. Because trading in the forwards markets is not
regulated, there are no specific standards or regulatory supervision of trade
pricing and other trading activities that occur in those markets. Because
Spectrum Currency will trade forwards contracts in
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foreign currency only with Carr Futures, it will be at risk to the
creditworthiness and trading practices of Carr Futures as the counterparty to
the trades. Spectrum Commodity will not trade foreign currency forwards.
As the counterparty to all of Spectrum Currency's foreign currency forwards
contracts, Carr Futures will require the partnership to make margin deposits
with Carr Futures to assure the partnership's performance on those contracts,
just as Carr Futures will require the partnership to deposit margin on its
futures contracts.
THE PARTNERSHIPS ARE SUBJECT TO SPECULATIVE POSITION LIMITS. The CFTC and
U.S. futures exchanges have established speculative position limits on the
maximum number of futures and options positions that may be held or controlled
by any one person or group. Therefore, a trading advisor may have to reduce the
size of its futures position in order to avoid exceeding position limits, which
could adversely affect the profitability of a partnership.
THE PARTNERSHIPS COULD LOSE ASSETS AND HAVE THEIR TRADING DISRUPTED IF A
COMMODITY BROKER OR OTHERS BECOME BANKRUPT. The partnerships' assets could be
lost or impounded and trading suspended if a commodity broker, an exchange or a
clearinghouse becomes insolvent or involved in lengthy bankruptcy proceedings.
EURO CONVERSION LIMITS SPECTRUM CURRENCY'S ABILITY TO TRADE INDIVIDUAL
CURRENCIES AND COULD RESULT IN TRADING LOSSES. On January 1, 1999, eleven
countries in the European Union established fixed conversion rates on their
existing sovereign currencies and converted to a common single currency. During
a three-year transition period, the existing sovereign currencies will continue
to exist but only as a fixed denomination of the euro. Conversion to the euro
prevents Spectrum Currency's trading advisors from trading those sovereign
currencies and thereby limits its ability to take advantage of potential market
opportunities that might otherwise have existed had separate currencies been
available to trade. This could adversely affect the performance results of
Spectrum Currency.
PARTNERSHIPS AND OFFERING RISKS
EACH PARTNERSHIP INCURS SUBSTANTIAL CHARGES. Each partnership must pay
substantial charges and must earn significant trading profits just to pay those
expenses. We estimate the percentage of partnership net assets that must be
earned each year in order for each partnership to break even without accounting
for a redemption charge to be:
<TABLE>
<CAPTION>
%
----
<S> <C>
Spectrum Currency........................................... 4.34
Spectrum Commodity.......................................... 3.34
</TABLE>
For actual past performance results relating to Spectrum Commodity and for
another currency-only fund operated by the general partner and traded by
Spectrum Currency's trading advisors, including when such partnerships did not
break even, see the performance capsules on page 25.
INCENTIVE FEES MAY BE PAID BY A PARTNERSHIP EVEN THOUGH THE PARTNERSHIP
SUSTAINS TRADING LOSSES. Each partnership pays each of its trading advisors an
incentive fee based upon partnership trading profits earned by that trading
advisor. These trading profits include unrealized appreciation on open
positions. Accordingly, it is possible that a partnership will pay an incentive
fee on trading profits that do not become realized. Also, each trading advisor
will retain all incentive fees paid to it, even if the assets of a partnership
managed by the trading advisor incur a subsequent loss after payment of an
incentive fee. Because incentive fees will be paid monthly for Spectrum
Currency, it is possible that an incentive fee may be paid to a trading advisor
during a year in which the assets allocated to the trading advisor suffer a loss
for the year. Because each trading advisor for a partnership receives an
incentive fee based on the trading profits earned by it for the partnership, the
trading advisor may have an incentive to make investments that are riskier than
would be the case in the absence of such an incentive fee.
It is also possible that one trading advisor for Spectrum Currency may
generate trading profits on which it has earned an incentive fee, while the
other trading advisor simultaneously incurs losses such that Spectrum Currency
is paying an incentive fee when it has sustained an overall trading loss.
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RESTRICTED INVESTMENT LIQUIDITY IN THE UNITS. There is no secondary market
for units and you are not permitted to redeem your units until you have been an
investor in the Spectrum Series of partnerships for at least six months. After
the initial six-month period, you may redeem your units at any month-end, but
you may have to pay a redemption charge if you redeem units during the first
twenty-four months after they were purchased. Your right to receive payment on a
redemption is not absolute and is dependent upon the partnership having
sufficient assets to pay its liabilities on the redemption date, and the general
partner receiving your request for redemption at least five business days before
the redemption date.
CONFLICTS OF INTEREST IN EACH PARTNERSHIP'S STRUCTURE.
- The general partner, Dean Witter, Morgan Stanley, Morgan Stanley
International, and Morgan Stanley Dean Witter Commodities Management are
affiliates. As a result, the brokerage fees and other terms relating to
the operation of the partnerships and the sale of the units have not been
independently negotiated. In addition, the management fee paid by Spectrum
Commodity to its trading advisor and the terms of its management agreement
have not been independently negotiated.
- Employees of Dean Witter receive a portion of the brokerage fees paid by
the partnerships. Therefore, those employees have a conflict of interest
in advising you in the purchase or redemption of units.
- The trading advisors, commodity brokers, and general partner may trade
futures, forwards and options for their own accounts, and thus, they may
compete with a partnership for positions. Also, the other commodity pools
managed by the general partner and the trading advisors compete with the
partnerships for positions. These conflicts can result in less favorable
prices on the partnerships' transactions.
AN INVESTMENT IN UNITS MAY NOT DIVERSIFY AN OVERALL PORTFOLIO. Because
futures, forwards, and options have historically performed independently of
traditional investments, the general partner believes that managed futures funds
like the partnerships can diversify a portfolio of stocks and bonds. However,
the general partner cannot assure you that any of the partnerships will perform
with a significant degree of non-correlation to your other investments in the
future.
NO ASSURANCE THAT UNITS OF SPECTRUM CURRENCY WILL BE SOLD. Spectrum
Currency will not commence trading operations unless 600,000 units are
subscribed for during the initial offering period and accepted by the general
partner. Because Dean Witter, as selling agent, will only use its best efforts
to offer and sell the units, neither the general partner nor Dean Witter can
assure you that Dean Witter will raise the minimum amount required to commence
trading. Further, while the general partner, Dean Witter, any other firm selling
units, and the trading advisors, and their respective affiliates may subscribe
for units in Spectrum Currency, so that the 600,000 unit minimum is met, they
are not required to do so.
TRADING ADVISOR RISKS
RELIANCE ON THE TRADING ADVISORS TO TRADE SUCCESSFULLY. The trading
advisors are responsible for making all trading decisions for the partnerships.
The general partner cannot assure you that the trading programs employed by the
trading advisors will be successful.
MARKET FACTORS MAY ADVERSELY INFLUENCE THE TRADING PROGRAMS. Often, the
most unprofitable market conditions for the partnerships are those in which
prices "whipsaw," moving quickly upward, then reversing, then moving upward
again, then reversing again. In these conditions, the trading advisors may
establish positions based on incorrectly identifying both the brief upward or
downward price movements as trends when in fact no trends sufficient to generate
profits develop.
POSSIBLE CONSEQUENCES OF USING MULTIPLE TRADING ADVISORS FOR SPECTRUM
CURRENCY. Spectrum Currency has more than one trading advisor, and each trading
advisor will make trading decisions independent of the other trading advisors.
As a result, it is possible that the trading advisors for Spectrum Currency
could hold opposite positions in the same or similar futures, forwards or
options, thereby offsetting any potential for profit from these positions for
the partnership. It is also possible that the trading advisors for Spectrum
Currency may hold similar positions in the same or similar futures, forwards or
options, thereby compounding a potential losing position.
SPECTRUM COMMODITY IS A SINGLE-ADVISOR FUND AND LACKS THE DIVERSITY OF A
MULTI-ADVISOR FUND. Spectrum Commodity is managed by a single trading advisor.
Therefore, the partnership lacks the potential benefit of trading advisor
diversification.
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INCREASING THE ASSETS MANAGED BY A TRADING ADVISOR MAY ADVERSELY AFFECT
PERFORMANCE. The rates of return achieved by trading advisors may diminish as
the assets under their management increases. This can occur for many reasons
including the inability of the trading advisor to execute larger position sizes
at desired prices and because of the need to adjust the advisor's trading
program to avoid exceeding speculative position limits. These are limits
established by the CFTC and the exchanges on the number of speculative futures
and option contracts in a commodity that one trader may own or control. You
should know that the trading advisors have not agreed to limit the amount of
additional assets that they will manage.
LIMITED PARTNERS WILL NOT BE AWARE OF CHANGES TO TRADING PROGRAMS. Because
of the proprietary nature of each trading advisor's trading programs, limited
partners generally will not be advised if adjustments are made to a trading
advisor's trading program in order to accommodate additional assets under
management or for any other reason.
LIMITED TERM OF MANAGEMENT AGREEMENTS MAY LIMIT ACCESS TO A TRADING
ADVISOR. When the management agreement with a trading advisor expires, the
general partner may not be able to enter into arrangements with that trading
advisor or another trading advisor on terms substantially similar to the
management agreements described in this prospectus. Currently, the management
agreements for Spectrum Currency have three-year terms and the management
agreement for Spectrum Commodity has a one year term, each of which renew
annually unless terminated by the general partner or the trading advisor.
TAXATION RISKS
EVEN THOUGH THE PARTNERSHIPS DO NOT INTEND TO MAKE DISTRIBUTIONS, YOU WILL
BE LIABLE FOR TAXES ON YOUR SHARE OF ANY TRADING PROFITS AND ANY OTHER INCOME OF
THE PARTNERSHIPS IN WHICH YOU HAVE INVESTED. For U.S. federal income tax
purposes, if a partnership in which you own units has taxable income for a year,
that income will be taxable to you in accordance with your allocable share of
income from the partnership, whether or not any amounts have been distributed to
you. The general partner presently does not intend to make distributions from
the partnerships. Accordingly, it is anticipated that you will incur tax
liabilities as a result of being allocated taxable income from a partnership
even though you will not receive current cash distributions with which to pay
the taxes.
THE PARTNERSHIPS' TAX RETURNS COULD BE AUDITED. The IRS could audit a
partnership's tax return. If an audit results in an adjustment to a
partnership's tax return, you could be required to file an amended tax return.
CONFLICTS OF INTEREST
While the general partner, Dean Witter and their affiliates will seek to
avoid conflicts of interest to the extent feasible and to resolve all conflicts
that may arise equitably and in a manner consistent with their responsibilities
to the partnerships, no specific policies regarding conflicts of interest have
been or are intended to be adopted by the general partner or the partnerships.
The following are actual and potential conflicts of interest that do and may
continue to exist with respect to the partnerships.
THE FEES PAYABLE TO AFFILIATES OF THE GENERAL PARTNER WERE NOT NEGOTIATED AT
ARMS-LENGTH OR REVIEWED BY ANY INDEPENDENT PARTY FOR FAIRNESS
The general partner, Dean Witter, Morgan Stanley and Morgan Stanley
International are wholly-owned subsidiaries of Morgan Stanley Dean
Witter & Co. Dean Witter is the non-clearing commodity broker for each
partnership and receives a monthly brokerage fee for effecting transactions for
each partnership. Morgan Stanley is the clearing commodity broker for Spectrum
Commodity and receives a portion of the monthly brokerage fee payable to Dean
Witter for effecting transactions for that partnership. Morgan Stanley
International is the commodity broker for Spectrum Commodity's trades on the
London Metal Exchange; however, Morgan Stanley International's fees are paid by
Morgan Stanley, and not by the partnership. Because the general partner is an
affiliate of Dean Witter and Morgan Stanley, the flat-rate brokerage fees
charged to each partnership have not been negotiated at arm's-length. Moreover,
the general partner has a conflict of interest in managing the partnerships for
your benefit, and in obtaining favorable brokerage fees for Dean Witter and
retaining Dean Witter, Morgan Stanley and Morgan Stanley International as
commodity brokers. In addition, the brokerage fees generated by the partnerships
are used by Dean Witter as a factor in determining the salaries and bonuses of
Dean Witter's employees who are also officers and directors of the general
partner. Customers of Dean Witter who maintain commodity trading accounts with
over $1,000,000 pay commissions at negotiated rates that may be substantially
less than the rate paid by each partnership.
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While each partnership has the right to seek lower commission rates from
other commodity brokers at any time, the general partner believes that the
customer agreements and other arrangements between each partnership and the
commodity brokers are fair, reasonable and competitive, and represent the best
price and services available, considering the following factors. Dean Witter
pays the expenses of organizing the partnerships, offering the units, and the
partnerships' ordinary administrative expenses. None of these expenses would
ordinarily be paid by an independent commodity broker, and these expenses would
otherwise have to be borne by the partnerships. Further, the general partner
provides ongoing services to the partnerships, including administering the
redemption and exchanges of units, and the general partner has financial
obligations as the general partner of the partnerships. The general partner is
not reimbursed or otherwise compensated by the partnerships for these services
or obligations.
The general partner reviews the brokerage arrangements annually to ensure
that they are fair, reasonable and competitive, and that they represent the best
price and services available, taking into consideration the size and trading
activity of each partnership and the services provided, and the costs, expenses,
and risk borne, by Dean Witter and the general partner.
THE TERMS OF THIS OFFERING WERE NOT SUBJECT TO INDEPENDENT DUE DILIGENCE
The partnerships, Dean Witter, Morgan Stanley Dean Witter Commodities
Management, and the general partner are represented by a single counsel.
Therefore, the terms of this offering relating to those parties were not
negotiated at arm's-length. In addition, no independent due diligence has been
conducted with respect to this offering.
EMPLOYEES OF DEAN WITTER ARE COMPENSATED BASED UPON YOUR INVESTMENT AND
REDEMPTION DECISIONS
Dean Witter pays a significant portion of the brokerage fees it receives
from each partnership to its employees for providing continuing assistance to
limited partners. Therefore, because Dean Witter employees are directly
compensated based on your decision to purchase and retain units in a
partnership, they have a conflict of interest when advising you to purchase or
redeem units in a partnership.
THE SELECTION OF A TRADING ADVISOR MAY BENEFIT DEAN WITTER
The general partner is responsible for selecting and replacing, if
necessary, each trading advisor. However, since selecting trading advisors who
engage in a high volume of trades will increase Dean Witter's costs as
non-clearing broker, without necessarily increasing revenue, the general partner
has an incentive to select trading advisors who trade less frequently.
THE GENERAL PARTNER HAS A DISINCENTIVE TO REPLACE THE TRADING ADVISOR FOR
SPECTRUM COMMODITY WHICH IS AN AFFILIATE OF THE GENERAL PARTNER
Morgan Stanley Dean Witter Commodities Management is the trading advisor for
Spectrum Commodity and receives a monthly management fee and a possible annual
incentive fee. Because the general partner and Morgan Stanley Dean Witter
Commodities Management are both wholly-owned subsidiaries of Morgan Stanley Dean
Witter & Co., they are affiliates and, as such, the terms of the management
agreement, including the management and incentive fees, have not been negotiated
at arm's-length. Further, the general partner has a disincentive to remove and
replace Morgan Stanley Dean Witter Commodities Management as trading advisor.
AFFILIATES OF THE GENERAL PARTNER, THE TRADING ADVISORS, AND THE COMMODITY
BROKERS MAY TRADE FOR THEIR OWN ACCOUNTS IN COMPETITION WITH THE PARTNERSHIPS
The general partner does not trade futures, forwards or options for its own
account, but officers, directors and employees of the general partner, the
commodity brokers, and the trading advisors and their affiliates, principals,
officers, directors and employees, may trade futures, forwards and options for
their own proprietary accounts. Their trading records will not be available to
you. As a result, you will not be able to compare the performance of their
trading to the performance of the partnerships.
Carr Futures and Morgan Stanley are large futures commission merchants,
handling substantial customer business in physical commodities and futures,
forwards and options. Thus, Carr Futures and Morgan Stanley may effect
transactions for the account of a partnership in which the other parties to such
transactions are employees or affiliates of the general partner, a trading
advisor, Carr Futures or Morgan Stanley, or customers or correspondents of Carr
Futures or Morgan Stanley. These persons might also compete with a partnership
in bidding on purchases or sales of futures, forwards and options without
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knowing that the partnership is also bidding. It is possible that transactions
for these other persons might be effected when similar trades for one or more
partnerships are not executed or are executed at less favorable prices.
THE TRADING ADVISORS MANAGE OTHER ACCOUNTS THAT WILL COMPETE WITH THE
PARTNERSHIPS
- Each trading advisor manages other accounts in addition to the
partnership's accounts. Each trading advisor must aggregate futures and
options positions in other accounts managed by it with futures and options
positions in the applicable partnership's account for speculative position
limits purposes. This may require a trading advisor to liquidate or modify
positions for all of its accounts, which could adversely affect the
partnership's performance.
- Each trading advisor currently manages accounts that pay fees higher than
the fees paid by the partnerships. A trading advisor will have a conflict
of interest in rendering advice to a partnership because the compensation
it receives for managing another account exceeds the compensation it
receives for managing the partnership's account.
- If a trading advisor makes trading decisions for other accounts and a
partnership's account at or about the same time, the partnership may be
competing with those other accounts for the same or similar positions.
- The trading advisors' records for these other accounts will not be made
available to you. As a result, you will not be able to compare the
performance of these accounts to the performance of the partnerships.
THE LACK OF DISTRIBUTIONS INCREASES THE FEES PAID TO AFFILIATES OF THE GENERAL
PARTNER
The general partner is responsible for determining whether and when to
distribute trading profits earned by a partnership. Since the general partner
currently does not intend to distribute trading profits, Dean Witter and Morgan
Stanley will receive increased brokerage fees, and Morgan Stanley Dean Witter
Commodities Management will receive increased management fees, because these
fees are based upon the net asset value of a partnership, and net asset value
will increase by retaining a partnership's trading profits.
CUSTOMER AGREEMENTS WITH THE COMMODITY BROKERS PERMIT ACTIONS WHICH COULD RESULT
IN LOSSES OR LOST PROFIT OPPORTUNITY
Under each customer agreement for a partnership, all funds, futures,
forwards, options, and securities positions, and credits carried for the
partnership, are held as security for its obligations to the commodity broker;
the margins necessary to initiate or maintain open positions will be established
by the commodity broker from time to time; and the commodity broker may close
out positions, purchase futures, forwards and options, or cancel orders at any
time it deems necessary for its protection, without the consent of the
partnership. For example, a commodity broker may determine to take any of these
actions if prices in the futures markets are moving rapidly against a
partnership's positions and the commodity broker is concerned that potential
losses could exceed the partnership's assets such that the commodity broker
would be left to incur the loss. While not a likely occurrence, it is possible
for the trading advisors to believe that market conditions will change and that
existing positions or trades they wish to make would be profitable, such that
the actions of the commodity broker preclude the partnership from engaging in
profitable transactions or avoiding losses.
Each commodity broker or the general partner, or the investors in each
partnership by majority vote, may terminate the brokerage relationship upon 60
days' prior written notice.
FIDUCIARY RESPONSIBILITY AND LIABILITY
You should be aware that the general partner has a fiduciary duty under the
limited partnership agreements and the Delaware Revised Uniform Limited
Partnership Act to exercise good faith and fairness in all dealings affecting
the partnerships. The limited partnership agreements do not permit the general
partner to limit, by any means, the fiduciary duty it owes to investors. In the
event that you believe the general partner has violated its responsibilities,
you may seek legal relief under the Partnership Act, the Commodity Exchange Act,
applicable federal and state securities laws, and other applicable laws. Each
trading advisor also has a fiduciary duty under applicable law to each
partnership it advises.
The limited partnership agreements, the customer agreements, and the selling
agreement provide that the general partner, the commodity brokers, Dean Witter
(as selling agent), any other firm selling units, and their affiliates shall not
be liable to a partnership or its investors for any act or omission by or on
15
<PAGE>
behalf of the partnership which the general partner, the commodity brokers, Dean
Witter (as selling agent), or any additional seller, as applicable, determines
in good faith to be in the best interests of the partnership, unless the act or
omission constituted misconduct or negligence.
Under the limited partnership agreements, the customer agreements, and the
selling agreement, each partnership has agreed to indemnify and defend the
general partner, the commodity brokers, Dean Witter (as selling agent), any
additional seller, and their affiliates, against any loss, liability, damage,
cost or expense (including attorneys' and accountants' fees and expenses) they
incur which arise from acts or omissions undertaken by or on behalf of the
partnership, including claims by investors. These indemnities apply where the
general partner, the commodity brokers, Dean Witter (as selling agent), or any
additional seller, as applicable, has determined, in good faith, that the act or
omission was in the best interests of the partnership, and the act or omission
was not the result of misconduct or negligence. Payment of any indemnity by a
partnership would reduce the net assets of that partnership. The partnerships do
not carry liability insurance covering such potential losses or indemnification
exposure.
No indemnification of the general partner, the commodity brokers, Dean
Witter (as selling agent), any additional seller, or their affiliates by a
partnership is permitted for losses, liabilities, or expenses arising out of
alleged violations of federal or state securities laws unless a court has found
in favor of the indemnitee on the merits of the claim, or a court has dismissed
the claim with prejudice on the merits, or a court has approved a settlement on
the claim and found that the indemnification should be made by the partnership.
Where court approval for indemnification is sought, the person claiming
indemnification must advise the court of the views on indemnification of the SEC
and the relevant state securities administrators. It is the opinion of the SEC
that indemnification for liabilities arising under the Securities Act of 1933
for directors, officers or controlling persons of a partnership or the general
partner is against public policy and is therefore unenforceable. The CFTC has
issued a statement of policy relating to indemnification of officers and
directors of a futures commission merchant, such as the commodity brokers, and
its controlling persons under which the CFTC has taken the position that whether
such an indemnification is consistent with the policies expressed in the
Commodity Exchange Act will be determined by the CFTC on a case-by-case basis.
Each management agreement generally provides that the trading advisor and
its affiliates will not be liable to the partnership or the general partner or
their partners, officers, shareholders, directors or controlling persons. The
trading advisor is, however, liable for acts or omissions of the trading advisor
or its affiliates if the act or omission constitutes a breach of the management
agreement or a representation, warranty or covenant in the management agreement,
misconduct or negligence, or is the result of such persons not having acted in
good faith and in the reasonable belief that such actions or omissions were in,
or not opposed to, the best interests of the partnership. Each partnership has
agreed to indemnify and defend its trading advisor(s) and their affiliates
against any loss, claim, damage, liability, cost and expense resulting from a
demand, claim, lawsuit, action, or proceeding (other than those incurred as a
result of claims brought by or in the right of the indemnified party), relating
to the trading activities of the partnership, if a court finds, or independent
counsel renders an opinion, that the action or inaction giving rise to the claim
did not constitute negligence, misconduct or a breach of the management
agreement or a representation, warranty or covenant of the trading advisor in
that agreement, and was done in good faith and in a manner the indemnified party
reasonably believed to be in, or not opposed to, the best interests of the
partnership.
Each partnership will also indemnify its trading advisors and their
affiliates against any loss, claim, damage, liability, cost and expense, arising
under the federal securities laws, the Commodity Exchange Act, or the securities
or Blue Sky law of any jurisdiction, in respect of the offer or sale of units.
This indemnification will be made for liabilities resulting from a breach of any
representation, warranty or agreement in the management agreement relating to
the offering, or an actual or alleged misleading or untrue statement of a
material fact, or an actual or alleged omission of a material fact, made in the
registration statement, prospectus or related selling material, so long as the
statement or omission does not relate to the trading advisor or its principals,
was not made in reliance upon, and in conformity with, information or
instructions furnished by the trading advisor, and does not result from a breach
by the trading advisor of any representation, warranty or agreement relating to
the offering.
The foregoing involves a rapidly developing and changing area of the law and
if you have questions concerning the duties of the partnerships, the general
partner, the commodity brokers, any additional seller or the trading advisors,
you should consult with your attorney.
16
<PAGE>
DESCRIPTION OF CHARGES
CHARGES TO EACH PARTNERSHIP
Each partnership is subject to substantial charges, all of which are
described below.
SPECTRUM CURRENCY
<TABLE>
<CAPTION>
ENTITY FORM OF COMPENSATION AMOUNT OF COMPENSATION
- ------------------------------------------ ------------------------------------------ ------------------------------------------
<S> <C> <C>
Trading advisors.......................... Monthly management fee. 1/12 of 4% of the net assets allocated to
JWH, and 1/12 of 3% with respect to
Sunrise.
Monthly incentive fee. 15% of the trading profits experienced
with respect to each trading advisor's
allocated net assets.
Dean Witter............................... Monthly brokerage fee. 1/12 of 4.60% of net assets.
Financial benefit to Dean Witter from The compensating balance and excess net
interest earned on the partnership's interest benefit to Dean Witter is
assets in excess of the interest paid to estimated at less than 2% of the
the partnership and from compensating partnership's annual average month-end net
balance treatment in connection with its assets. The aggregate of the brokerage fee
designation of a bank or banks in which payable by the partnership and net excess
the partnership's assets are deposited. interest and compensating balance benefits
to Dean Witter (after crediting the
partnership with interest) will not exceed
14% annually of the partnership's average
month-end net assets during a calendar
year.
</TABLE>
SPECTRUM COMMODITY
(FORMERLY, MORGAN STANLEY TANGIBLE ASSET FUND L.P.)
<TABLE>
<CAPTION>
ENTITY FORM OF COMPENSATION AMOUNT OF COMPENSATION
- ------------------------------------------ ------------------------------------------ ------------------------------------------
<S> <C> <C>
Trading advisor........................... Monthly management fee. 1/12 of 2.5% of net assets.
Annual incentive fee. 20% of trading profits.
Dean Witter............................... Monthly brokerage fee. 1/12 of 4.60% of net assets.
Financial benefit to Dean Witter from The compensating balance and excess net
interest earned on the partnership's interest benefit to Dean Witter is
assets in excess of the interest paid to estimated at less than 2% of the
the partnership and from compensating partnership's annual average month-end net
balance treatment in connection with its assets. The aggregate of brokerage fees
designation of a bank or banks in which payable by the partnership, and net excess
the partnership's assets are deposited. interest and compensating balance benefits
to Dean Witter (after crediting the
partnership with interest) will not exceed
14% annually of the partnership's average
month-end net assets during a calendar
year.
</TABLE>
17
<PAGE>
TRADING ADVISORS
Each partnership pays each of its trading advisors a monthly management fee,
whether or not the assets of the partnership as a whole or the assets allocated
to such trading advisor are profitable. In addition, each partnership pays each
of its trading advisors an incentive fee if trading profits are earned on the
net assets allocated to such trading advisor.
MONTHLY MANAGEMENT FEE. Each partnership pays each of its trading advisors
a monthly management fee based on the net assets under management as of the
first day of each month, at the rate set forth in the above chart. The monthly
management fee compensates the trading advisor for the services performed in
connection with the net assets under management.
Following is an example of the management fee payable by a partnership. If
the net assets of Spectrum Commodity equaled $25,000,000 as of the first day of
each month during the fiscal year, the trading advisor would receive an
aggregate monthly management fee for the year of $625,000 ( 1/12 of 2.5% of
$25,000,000 per month, or $52,083 times 12).
INCENTIVE FEE. Each partnership pays an incentive fee to each of its
trading advisors if trading profits are experienced with respect to allocated
net assets, at the rate set forth in the above chart. Trading profits means the
net futures, forwards, and options profits (realized and unrealized) earned on
the trading advisor's allocated net assets, decreased by monthly management fees
and brokerage fees that are chargeable to the trading advisor's allocated net
assets, with such trading profits and items of decrease determined from the end
of the last period for which an incentive fee was earned by the trading advisor.
Extraordinary expenses of the partnership, if any, are not deducted in
determining trading profits. An extraordinary expense would result from an event
that is both unusual in nature and infrequent in occurrence, such as litigation.
No incentive fee is paid on interest earned by any partnership.
In the case of Spectrum Commodity, whose trading advisor is eligible to
receive an annual incentive fee, any accrued incentive fees with respect to
units of Spectrum Commodity that are redeemed during the year will be deducted
and paid to the trading advisor at the time of redemption, even though it may
not qualify for an incentive fee at year-end.
If incentive fees are paid to a trading advisor and the partnership fails to
earn trading profits for any subsequent period, the trading advisor will retain
the incentive fees previously paid. However, no subsequent incentive fees will
be paid to the trading advisor until the trading advisor has again earned
trading profits. If a trading advisor's allocated net assets are reduced or
increased because of redemptions, additions or reallocations that occur at the
end of or subsequent to an incentive period in which the trading advisor
experiences a trading loss, the trading loss which must be recovered will be
adjusted pro rata.
Following is an example of the incentive fee payable by a partnership. If a
trading advisor for Spectrum Currency earns trading profits of $1,000,000 for
the period ended January 31, 2000, the trading advisor will receive an incentive
fee of $150,000 for that period (15% of $1,000,000). If, however, the trading
advisor experiences realized and/or unrealized trading losses, or fees offset
trading profits, so as to result in a $250,000 loss for the period ended
February 29, 2000, an incentive fee will not be paid to the trading advisor for
that period. In order for the trading advisor to earn an incentive fee in the
following period ending March 31, 2000, the trading advisor will have to earn
trading profits exceeding $250,000 for that period, since the incentive fee is
payable based upon trading profits measured from the last period for which an
incentive fee was paid (I.E., January 31), and not from the immediately
preceding period. The foregoing example assumes no redemptions or reallocations
or additional purchases of units during the periods in question, which would
require adjustments as described above.
COMMODITY BROKERS
BROKERAGE FEES. Commodity brokerage fees for futures, forwards, and options
trades are typically paid on the completion or liquidation of a trade and are
referred to as "roundturn commissions," which cover both the initial purchase
(or sale) of a futures interest and the subsequent offsetting sale (or
purchase). However, pursuant to the customer agreements with the commodity
brokers, the partnerships pay a monthly flat-rate brokerage fee based on their
net assets as of the first day of each month, at the rate set forth in the above
chart, irrespective of the number of trades executed on a partnership's behalf.
18
<PAGE>
Following is an example of the brokerage fee payable by a partnership. If
the net assets of Spectrum Commodity equaled $25,000,000 as of the first day of
each month during the fiscal year, Dean Witter would receive an aggregate
monthly brokerage fee for the year of $1,150,000 ( 1/12 of 4.60% of $25,000,000
per month, or $95,833 times 12).
From the flat-rate brokerage fees received from the partnerships, Dean
Witter pays or reimburses the partnerships for all fees and costs incurred by
Carr Futures, Morgan Stanley, and Morgan Stanley International in executing
trades on behalf of the partnerships, including floor brokerage fees, exchange
fees, clearinghouse fees, National Futures Association fees, "give up" fees, any
taxes (other than income taxes), any third party clearing costs incurred by Carr
Futures, Morgan Stanley, and Morgan Stanley International, costs associated with
taking delivery of futures interests, and fees for execution of forward contract
transactions.
Dean Witter also pays, from the brokerage fees it receives, the ordinary
administrative expenses of each partnership, the organizational costs of
Spectrum Currency and the initial offering of its units (estimated to be
approximately $300,000 in the aggregate), and the continuing offering expenses
of each partnership. Ordinary administrative expenses include legal, accounting
and auditing expenses, printing and mailing expenses, and filing fees incurred
in preparing reports, notices and tax information to limited partners and
regulatory bodies. The organizational and initial offering costs of Spectrum
Currency, and the continuing offering expenses of each partnership, include
legal, accounting and auditing fees, printing costs, filing fees, escrow fees,
marketing costs (which include costs relating to sales seminars and the
preparation of customer sales kits and brochures), and other related fees and
expenses.
While each partnership pays a flat-rate brokerage fee, rather than
"roundturn commissions" on each trade, it is estimated, based upon the trading
advisors' historical trading, that such flat-rate brokerage fee would
approximate roundturn commissions ranging from approximately:
$45-55 for Spectrum Currency
$65-75 for Spectrum Commodity
You should note that the approximate roundturn commissions set forth above
include administrative, organizational, offering, and other expenses, for which
Dean Witter is responsible, but are typically paid separately from roundturn
commissions. The foregoing estimates are based on past results and may vary in
the future.
FINANCIAL BENEFITS. Each partnership deposits all of its assets with the
commodity brokers in connection with the partnership's futures, forwards and
options trading. Dean Witter then pays each partnership the rate that Dean
Witter earns on its U.S. Treasury bill investments with all customer segregated
funds, as if 80% of the partnership's average net assets for the month were
invested at that rate. The commodity brokers, as they are permitted under CFTC
regulations, invest a portion of the partnerships' funds in CFTC specified
securities and other instruments and retain any interest earned on those
investments. Instead of investing the partnership's funds, Dean Witter may
choose to deposit the funds in non-interest-bearing bank accounts at various
banks (currently seven banks), in exchange for which the banks offer Dean Witter
affiliates advantageous interest rates on loans up to the amount of the
deposits. This is known as compensating balance treatment. The benefit to Dean
Witter and its affiliates from this compensating balance treatment is the
difference between the lending rate they would have received without the
deposits and the rate they receive by reason of the deposits. The benefit to
Dean Witter from this compensating balance arrangement and the investment of the
partnerships' funds will vary depending upon market conditions. The approximate
benefit to Dean Witter currently for each partnership is set forth in the
"Charges To Each Partnership" table beginning on page 17. For more information
regarding Dean Witter's interest crediting arrangements with the partnerships
and the investment of customer funds by the commodity brokers. See "Use of
Proceeds--Interest Credits" on page 21.
EXTRAORDINARY EXPENSES
Each partnership is obligated to pay any extraordinary expenses it may
incur. Extraordinary expenses will be determined in accordance with generally
accepted accounting principles, which generally include events that are both
unusual in nature and occur infrequently, such as litigation.
19
<PAGE>
EXPENSE LIMITATIONS
The general partner may permit an increase, subject to state limits
described below, in the management, incentive and brokerage fees payable by a
partnership only on the first business day following a redemption date. Prior to
any such increase, the following conditions must be satisfied:
- notice of the increase must be mailed to investors at least five business
days prior to the last date on which a "request for redemption" must be
received by the general partner;
- the notice must describe investors' redemption and voting rights; and
- investors must not be subject to any redemption charges if they redeem
units at the first redemption date following the notice.
Each partnership's fees and expenses are subject to limits imposed under
guidelines applied by state securities regulators, as set forth in Section 7(e)
of the limited partnership agreement, including the limitation that the
aggregate of the brokerage fees payable by the partnership to any commodity
broker and the net excess interest and compensating balance benefits to any
commodity broker, after crediting the partnership with interest, shall not
exceed 14% annually of the partnership's average month-end net assets during the
calendar year. The general partner will pay any fees and expenses in excess of
any such limits.
REDEMPTION CHARGES
You may redeem all or part of your investment in any partnership at any
month-end once you have been an investor in that partnership for at least six
months, regardless of when your units were actually purchased.
Units redeemed on or before the last day of the twelfth month after they
were purchased, are subject to a redemption charge equal to 2% of the net asset
value of a unit on the redemption date. Units redeemed after the last day of the
twelfth month and on or before the last day of the twenty-fourth month after
they were purchased, are subject to a redemption charge equal to 1% of the net
asset value of a unit on the redemption date. If you redeem units after the last
day of the twenty-fourth month after they were purchased, you will not be
subject to a redemption charge. Any redemption charges will be paid to Dean
Witter.
The following is an example of a redemption charge that may be payable by
you to Dean Witter. If you redeem $5,000 worth of units in Spectrum Commodity
after the sixth month and on or before the last day of the twelfth month after
the units were purchased, you will be subject to the full 2% redemption charge.
In that case, an aggregate redemption charge equal to $100 (2% of $5,000 will be
deducted from the proceeds of your redemption).
USE OF PROCEEDS
Each partnership engages in the speculative trading of futures and forwards
contracts. The proceeds received by each partnership from the sale of its units
and the continuing capital contributions made by the general partner to each
partnership will be deposited in separate commodity trading accounts established
by the commodity brokers for each of the trading advisors. All of the funds in a
partnership's trading accounts will be used to engage in trading futures
contracts.
The partnerships' assets held by the commodity brokers will be segregated or
secured in accordance with the Commodity Exchange Act and CFTC regulations. The
partnerships' trading on various U.S. futures exchanges is subject to CFTC
regulation and the rules of the exchanges. The partnerships' trading on foreign
futures exchanges is subject to regulation by foreign regulatory authorities and
the rules of the exchanges.
Each parnership's margin commitments with respect to its U.S. commodity
futures/forwards positions are anticipated to range between 10% and 40% of net
assets for Spectrum Currency, and between 5% and 20% for Spectrum Commodity.
However, a partnership's margin levels could deviate substantially from that
range in the future.
20
<PAGE>
The partnerships may trade on one or more of the following foreign futures
exchanges and, from time to time, may trade on other foreign exchanges:
- Deutsche Terminborse/Eurex
- Hong Kong Futures Exchange Ltd.
- International Petroleum Exchange of London Ltd.
- Italian Derivatives Market
- London International Financial Futures Exchange Ltd.
- London Commodity Exchange
- London Metal Exchange
- London Securities and Derivatives Exchange
- Marche a Terme International de France
- MEFF Renta Fija
- MEFF Renta Variable
- Montreal Exchange
- New Zealand Futures and Options Exchange
- Osaka Securities Exchange
- Singapore International Monetary Exchange
- Swiss Options and Financial Futures Exchange AG
- Sydney Futures Exchange
- Tokyo Grain Exchange
- Tokyo International Financial Futures Exchange
- Tokyo Stock Exchange
- Winnipeg Commodity Exchange
In connection with foreign futures and options contracts, the partnerships'
assets may be deposited by the commodity brokers in accounts with non-U.S. banks
and foreign brokers that are segregated on the books of those banks or brokers
for the benefit of their customers. All non-U.S. banks and foreign brokers will
be qualified depositories pursuant to relevant CFTC Advisories. All non-U.S.
banks will be subject to the local bank regulatory authorities, and the foreign
brokers will be members of the exchanges on which the futures and option trades
are to be executed, and will be subject to the regulatory authorities in the
jurisdictions in which they operate.
At each monthly closing, the trading advisors for each partnership are
currently allocated the net proceeds from additional investments received by
that partnership, and redemptions from that partnership are allocated to them,
in the following proportions:
<TABLE>
<CAPTION>
PERCENTAGE OF NET
ASSETS
ALLOCATED TO EACH
TRADING
ADVISOR AS OF
SPECTRUM CURRENCY ADDITIONS REDEMPTIONS DECEMBER 31, 1999
- ----------------- --------- ----------- -----------------
<S> <C> <C> <C>
% % %
John W. Henry & Company, Inc..... 50 50 N/A
Sunrise Capital Partners, LLC.... 50 50 N/A
SPECTRUM COMMODITY
- -----------------------------------
Morgan Stanley Dean Witter
Commodities Management Inc..... 100 100 100
</TABLE>
With respect to Spectrum Currency in the future, the proceeds from each
monthly closing and redemptions may be allocated in different proportions.
Further, the general partner may adjust the portion of Spectrum Currency's
assets traded by a trading advisor through reallocations of assets between the
partnership's trading advisors. In addition, after net assets allocated to JWH
reach $30 million, JWH has the right to reject any additional monthly
allocations that exceed 10% of its allocated net assets at month end.
The assets of the partnerships are not commingled with the assets of one
another or any other entity. Margin deposits and deposits of assets with a
commodity broker do not constitute commingling.
INTEREST CREDITS
The partnerships' funds held by the commodity brokers will either be held
and invested together with other customer segregated or secured funds of the
commodity brokers, or will be held in non-interest-bearing bank accounts. In
either case, the partnerships will receive interest at the rate earned by Dean
Witter on its U.S. Treasury bill investments with customer segregated funds as
if 80% of their respective average daily net assets for the month were invested
at that rate. For purposes of these interest credits, net
21
<PAGE>
assets do not include monies due a partnership on or with respect to futures,
forwards or options contracts which have not been received. Dean Witter retains
any interest earned in excess of the interest credited by Dean Witter to the
partnerships.
To the extent the partnerships' funds are held by the commodity brokers in
customer segregated accounts relating to trading in U.S. exchange-traded futures
and options, those funds, along with segregated funds of other customers in the
accounts, may be invested by the commodity brokers, under applicable CFTC
regulations, only in instruments that are obligations of the U.S., general
obligations of any state or any political subdivision thereof, or obligations
fully guaranteed as to principal and interest by the U.S., or in designated
reverse repurchase agreements with respect to those instruments. To the extent
the partnerships' funds are held by the commodity brokers in secured accounts
relating to trading in futures or options contracts on non-U.S. exchanges or in
forward contracts, such funds may be invested by the commodity brokers, under
applicable CFTC regulations, only in the instruments described above for
customer segregated funds, in equity and debt securities traded on established
securities markets in the U.S., and in commercial paper and other debt
instruments that are rated in one of the top two rating categories by Moody's
Investor Service, Inc. or Standard & Poor's Ratings Services, a Division of The
McGraw-Hill Companies, Inc. A significant portion of the partnerships' funds
held by Dean Witter will be held in secured accounts and will be invested in
short-term commercial paper rated AAA or the equivalent or in other permitted
debt instruments rated AAA or the equivalent.
To the extent that the partnerships' funds are held in non-interest-bearing
bank accounts, Dean Witter or its affiliates will benefit from compensating
balance treatment in connection with Dean Witter's designation of a bank or
banks in which the partnership's assets are deposited, meaning that Dean Witter
or its affiliates will receive favorable loan rates from such bank or banks by
reason of such deposits. To the extent that any excess interest and compensating
balance benefits to Dean Witter or its affiliates exceed the interest Dean
Witter is obligated to credit to the partnerships, they will not be shared with
the partnerships.
THE SPECTRUM SERIES
GENERAL
The Spectrum Series consists of six continuously offered limited
partnerships. Two of those partnerships, Spectrum Currency and Spectrum
Commodity, are discussed in this prospectus. The other four partnerships,
Spectrum Select, Spectrum Technical, Spectrum Strategic, and Spectrum Global
Balanced, are discussed in a seperate prospectus. If you are considering an
investment in any of those four other partnerships, you should read the
prospectus relating to those partnerships.
Each partnership is a limited partnership formed under the laws of Delaware.
<TABLE>
<CAPTION>
DATE PARTNERSHIP
DATE PARTNERSHIP BEGAN OR IS EXPECTED
WAS FORMED TO BEGIN OPERATIONS
---------------- --------------------
<S> <C> <C>
Spectrum Currency........................... October 20, 1999 Initial closing
Spectrum Commodity (formerly, Morgan Stanley
Tangible Asset Fund L.P.)................. July 31, 1997 January 2, 1998
</TABLE>
Each partnership calculates its net asset value per unit independently of
the other partnerships. Each partnership's performance depends solely on the
performance of its trading advisors.
Each partnership is continuously offering its units for sale at monthly
closings held as of the last day of each month. Except for its initial closing,
where Spectrum Currency will offer units at a price of $10 per unit, the
purchase price per unit is equal to 100% of the net asset value of a unit as of
the date of the monthly closing at which the general partner accepts a
subscription. Following is a summary of information relating to the sale of
units of Spectrum Commodity through December 31, 1999:
<TABLE>
<CAPTION>
NUMBER
TOTAL GENERAL OF
UNITS PROCEEDS PARTNER LIMITED
SOLD RECEIVED CONTRIBUTIONS PARTNERS
---------------- ------------- ------------- --------
$ $
<S> <C> <C> <C> <C>
Spectrum Commodity.............................. 4,195,493.632 41,235,223 430,000 2,834
</TABLE>
22
<PAGE>
INVESTMENT OBJECTIVES
The investment objective of each partnership is to achieve capital
appreciation and to provide investors with the opportunity to diversify a
portfolio of traditional investments consisting of stocks and bonds. While each
partnership has the same overall investment objective, each trading advisor has
developed its own trading programs and trades futures, forwards, or options in a
different manner. Each partnership has a different mix of trading advisors and
trading programs. You should review and compare the specifics of each
partnership, its terms and its trading advisors before selecting one or more
partnerships in which to invest. If you are also considering an investment in
the other four Spectrum Series partnerships, Spectrum Select, Spectrum
Technical, Spectrum Strategic, and Spectrum Global Balanced, you should review
the prospectus relating to those partnerships and make similar comparisons.
MORGAN STANLEY DEAN WITTER SPECTRUM CURRENCY L.P.
Spectrum Currency will utilize two trading advisors, each of whom employs
proprietary trading models that seek to identify favorable price relationships
between and among various global currency markets through the disciplined
analysis of technical market information. JWH employs the International Foreign
Exchange Program, which seeks to identify and capitalize on intermediate-term
price movements in a broad range of both major and minor currencies primarily
trading on the interbank market. Positions are taken as outrights against the
U.S. dollar, or non-dollar cross rates. Sunrise Capital Partners' Currency
Program follows approximately ten different major and minor currency markets,
which may include, but are not limited to, the Japanese yen, British pound,
Euro, Swiss franc, Canadian dollar, Australian dollar, Swedish krona, New
Zealand dollar, Singapore dollar, and South African rand. In order to achieve
adequate diversification for the Currency Program, major and minor currencies
are traded as crossrates selectively against each other and/or as outrights
against the U.S. dollar. For a more detailed discussion of the Spectrum Currency
trading advisors see "The Trading Advisors--Morgan Stanley Dean Witter Spectrum
Currency L.P." on page 40.
MORGAN STANLEY DEAN WITTER SPECTRUM COMMODITY L.P. (FORMERLY, MORGAN STANLEY
TANGIBLE ASSET FUND L.P.)
Spectrum Commodity utilizes one trading advisor to engage in the long-only
speculative trading of a diverse mix of tangible commodity futures, including
metals, energy, food, fiber and agricultural markets. As its primary focus is
tangible commodities, Spectrum Commodity does not participate in financial
markets, such as interest rate, stock index, or currency futures and options.
The trading program seeks to benefit from supply and demand dynamics, based on
consumer and producer reactions to price movements, by over-weighting exposure
to commodities that are historically undervalued and showing signs of
strengthening, and under-weighting exposure to those markets that are
historically overvalued and showing signs of weakening. For a more detailed
discussion of the trading advisor for Spectrum Commodity and its trading
program, see "The Trading Advisor--Morgan Stanley Dean Witter Spectrum Commodity
L.P." on page 62.
TRADING POLICIES
Material changes to the trading policies described below may be made only
with the prior written approval of limited partners owning more than 50% of
units of the relevant partnership then outstanding. The general partner will
notify the limited partners within seven business days after any material change
in the partnership's trading policies so approved by the limited partners.
The trading advisors will manage the funds allocated to them in accordance
with the following trading policies.
TRADING POLICIES FOR BOTH PARTNERSHIPS:
- The partnership will not employ the trading technique commonly
known as "pyramiding," in which the speculator uses unrealized profits on
existing positions in a given futures interests due to favorable price
movement as margin specifically to buy or sell additional positions in the
same or a related futures interest. Taking into account the partnership's
open trade equity (I.E., the profit or loss
23
<PAGE>
on an open futures interest position) on existing positions in determining
generally whether to acquire additional futures interest positions on behalf
of the partnership will not be considered to constitute "pyramiding."
- The partnership will not under any circumstances lend money to
affiliated entities or otherwise. The partnership will not utilize
borrowings except if the partnership purchases or takes delivery of
commodities. If the partnership borrows money from the general partner or
any "affiliate" thereof (as defined in Section 14(c) of the limited
partnership agreement), the lending entity in such case (the "lender") may
not receive interest in excess of its interest costs, nor may the lender
receive interest in excess of the amounts which would be charged the
partnership (without reference to the general partner's financial abilities
or guarantees) by unrelated banks on comparable loans for the same purpose,
nor may the lender or any affiliate thereof receive any points or other
financing charges or fees regardless of the amount. Use of lines of credit
in connection with its forward trading does not, however, constitute
borrowing for purposes of this trading limitation.
- The partnership will not permit "churning" of the partnership's
assets. Churning is the unnecessary execution of trades so as to generate
increased brokerage commissions.
TRADING POLICY FOR SPECTRUM CURRENCY ONLY:
- The partnership will trade currencies and other commodities in the
interbank and forward contract markets only with banks, brokers, dealers,
and other financial institutions which the general partner, in conjunction
with Dean Witter, has determined to be creditworthy. In determining the
creditworthiness of a counterparty to a forward contract, the general
partner and Dean Witter will consult with the Corporate Credit Department of
Dean Witter.
TRADING POLICY FOR SPECTRUM COMMODITY ONLY:
- The partnership will not purchase, sell, or trade securities
(except securities approved by the CFTC for investment of customer funds).
PERFORMANCE RECORDS
A summary of performance information for Spectrum Commodity from its
commencement of trading through December 31, 1999 is set forth in Capsule I. All
performance information has been calculated on an accrual basis in accordance
with generally accepted accounting principles. You should read the footnotes on
page 26, which are an integral part of the following capsules.
Capsule II below provides the actual annual and year-to-date performance
information for Dean Witter Cornerstone IV, which is another currency-only fund
operated by the general partner and traded by JWH and Sunrise, the same trading
advisors that will trade for Spectrum Currency. JWH and Sunrise will trade for
Spectrum Currency using the same trading strategies that they employ for
Cornerstone IV.
-------------------
You are cautioned that the information set forth in each capsule is not
indicative of, and has no bearing on, any trading results that may be attained
by either partnership in the future. Past results are not a guarantee of future
results. We cannot assure you that a partnership will be profitable or will
avoid incurring substantial losses. You should also note that interest income
may constitute a significant portion of a partnership's total income and may
generate profits where there have been realized or unrealized losses from
futures, forwards, or options trading.
24
<PAGE>
CAPSULE I
PERFORMANCE OF SPECTRUM COMMODITY
(FORMERLY, MORGAN STANLEY TANGIBLE ASSET FUND L.P.)
Type of pool: publicly-offered fund
Inception of trading: January 2, 1998
Aggregate subscriptions: $41,665,223
Current capitalization: $23,640,470
Current net asset value per unit: $7.61
Worst monthly % drawdown: (9.09)% (November 1998)
Worst month-end peak-to-valley drawdown: (38.60)% (13 Months, February
1998-February 1999)
Cumulative return since inception: (23.90)%
<TABLE>
<CAPTION>
MONTHLY PERFORMANCE
-----------------------
MONTH 1999 1998
- ----- ---- ----
% %
<S> <C> <C>
January........................................... (1.52) 1.30
February.......................................... (3.86) (5.92)
March............................................. 8.68 0.10
April............................................. 2.37 (2.41)
May............................................... (5.92) (6.87)
June.............................................. 4.45 (3.23)
July.............................................. 0.44 (6.44)
August............................................ 6.15 (7.90)
September......................................... 4.55 7.19
October........................................... (2.77) (3.48)
November.......................................... 0.54 (9.09)
December.......................................... 2.70 (3.38)
Compound Annual/Period
Rate of Return.................................. 15.83 (34.30)
</TABLE>
CAPSULE II
PERFORMANCE OF CORNERSTONE IV
Type of pool: publicly-offered fund
Inception of trading: May 1987
Aggregate subscriptions: $168,090,005
Current capitalization: $102,975,653
Current net asset value per unit: $4,683.42
Worst monthly % drawdown past five years: (7.65)% (January 1995)
Worst monthly % drawdown since inception: (21.04)% (September 1989)
Worst month-end peak-to-valley past five years: (37.85)% (18 months, August
1993-January 1995)
Worst month-end peak-to-valley since inception: (45.21)% (3 months, July
1989-September 1989)
Cumulative return since inception: 380.35%
<TABLE>
<CAPTION>
MONTHLY PERFORMANCE
------------------------------------------------------------------
MONTH 1999 1998 1997 1996 1995 1994
- ----- ---- ---- ---- ---- ---- ----
% % % % % %
<S> <C> <C> <C> <C> <C> <C>
January..... (2.37) (1.58) 5.34 3.19 (7.65) (1.12)
February.... 0.84 (3.16) 6.55 (5.78) 6.27 (2.75)
March....... 2.23 2.51 1.45 2.80 27.02 0.29
April....... 1.19 (3.44) 1.23 2.97 2.39 (3.19)
May......... (1.37) 4.89 (5.54) 1.19 (4.83) (3.65)
June........ (0.67) 11.31 1.36 (0.23) (0.62) 6.72
July........ (5.28) 0.37 8.45 (3.51) (1.06) (4.21)
August...... 1.27 0.78 2.68 (2.69) 5.49 (3.57)
September... 2.39 (3.11) 0.45 0.32 (0.06) 1.66
October..... (3.77) 4.86 3.12 8.80 0.74 4.93
November.... 5.29 (4.24) 4.15 4.25 (2.57) (6.82)
December.... (0.42) (1.49) 4.38 1.76 (0.52) (2.73)
Compound
Annual/
Period Rate
of Return.. (1.13) 6.80 38.41 12.97 22.96 (14.27)
<CAPTION>
MONTHLY PERFORMANCE
---------------------------------------------------------------------------
MONTH 1993 1992 1991 1990 1989 1988 1987
- ----- ---- ---- ---- ---- ---- ---- ----
% % % % % % %
<S> <C> <C> <C> <C> <C> <C> <C>
January..... (5.29) (9.64) (10.12) 3.15 15.72 (18.14)
February.... 12.92 (7.40) (6.91) 1.37 (14.64) 0.93
March....... (2.55) 1.60 26.00 6.09 3.44 5.06
April....... 0.03 (6.40) 1.83 3.01 1.84 3.41
May......... 3.95 2.71 1.24 (8.53) 12.56 25.38 (9.60)
June........ 0.92 15.10 9.45 12.26 0.01 12.95 (0.75)
July........ 5.87 7.47 (9.47) 23.25 (14.85) 6.93 (2.23)
August...... (5.57) 17.26 (8.50) 8.65 (18.51) 3.96 (12.61)
September... (2.10) (4.21) 6.69 (3.02) (21.04) (4.46) 0.00
October..... (7.48) (0.99) (5.29) 11.07 4.47 1.56 13.82
November.... (7.50) 0.60 5.26 (1.11) 11.40 8.77 11.80
December.... (0.78) (2.40) 27.40 (5.74) 14.97 (7.80) 13.39
Compound
Annual/
Period Rate
of Return.. (9.12) 10.37 33.52 57.77 (14.12) 37.51 10.61
(8 months)
</TABLE>
PAST PERFORMANCE IS NOT NECESSARILY INDICATIVE OF FUTURE RESULTS.
25
<PAGE>
Capsule II-A below is a pro forma of Capsule II, adjusted to reflect the
actual brokerage, management and incentive fees to be paid by Spectrum Currency,
rather than those which were paid by Cornerstone IV. The footnotes following
Capsule II-A are an integral part of Capsule II-A.
You are cautioned that the performance information set forth in the
following capsule performance summary is not indicative of, and has no bearing
on, the performance results that may be attained by Spectrum Currency in the
future. Past results are not a guarantee of future results. We cannot assure you
that Spectrum Currency will be profitable or will avoid incurring substantial
losses. You should also note that interest income may constitute a significant
portion of Spectrum Currency's total income and may generate profits where there
have been realized or unrealized losses from futures, forwards and options
trading.
CAPSULE II-A
PRO FORMA PERFORMANCE OF CORNERSTONE IV
Worst monthly % drawdown: (20.32)% (January 1988)
Worst month-end peak-to-valley drawdown: (43.60)% (3 months, July 1989-September
1989)
Cumulative return since inception: 389.82%
<TABLE>
<CAPTION>
MONTHLY PERFORMANCE
--------------------------------------------------------------------------------------
MONTH 1999 1998 1997 1996 1995 1994 1993 1992
- ----- ---- ---- ---- ---- ---- ---- ---- ----
% % % % % % % %
<S> <C> <C> <C> <C> <C> <C> <C> <C>
January........................... (3.02) (1.85) 5.33 3.18 (7.45) (1.16) (6.08) (11.25)
February.......................... 0.73 (4.07) 6.33 (5.81) 6.33 (2.63) 14.75 (8.58)
March............................. 2.55 2.76 1.15 2.70 27.16 0.46 (2.73) 2.06
April............................. 1.18 (4.25) 0.89 3.08 2.12 (3.23) 0.28 (6.42)
May............................... (1.83) 5.30 (5.58) 1.13 (4.99) (3.71) 4.47 3.14
June.............................. (0.59) 11.66 1.35 (0.17) (0.83) 6.99 1.27 17.70
July.............................. (5.30) 0.03 8.35 (3.53) (1.26) (4.25) 6.19 8.05
August............................ 1.14 0.53 2.03 (2.73) 5.43 (3.54) (6.67) 17.37
September......................... 2.47 (3.85) 0.18 0.52 (0.19) 1.72 (1.99) (4.68)
October........................... (3.90) 5.45 2.57 8.89 0.49 4.93 (7.26) (1.32)
November.......................... 5.10 (5.30) 3.98 4.17 (2.79) (6.73) (7.19) 0.55
December.......................... (0.24) (1.98) 4.25 1.81 (0.71) (2.71) (0.57) (2.70)
Compound Annual/Period
Rate of Return................... (2.18) 3.09 34.68 13.14 21.34 (13.78) (7.54) 9.78
<CAPTION>
MONTHLY PERFORMANCE
------------------------------------------------------
MONTH 1991 1990 1989 1988 1987
- ----- ---- ---- ---- ---- ----
% % % % %
<S> <C> <C> <C> <C> <C>
January........................... (10.94) 3.64 17.65 (20.32)
February.......................... (6.68) 1.36 (17.29) 1.00
March............................. 28.71 6.08 4.14 5.83
April............................. 1.80 3.05 1.94 3.80
May............................... 1.30 (7.89) 14.32 27.74 (10.64)
June.............................. 10.08 13.16 0.18 13.33 (0.31)
July.............................. (10.89) 22.06 (14.37) 6.91 (2.05)
August............................ (8.29) 9.71 (17.75) 3.94 (12.21)
September......................... 7.05 (3.22) (19.92) (5.26) (0.22)
October........................... (5.01) 11.73 4.92 1.99 13.83
November.......................... 5.39 (1.33) 11.66 9.55 11.17
December.......................... 28.91 (6.51) 15.74 (9.00) 13.95
Compound Annual/Period
Rate of Return................... 37.10 59.88 (9.52) 36.99 10.22
(8 months)
</TABLE>
PAST PERFORMANCE IS NOT NECESSARILY INDICATIVE OF FUTURE RESULTS.
FOOTNOTES TO CAPSULES I AND II
"Aggregate subscriptions" represent the total amount received for all units
purchased by investors since the partnership commenced operations.
"Drawdown" is the decline in the net asset value per unit.
"Worst month-end peak-to-valley drawdown" is the largest decline experienced
by a partnership, determined in accordance with CFTC Rule 4.10(1) and represents
the greatest cumulative percentage decline from any month-end net asset value
per unit that occurs without such month-end net asset value per unit being
equaled or exceeded by a subsequent month-end net asset value per unit. For
example, if the net asset value per unit of a partnership was $15 and declined
by $1 in each of January and February, increased by $1 in March and declined
again by $2 in April, a "peak-to-valley drawdown" analysis conducted as of the
end of April would consider that "drawdown" to be still continuing and to be $3
in amount because the $15 initial month-end net asset value per unit had not
been equaled or exceeded by a subsequent month-end net asset value per unit,
whereas if the net asset value of a unit had increased by $2 in March, the
January-February drawdown would have ended as of the end of February at the $2
level because the $15 initial net asset value per unit would have been equaled
in March. Such "drawdowns" are measured on the basis of month-end net asset
values only, and do not reflect intra-month figures.
"Monthly Performance" is the percentage change in net asset value per unit
from one month to another.
26
<PAGE>
"Compound Annual/Period Rate of Return" is calculated by multiplying on a
compound basis each of the monthly rates of return and not by adding or
averaging such monthly rates of return. For periods of less than one year, the
results are year-to-date.
FOOTNOTES TO CAPSULE II-A PRO FORMA PERFORMANCE SUMMARY
Capsule II-A above reflects pro forma rates of return for Spectrum Currency
as if it were in operation during the same periods as Cornerstone IV. These
rates of return are the result of the general partner making pro forma
adjustments to the actual past performance record of Cornerstone IV. The pro
forma adjustments are an attempt to reflect the brokerage, management and
incentive fees, which would have been paid or received by Spectrum Currency, as
opposed to the actual fees and expenses applicable to Cornerstone IV.
The pro forma calculations are made on a month-to-month basis, I.E., the pro
forma adjustment to brokerage, management and incentive fees in one month do not
affect the actual figures that are used in the following month for making the
similar pro forma calculations for that period. Accordingly, the pro forma table
does not reflect on a cumulative basis the effect of the differences between the
fees to be paid by Spectrum Currency and the fees paid by Cornerstone IV.
Furthermore, you must be aware that pro forma rates of return have inherent
limitations: (A) pro forma adjustments are only an approximate means of
modifying historical records to reflect certain aspects of the economic terms of
a commodity pool, constitute no more than mathematical adjustments to actual
performance numbers, and give no effect whatsoever to such factors as possible
changes in trading approach that might have resulted from the different fee
structure, interest income, and other factors; and (B) there are different means
by which the pro forma adjustments could have been made.
While the general partner believes that the information set forth in Capsule
II-A is relevant to evaluating an investment in Spectrum Currency, no
representation is or could be made that the capsule presents what the
performance results would have been in the past or are likely to be in the
future. Past results are not a guarantee of future results. The results
presented in Capsule II-A are hypothetical because no trades were actually made
under the terms set forth in the Capsule.
ADDITIONAL PARTNERSHIPS
In the future, additional partnerships may be added to the Spectrum Series
of partnerships and units of limited partnership interest of such partnerships
may be offered pursuant to a separate prospectus or an updated version of, or
supplement to, this prospectus. Such partnerships will generally have different
trading advisors and may have substantially different trading approaches or fee
structures. You should carefully review any such separate prospectus, updated
version of, or supplement to, this prospectus before making the decision to
purchase units in any new Spectrum Series partnership.
AVAILABILITY OF EXCHANGE ACT REPORTS
The partnerships are required to file periodic reports with the SEC, such as
annual and quarterly reports and proxy statements. You may read any of these
filed documents, or obtain copies by paying prescribed charges, at the SEC's
public reference rooms located at 450 Fifth Street, N.W., Room 1024,
Washington, D.C. 20549; 7 World Trade Center, Suite 1300, New York, New York
10048; and Citicorp Center, 500 West Madison Street, Suite 1400, Chicago,
Illinois 60661-2511. Please call the SEC at 1-800-SEC-0330 for further
information on the public reference rooms. The partnerships' SEC filings are
also available to the public from the SEC's Web site at "http://www.sec.gov."
Spectrum Commodity's SEC file number is 0-24035; Spectrum Currency's SEC file
number will be assigned after the date of this prospectus.
27
<PAGE>
SELECTED FINANCIAL DATA
The following are the results of operations for Spectrum Commodity for the
periods indicated.
SPECTRUM COMMODITY
(FORMERLY, MORGAN STANLEY TANGIBLE ASSET FUND L.P.)
<TABLE>
<CAPTION>
FOR THE PERIOD FROM
FOR THE JANUARY 2, 1998
YEAR ENDED (COMMENCEMENT OF
DECEMBER 31, OPERATIONS) TO
1999 DECEMBER 31, 1998
------------- -------------------
$ $
<S> <C> <C>
REVENUES
Trading Profit (loss):
Realized 3,003,270 (11,870,063)
Net change in unrealized 1,178,071 (635,643)
---------- -----------
Total Trading Results 4,181,341 (12,505,706)
Interest income (Morgan Stanley) 864,383 1,265,793
---------- -----------
Total Revenues 5,045,724 (11,239,913)
---------- -----------
EXPENSES
Brokerage fees (Morgan Stanley and Morgan Stanley
International) 852,484 1,176,024
Management fees (MSDWCM) 583,893 805,496
Service fee (Demeter) 233,558 322,198
---------- -----------
Total Expenses 1,669,935 2,303,718
---------- -----------
NET INCOME (LOSS) 3,375,789 (13,543,631)
========== ===========
NET INCOME (LOSS) ALLOCATION:
Limited partners 3,330,798 (13,398,948)
General partner 44,991 (144,683)
NET INCOME (LOSS) PER UNIT:
Limited partners 1.04 (3.43)
General partner 1.04 (3.43)
TOTAL ASSETS AT END OF PERIOD 24,048,757 25,962,970
TOTAL NET ASSETS AT END OF PERIOD 23,640,470 24,908,316
NET ASSET VALUE PER UNIT AT END OF PERIOD
Limited partners 7.61 6.57
General partner 7.61 6.57
</TABLE>
28
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
MORGAN STANLEY DEAN WITTER SPECTRUM CURRENCY L.P.
LIQUIDITY
The partnership will deposit its assets with the commodity brokers in
separate futures trading accounts established for each trading advisor, which
assets are used as margin to engage in trading. The assets will be held in
either non-interest-bearing bank accounts or in securities and instruments
permitted by the CFTC for investment of customer segregated or secured funds.
The partnership's assets held by the commodity brokers may be used as margin
solely for the partnership's trading. Since the partnership's sole purpose is to
trade in futures, forwards, and options, it is expected that the partnership
will continue to own such liquid assets for margin purposes.
The partnership's investment in futures, forwards, and options may, from
time to time, be illiquid. Most U.S. futures exchanges limit fluctuations in
prices during a single day by regulations referred to as "daily price
fluctuations limits" or "daily limits." Trades may not be executed at prices
beyond the daily limit. If the price for a particular futures or options
contract has increased or decreased by an amount equal to the daily limit,
positions in that futures or options contract can neither be taken nor
liquidated unless traders are willing to effect trades at or within the limit.
Futures prices have occasionally moved the daily limit for several consecutive
days with little or no trading. These market conditions could prevent the
partnership from promptly liquidating its futures or options contract and result
in restrictions on redemptions.
There is no limitation on daily price moves in trading forward contracts on
foreign currency. The markets for some world currencies have low trading volume
and are illiquid, which may prevent the partnership from trading in potentially
profitable markets or prevent the partnership from promptly liquidating
unfavorable positions in such markets and subjecting it to substantial losses.
Either of these market conditions could result in restrictions on redemptions.
CAPITAL RESOURCES
The partnership does not have, or expect to have, any capital assets.
Redemptions, exchanges and sales of additional units in the future will affect
the amount of funds available for investments in futures interests in subsequent
periods. It is not possible to estimate the amount and therefore the impact of
future redemptions.
RESULTS OF OPERATIONS
Spectrum Currency is a new commodity pool and as a result it does not have
an operating history.
FINANCIAL INSTRUMENTS
The partnership will be a party to financial instruments with elements of
off-balance sheet market and credit risk. The partnership will trade futures and
forwards, and may trade options. In entering into these contracts, the
partnership will be subject to the market risk that such contracts may be
significantly influenced by market conditions, such as interest rate volatility,
resulting in such contracts being less valuable. If the markets should move
against all of the positions held by the partnership at the same time, and if
the trading advisors were unable to offset positions of the partnership, the
partnership could lose all of its assets and investors would realize a 100%
loss. In addition to the trading advisors' internal controls, each trading
advisor must comply with the trading policies of the partnership. These trading
policies include standards for liquidity and leverage with which the partnership
must comply. The trading advisors and the general partner will monitor the
partnership's trading activities to ensure compliance with the trading policies.
The general partner may require a trading advisor to modify positions of the
partnership if the general partner believes they violate the partnership's
trading policies.
In addition to market risk, in entering into futures, forwards, and options
contracts there will be a credit risk to the partnership that the counterparty
on a contract will not be able to meet its obligations to the partnership. The
ultimate counterparty or guarantor of the partnership for futures contracts
traded in the U.S. and the foreign exchanges on which the partnership trades
will be the clearinghouse associated
29
<PAGE>
with such exchange. In general, a clearinghouse is backed by the membership of
the exchange and will act in the event of non-performance by one of its members
or one of its member's customers, which should significantly reduce this credit
risk. For example, a clearinghouse may cover a default by drawing upon a
defaulting member's mandatory contributions and/or non-defaulting members'
contributions to a clearinghouse guarantee fund, established lines or letters of
credit with banks, and/or the clearinghouse's surplus capital and other
available assets of the exchange and clearinghouse, or assessing its members. In
cases where the partnership trades off-exchange forwards contracts with a
counterparty, the sole recourse of the partnership will be the forwards contract
counterparty. For a list of the foreign exchanges on which the partnership
trades, see "Use of Proceeds" on page 20. FOR AN ADDITIONAL DISCUSSION OF THE
CREDIT RISKS RELATING TO TRADING ON FOREIGN EXCHANGES SEE "RISK FACTORS--TRADING
AND PERFORMANCE RISKS--TRADING ON FOREIGN EXCHANGES PRESENTS GREATER RISKS TO
EACH PARTNERSHIP THAN TRADING ON U.S. EXCHANGES" ON PAGE 10.
There is no assurance that a clearinghouse or exchange will meet its
obligations to the partnership, and the general partner and commodity brokers
will not indemnify the partnership against a default by such parties. Further,
the law is unclear as to whether a commodity broker has any obligation to
protect its customers from loss in the event of an exchange or clearinghouse
defaulting on trades effected for the broker's customers. Any such obligation on
the part of a broker appears even less clear where the default occurs in a
non-U.S. jurisdiction.
The general partner will deal with these credit risks of the partnership in
several ways. First, it will monitor the partnership's credit exposure to each
exchange on a daily basis, calculating not only the amount of margin required
for it but also the amount of its unrealized gains at each exchange, if any. The
commodity brokers will inform the partnership, as with all their customers, of
its net margin requirements for all its existing open positions, but will not
break that net figure down, exchange by exchange. The general partner, however,
has installed a system which will permit it to monitor the partnership's
potential margin liability, exchange by exchange. As a result, the general
partner will be able to monitor the partnership's potential net credit exposure
to each exchange by adding the unrealized trading gains on that exchange, if
any, to the partnership's margin liability thereon.
Second, the partnership's trading policies limit the amount of its net
assets that can be committed at any given time to futures contracts and require,
in addition, a minimum amount of diversification in the partnership's trading,
usually over several different products. One of the aims of such trading
policies is to reduce the credit exposure of the partnership to a single
exchange, and it is anticipated that the partnership's exposure will typically
amount to only a small percentage of its total net assets. On those relatively
few occasions where the partnership's credit exposure may climb above that
level, the general partner will deal with the situation on a case by case basis,
carefully weighing whether the increased level of credit exposure remains
appropriate. Material changes to the trading policies may be made only with the
prior written approval of the limited partners owning more than 50% of units
then outstanding.
Third, the general partner has secured, with respect to Carr Futures acting
as the clearing broker for the partnership, a guarantee by Credit Agricole
Indosuez, Carr Futures' parent, of the payment of the "net liquidating value" of
the transactions (futures, options and forward contracts) in the partnership's
account. As of December 31, 1998, Credit Agricole Indosuez' total equity was
$3.301 billion, and its senior unsecured debt is currently rated Aa2 by Moody's.
With respect to forward contract trading, the partnership will trade with
only those counterparties which the general partner, together with Dean Witter,
have determined to be creditworthy. At the date of this prospectus, the
partnership will be dealing only with Carr Futures as its counterparty on
forward contracts. The guarantee by Carr Futures' parent, discussed above,
covers these forward contracts.
MORGAN STANLEY DEAN WITTER SPECTRUM COMMODITY L.P. (FORMERLY, MORGAN STANLEY
TANGIBLE ASSET FUND L.P.)
LIQUIDITY
See the discussion under "--Morgan Stanley Dean Witter Spectrum Currency
L.P.--Liquidity" on page 29, which discussion is equally applicable to Spectrum
Commodity. Spectrum Commodity has never had illiquidity affect a material
portion of its assets.
30
<PAGE>
CAPITAL RESOURCES
See the discussion under "--Morgan Stanley Dean Witter Spectrum Currency
L.P.--Capital Resources" on page 29, which discussion is equally applicable to
Spectrum Commodity.
RESULTS OF OPERATIONS
GENERAL. The partnership's results depend on its trading advisor and the
ability of its trading advisor's trading program to take advantage of price
movements or other profit opportunities in the futures markets. The following
presents a summary of the partnership's operations for the two years ended
December 31, 1999 and a general discussion of its trading activities during each
period. It is important to note, however, that the trading advisor trades in
various markets at different times and that prior activity in a particular
market does not mean that such market will be actively traded by the trading
advisor or will be profitable in the future. Consequently, the results of
operations of the partnership are difficult to discuss other than in the context
of its trading advisor's trading activities on behalf of the partnership as a
whole and how the partnership has performed in the past.
1999 RESULTS. During 1999, commodity market price behavior returned to the
more normal pattern of some commodities gaining in price, while other
commodities declined in price. Of the seventeen components of the Commodity
Research Bureau, 10 increased in price during 1999, while the remaining seven
declined in price. This was noticeably different from 1998, when all but one of
the components of the Commodity Research Bureau declined in price. Energy
markets, which had been the worst performing sector during 1998, rebounded
strongly to become the best performing commodity sector in 1999, resulting in
gains of approximately 8.99%. OPEC, which had suffered economically as their
late 1997 decision to expand production coincided with the onset of economic
difficulties in virtually all of the world's emerging economies, cooperated with
other major global oil producing countries to rein in production and allow for
the drawing down of inventories that had grown steadily throughout 1998. Crude
oil, its refined products, and natural gas all benefited from the improving
global demand for energy and the decreased supply of crude oil. Base metals
markets also improved in price during 1999, resulting in gains of approximately
8.55%. Historically, copper has been referred to by some as "the world's
economist", rising in price as economic activity improves and falling in price
when economic difficulties are encountered. During both 1998 and 1999, copper
served as an accurate barometer of global economic health. Additionally, copper
producers' decisions to curtail production in the short-term helped support
prices. Perhaps more importantly for the long-term, the consolidation of major
mining companies in both copper and aluminum bodes well for less over-expansion
during future periods of elevated prices, likely leading to "higher highs" and
"higher lows" in future price cycles. Precious metals prices also improved
modestly during 1999. After several years of lower gold prices, with central
banks continuing to sell despite the lower prices, an announcement by a group of
European central banks abruptly reversed the price slide and caught many
short-sellers off guard. For 1999, gold was up in price by less than 1%, while
silver and platinum, which have significant industrial demand, fared much
better. Grain markets continued to suffer in price during 1999, resulting in a
loss of approximately 5.37%. Despite an early summer scare caused by dry
weather, overall conditions were favorable for another good harvest. As the year
drew to a close, improved demand finally surfaced, perhaps signaling an end to
multi-decade low prices.
For the year ended December 31, 1999, Spectrum Commodity's total trading
revenues, including interest income, were $5,045,724. Total expenses for the
year were $1,669,935, resulting in net income of $3,375,789. The net asset value
of a unit in Spectrum Commodity increased from $6.57 at December 31, 1998 to
$7.61 at December 31, 1999.
1998 RESULTS. Spectrum Commodity recorded net losses during 1998. Spectrum
Commodity adheres to a long-only approach to trading traditional commodity
markets. This approach encountered significant difficulty during the entire
year, resulting in a total loss of 34.30%, given the magnitude and unrelenting
nature of declines in a broad-based majority of commodities markets. The major
factors impacting the commodity markets in 1998 were the emerging market
economies, global economic instability, and unusual weather patterns. Demand for
almost every commodity was negatively impacted by the downturn in virtually all
of the world's emerging economies, as currency woes quickly spread worldwide.
The ultimate contractions in demand for commodities (from affected economies)
had a severe negative impact in the supply increases being provided by the
world's producers, particularly within the energy and metals markets.
For the year ended December 31, 1998, Spectrum Commodity's total trading
loss, net of interest income, was $11,239,913. Spectrum Commodity's total
expenses for the year were $2,303,718, resulting in a net loss of $13,543,631.
The net asset value of a unit in Spectrum Commodity decreased from $10.00 at
inception of trading on January 2, 1998 to $6.57 at December 31, 1998.
31
<PAGE>
To enhance the foregoing comparison of operations, you should examine, line
by line, the face of partnership's Statements of Operations and Statements of
Financial Condition.
FINANCIAL INSTRUMENTS
Spectrum Commodity trades futures and may trade forwards in metals, energy
and agricultural markets. Futures and forwards represent contracts for delayed
delivery of an instrument at a specified date and price. Risk arises from
changes in the value of these contracts and the potential inability of
counterparties to perform under the terms of the contracts. There are numerous
factors which may significantly influence the market value of these contracts,
including interest rate volatility.
The credit risk associated with the instruments in which the partnership is
involved is limited to the amounts reflected in the partnership's Statement of
Financial Condition.
Spectrum Commodity also has credit risk because Dean Witter, Morgan Stanley
and Morgan Stanley International act as commodity brokers with respect to
Spectrum Commodity's assets. Exchange-traded futures contracts are marked to
market on a daily basis, with variations in value settled on a daily basis. Each
of Dean Witter and Morgan Stanley, as commodity brokers for Spectrum Commodity's
exchange-traded futures contracts, are required, pursuant to regulations of the
CFTC, to segregate from their own assets and for the sole benefit of their
commodity customers, all funds held by them with respect to exchange-traded
futures contracts including an amount equal to the net unrealized loss on all
open futures contracts.
The discussion of credit risks relating to foreign exchanges under "--Morgan
Stanley Dean Witter Spectrum Currency L.P.--Financial Instruments" on page 29 is
equally applicable to Spectrum Commodity.
QUANTITATIVE AND QUALITATIVE DISCLOSURES
ABOUT MARKET RISK
INTRODUCTION
Spectrum Commodity is a commodity pool involved in the speculative trading
of futures, forwards, and options. The market sensitive instruments held by the
partnership are acquired for speculative trading purposes only and, as a result,
all or substantially all of the partnership's assets are at risk of trading
loss. Unlike an operating company, the risk of market sensitive instruments is
central, not incidental, to the partnership's main business activities.
The futures traded by Spectrum Commodity involve varying degrees of market
risk. Market risk is often dependent upon changes in the level or volatility of
interest rates, exchange rates, and prices of financial instruments and
commodities. Fluctuations in market risk based upon these factors result in
frequent changes in the fair value of the partnership's open positions, and,
consequently, in its earnings and cash flow.
Spectrum Commodity's total market risk is influenced by a wide variety of
factors, including the diversification among the partnership's open positions,
the volatility present within the markets, and the liquidity of the markets. At
different times, each of these factors may act to increase or decrease the
market risk associated with the partnership.
Spectrum Commodity's past performance is not necessarily indicative of its
future results. Any attempt to numerically quantify the partnership's market
risk is limited by the uncertainty of its speculative trading. The partnership's
speculative trading may cause future losses and volatility (I.E. "risk of ruin")
that far exceed the partnership's experiences to date or any reasonable
expectations based upon historical changes in market value.
QUANTIFYING THE PARTNERSHIPS' TRADING VALUE AT RISK
THE FOLLOWING QUANTITATIVE DISCLOSURES REGARDING SPECTRUM COMMODITY'S MARKET
RISK EXPOSURES CONTAIN "FORWARD-LOOKING STATEMENTS" WITHIN THE MEANING OF THE
SAFE HARBOR FROM CIVIL LIABILITY PROVIDED FOR SUCH STATEMENTS BY THE PRIVATE
SECURITIES LITIGATION REFORM ACT OF 1995 (SET FORTH IN SECTION 27A OF THE
SECURITIES ACT OF 1933 AND SECTION 21E OF THE SECURITIES EXCHANGE ACT OF 1934).
ALL QUANTITATIVE DISCLOSURES IN THIS SECTION ARE DEEMED TO BE FORWARD-LOOKING
STATEMENTS FOR PURPOSES OF THE SAFE HARBOR, EXCEPT FOR STATEMENTS OF HISTORICAL
FACT.
32
<PAGE>
Spectrum Commodity accounts for open positions using mark-to-market
accounting principles. Any loss in the market value of a partnership's open
positions is directly reflected in the partnership's earnings, whether realized
or unrealized, and cash flow. Profits and losses on open positions of exchange-
traded futures interests are settled daily through variation margin.
Spectrum Commodity's risk exposure in the market sectors traded by the
trading advisors is estimated below in terms of Value at Risk ("VaR"). The VaR
model used includes many variables that could change the market value of the
partnership's trading portfolio. The partnership estimates VaR using a model
based upon historical simulation with a confidence level of 99%. Historical
simulation involves constructing a distribution of hypothetical daily changes in
the value of a trading portfolio. The VaR model takes into account linear
exposures to price and interest rate risk. Market risks that are incorporated in
the VaR model include equity and commodity prices, interest rates, foreign
exchange rates and correlation among these variables. The hypothetical changes
in portfolio value are based on daily percentage changes observed in key market
indices or other market factors ("market risk factors") to which the portfolio
is sensitive. The historical observation period of the partnership's VaR is
approximately four years. The one-day 99% confidence level of each partnership's
VaR corresponds to the negative change in portfolio value that, based on
observed market risk factors, would have been exceeded once in 100 trading days.
VaR models, including the partnership's, are continuously evolving as
trading portfolios become more diverse and modeling techniques and systems
capabilities improve. Please note that the VaR model is used to numerically
quantify market risk for historic reporting purposes only and is not utilized by
either the general partner or the trading advisors in their daily risk
management activities.
SPECTRUM COMMODITY'S VALUE AT RISK IN DIFFERENT MARKET SECTORS
The following tables indicate the VaR associated with Spectrum Commodity's
open positions, as a percentage of total net assets, by primary market risk
category as of December 31, 1999 and 1998.
As of December 31, 1999 and 1998, Spectrum Commodity's total capitalization
was approximately $24 million and $25 million, respectively.
<TABLE>
<CAPTION>
VAR
MARKET CATEGORY 1999 1998
- --------------- ---- ----
% %
<S> <C> <C>
Commodity.................................. (1.41) (1.86)
Aggregate Value at Risk.................... (1.41) (1.86)
</TABLE>
Aggregate Value at Risk, listed above, represents the aggregate VaR of all
open positions and not the sum of the VaR of the individual market categories.
Aggregate VaR will be lower as it takes into account correlation among the
different positions and categories.
The table above represents the VaR of Spectrum Commodity's open positions at
December 31, 1999 and 1998 only and are not necessarily representative of either
the historic or future risk of an investment in that partnership. Because the
only business of the partnership is the speculative trading of futures and
forwards, the composition of the partnership's trading portfolio can change
significantly over any given time period, or even within a single trading day.
Any changes in open positions could positively or negatively materially impact
market risk as measured by VaR.
The table below supplements the December 31, 1999 VaR (set forth above) by
presenting Spectrum Commodity's high, low and average VaR, as a percentage of
total net assets, for the four quarterly reporting periods from January 1, 1999
through December 31, 1999.
<TABLE>
<CAPTION>
MARKET CATEGORY HIGH LOW AVERAGE
- --------------- -------- -------- --------
% % %
<S> <C> <C> <C>
Commodity............................................ (2.04) (1.41) (1.78)
Aggregate Value at Risk.............................. (2.04) (1.41) (1.78)
</TABLE>
LIMITATIONS ON VALUE AT RISK AS AN ASSESSMENT OF MARKET RISK
The face value of the market sector instruments held by Spectrum Commodity
is typically many times the applicable margin requirements. Margin requirements
generally range between 2% and 20% of contract face value. Additionally, the use
of leverage causes the face value of the market sector instruments held by
Spectrum Commodity to be between one and two times the total capitalization of
the partnership. The value of Spectrum Commodity's open positions thus creates a
"risk of ruin" not usually found in other investments. The relative size of the
positions held may cause Spectrum Commodity to incur losses greatly in excess of
VaR within a short period of time, given the effects of the leverage
33
<PAGE>
employed and market volatility. The VaR tables above, as well as the past
performance of Spectrum Commodity, give no indication of this "risk of ruin." In
addition, VaR risk measures should be viewed in light of the methodology's
limitations, which include the following:
- past changes in market risk factors will not always result in accurate
predictions of the distributions and correlations of future market
movements;
- changes in portfolio value caused by market movements may differ from
those of the VaR model;
- VaR results reflect past trading positions while future risk depends on
future positions;
- VaR using a one-day time horizon does not fully capture the market risk
of positions that cannot be liquidated or hedged within one day; and
- the historical market risk data used for VaR estimation may provide
only limited insight into losses that could be incurred under unusual
market movements.
The VaR table above presents the results of Spectrum Commodity's VaR for its
market risk exposure and on an aggregate basis at December 31, 1999 and for the
end of the quarter periods from January 1, 1999 through December 31, 1999. Since
VaR is based on historical data, VaR should not be viewed as predictive of
Spectrum Commodity's future financial performance or its ability to manage or
monitor risk. There can be no assurance that Spectrum Commodity's actual losses
on a particular day will not exceed the VaR amounts indicated above or that
losses will not occur more than once in 100 trading days.
NON-TRADING RISK
Spectrum Currency will have non-trading market risk on its foreign cash
balances not needed for margin. These balances and any market risk they may
represent will be immaterial. The partnership will maintain a substantial
portion (approximately 77-92%) of its available assets in cash at Dean Witter. A
decline in short-term interest rates will result in a decline in the
partnership's cash management income. This cash flow risk is not considered to
be material.
Materiality, as used throughout this section, is based on an assessment of
reasonably possible market movements and any associated potential losses, taking
into account the leverage, optionality, and multiplier features of a
partnership's market sensitive instruments.
QUALITATIVE DISCLOSURES REGARDING PRIMARY TRADING RISK EXPOSURES
THE FOLLOWING QUALITATIVE DISCLOSURES REGARDING SPECTRUM COMMODITY'S MARKET
RISK EXPOSURES--EXCEPT FOR (A) THOSE DISCLOSURES THAT ARE STATEMENTS OF
HISTORICAL FACT AND (B) THE DESCRIPTIONS OF HOW SPECTRUM COMMODITY MANAGES ITS
PRIMARY MARKET RISK EXPOSURES--CONSTITUTE FORWARD-LOOKING STATEMENTS WITHIN THE
MEANING OF SECTION 27A OF THE SECURITIES ACT AND SECTION 21E OF THE SECURITIES
EXCHANGE ACT. SPECTRUM COMMODITY'S PRIMARY MARKET RISK EXPOSURES AS WELL AS THE
STRATEGIES USED AND TO BE USED BY THE GENERAL PARTNER AND THE TRADING ADVISOR
FOR MANAGING SUCH EXPOSURES ARE SUBJECT TO NUMEROUS UNCERTAINTIES, CONTINGENCIES
AND RISKS, ANY ONE OF WHICH COULD CAUSE THE ACTUAL RESULTS OF SPECTRUM
COMMODITY'S RISK CONTROLS TO DIFFER MATERIALLY FROM THE OBJECTIVES OF SUCH
STRATEGIES. GOVERNMENT INTERVENTIONS, DEFAULTS AND EXPROPRIATIONS, ILLIQUID
MARKETS, THE EMERGENCE OF DOMINANT FUNDAMENTAL FACTORS, POLITICAL UPHEAVALS,
CHANGES IN HISTORICAL PRICE RELATIONSHIPS, AN INFLUX OF NEW MARKET PARTICIPANTS,
INCREASED REGULATION AND MANY OTHER FACTORS COULD RESULT IN MATERIAL LOSSES AS
WELL AS IN MATERIAL CHANGES TO THE RISK EXPOSURES AND THE RISK MANAGEMENT
STRATEGIES. INVESTORS MUST BE PREPARED TO LOSE ALL OR SUBSTANTIALLY ALL OF THEIR
INVESTMENT.
The following were the primary trading risk exposures of Spectrum Commodity
as of December 31, 1999, by market sector. It may be anticipated however, that
these market exposures will vary materially over time.
COMMODITY.
METALS. Spectrum Commodity's primary metals market exposure is to
fluctuations in the price of copper and silver. The partnership will from time
to time trade other base metals such as nickel, aluminum and zinc, and other
precious metals, like gold and platinum. A reasonable amount of exposure was
evident in the gold market as the price of gold retreated during the fourth
quarter. However, silver prices have remained volatile over this period, and the
trading advisor has from time to time taken substantial positions as they have
perceived market opportunities to develop. The general partner anticipates that
over time there will be shifts in the primary metals market exposure for the
partnership.
34
<PAGE>
SOFT COMMODITIES AND AGRICULTURAL. On December 31, 1999, Spectrum Commodity
had exposure in the markets that comprise these sectors. Most of the exposure,
however, was in the coffee, sugar and wheat markets. Supply and demand
inequalities, severe weather disruption and market expectations affect price
movements in these markets.
ENERGY. On December 31, 1999, Spectrum Commodity's energy exposure was
shared by futures contracts in the crude oil, refined products and natural gas
markets. Price movements in these markets result from political developments in
the Middle East, weather patterns, and other economic fundamentals. As oil
prices have increased approximately 100% this year, and, given that the
agreement by OPEC to cut production is approaching expiration in March 2000, it
is possible that volatility will remain on the high end. Significant profits and
losses have been and are expected to continue to be experienced in this market.
Natural gas, also a primary energy market exposure, has exhibited more
volatility than the oil markets on an intra day and daily basis and is expected
to continue in this choppy pattern.
QUALITATIVE DISCLOSURES REGARDING NON-TRADING RISK EXPOSURE
Spectrum Commodity did not have non-trading risk exposure at December 31,
1999.
QUALITATIVE DISCLOSURES REGARDING MEANS OF MANAGING RISK EXPOSURE
Spectrum Commodity and its trading advisor, separately, attempt to manage
the risk of the partnership's open positions in essentially the same manner in
all market categories traded. The trading advisor establishes diversification
guidelines, often set in terms of the maximum dollar exposure to positions in
any one market sector or market sensitive instrument.
The general partner monitors and controls the risk of the partnership's
non-trading instrument, cash. Cash is the only partnership investment directed
by the general partner, rather than the trading advisors.
THE GENERAL PARTNER
The general partner and commodity pool operator of each partnership is
Demeter Management Corporation, a Delaware corporation formed on August 18, 1977
to act as a commodity pool operator. Effective in 1977, the general partner
became registered with the CFTC as a commodity pool operator and is currently a
member of the National Futures Association in such capacity. The general
partner's main business office is located at Two World Trade Center, 62nd Floor,
New York, New York 10048, telephone (212) 392-8899. The general partner is an
affiliate of Dean Witter, Morgan Stanley, Morgan Stanley International, and
Morgan Stanley Dean Witter Commodities Management in that all such companies are
wholly-owned subsidiaries of Morgan Stanley Dean Witter & Co., which is a
publicly-owned company subject to the reporting requirements of the Securities
Exchange Act of 1934. Morgan Stanley Dean Witter & Co.'s SEC file number is
1-11758.
The general partner is or has been the general partner and commodity pool
operator for 35 commodity pools, including five other commodity pools which are
exempt from certain disclosure requirements pursuant to CFTC Rule 4.7. As of
December 31, 1999, the general partner had approximately $1.4 billion in
aggregate net assets under management, making it one of the largest operators of
commodity pools in the U.S. As of December 31, 1999, there were over 67,000
investors in the commodity pools managed by Demeter.
The general partner is required to maintain its net worth at an amount equal
to at least 10% of the total contributions to each limited partnership for which
it acts as a general partner. Morgan Stanley Dean Witter & Co. has contributed
to the general partner the capital necessary to permit the general partner to
meet its net worth obligations as general partner of each partnership and
intends to continue to do so. The general partner's minimum net worth
requirements may be modified by the general partner at its option without notice
to or the consent of the limited partners, provided the modification does not
adversely affect the partnership or the limited partners. The general partner
and its principals are not obligated to purchase units but may do so.
According to Morgan Stanley Dean Witter & Co.'s 1998 annual report and Form
10-Q for the quarter ended August 31, 1999, Morgan Stanley Dean Witter & Co. had
total shareholders' equity of $14,119 million and total assets of $317,590
million as of November 30, 1998 (audited), and total shareholders' equity of
$15,445 million and total assets of $340,870 million as of August 31, 1999
(unaudited). Additional financial information regarding Morgan Stanley Dean
Witter & Co. is included in the financial statements filed as part of that
annual report and Form 10-Q. Morgan Stanley Dean Witter & Co. will provide to
you, upon request, copies of its most recent Forms 10-K, 10-Q and 8-K, as filed
from time to
35
<PAGE>
time with the SEC. These reports will be available from the SEC, in the same
manner described under "The Spectrum Series--Availability of Exchange Act
Reports" on page 27, or will be available at no charge to you by writing to
Morgan Stanley Dean Witter & Co. at 1585 Broadway, New York, New York 10036
(Attn: Investor Relations).
Because of their relationship to the partnerships and each other, Morgan
Stanley Dean Witter & Co., Dean Witter and the general partner may have
liability as a promoter or parent of the partnerships if any violations of the
federal securities laws occur in connection with the offering of units.
DIRECTORS AND OFFICERS OF THE GENERAL PARTNER
Robert E. Murray, age 39, is Chairman of the Board, President and a Director
of the general partner. Mr. Murray is also Chairman of the Board, President and
a Director of Dean Witter Futures & Currency Management Inc. Mr. Murray is
currently a Senior Vice President of Dean Witter's Managed Futures Department.
Mr. Murray began his career at Dean Witter in 1984 and is currently the Director
of the Managed Futures Department. In this capacity, Mr. Murray is responsible
for overseeing all aspects of the firm's Managed Futures Department. Mr. Murray
currently serves as Vice Chairman and a Director of the Managed Funds
Association, an industry association for investment professionals in futures,
hedge funds and other alternative investments. Mr. Murray graduated from Geneseo
State University in May 1983 with a B.A. degree in Finance.
Mitchell M. Merin, age 46, is a Director of the general partner. Mr. Merin
is also a Director of Dean Witter Futures & Currency Management Inc. Mr. Merin
was appointed the chief operating officer of asset management for Morgan Stanley
Dean Witter & Co. in December 1998 and the President and chief executive officer
of Morgan Stanley Dean Witter Advisors in February 1998. He has been an
Executive Vice President of Dean Witter since 1990, during which time he has
been director of Dean Witter's Taxable Fixed Income and Futures divisions,
managing director in Corporate Finance and corporate treasurer. Mr. Merin
received his Bachelor's degree from Trinity College in Connecticut and his
M.B.A. degree in finance and accounting from the Kellogg Graduate School of
Management of Northwestern University in 1977.
Joseph G. Siniscalchi, age 54, is a Director of the general partner.
Mr. Siniscalchi joined Dean Witter in July 1984 as a First Vice President,
Director of General Accounting and served as Senior Vice President and
Controller for Dean Witter's Securities Division through 1997. He is currently
Executive Vice President and Director of the Operations Division of Dean Witter.
From February 1980 to July 1984, Mr. Siniscalchi was Director of Internal Audit
at Lehman Brothers Kuhn Loeb, Inc.
Edward C. Oelsner III, age 57, is a Director of the general partner. Mr.
Oelsner is currently an Executive Vice President and head of the Product
Development Group at Morgan Stanley Dean Witter Advisors, an affiliate of Dean
Witter. Mr. Oelsner joined Dean Witter in 1981 as a Managing Director in Dean
Witter's Investment Banking Department specializing in coverage of regulated
industries and, subsequently, served as head of the Dean Witter Retail Products
Group. Prior to joining Dean Witter, Mr. Oelsner held positions at The First
Boston Corporation as a member of the Research and Investment Banking
Departments from 1967 to 1981. Mr. Oelsner received his M.B.A. in Finance from
the Columbia University Graduate School of Business in 1966 and an A.B. in
Politics from Princeton University in 1964.
Lewis A. Raibley, III, age 37, is Vice President, Chief Financial Officer,
and a Director of the general partner. Mr. Raibley is also a Director of Dean
Witter Futures & Currency Management Inc. Mr. Raibley is currently Senior Vice
President and Controller in the Individual Asset Management Group of Morgan
Stanley Dean Witter & Co. From July 1997 to May 1998, Mr. Raibley served as
Senior Vice President and Director in the Internal Reporting Department of
Morgan Stanley Dean Witter & Co. and prior to that, from 1992 to 1997, he served
as Senior Vice President and Director in the Financial Reporting and Policy
Division of Dean Witter Discover & Co. He has been with Morgan Stanley Dean
Witter & Co. and its affiliates since June 1986.
Richard A. Beech, age 48, is a Director of the general partner. Mr. Beech
has been associated with the futures industry for over 23 years. He has been at
Dean Witter since August 1984, where he is presently Senior Vice President and
head of Branch Futures. Mr. Beech began his career at the Chicago Mercantile
Exchange, where he became the Chief Agricultural Economist doing market
analysis, marketing and compliance. Prior to joining Dean Witter, Mr. Beech also
had worked at two investment banking firms in operations, research, managed
futures and sales management.
Ray Harris, age 43, is a Director of the general partner. Mr. Harris is
currently Executive Vice President, Planning and Administration for Morgan
Stanley Dean Witter Asset Management and has worked at Dean Witter or its
affiliates since July 1982, serving in both financial and administrative
36
<PAGE>
capacities. From August 1994 to January 1999, he worked in two separate Dean
Witter affiliates, Discover Financial Services and Novus Financial Corp.,
culminating as Senior Vice President. Mr. Harris received his B.A. degree from
Boston College and his M.B.A. in finance from the University of Chicago.
The general partner and its officers and directors may, from time to time,
trade commodity interest contracts for their own proprietary accounts. The
records of trading in such accounts will not be made available to you for
inspection.
As of the date of this prospectus, Robert E. Murray, Chairman of the Board,
President and a Director of the general partner, owns and 209.644 units of
Spectrum Commodity, which amount is less than 1% of the outstanding units of
that partnership. As of the date of this prospectus, Mr. Murray did not
beneficially own units of any other partnership, and none of the other directors
or executive officers of the general partner beneficially owned units of any
partnership.
DESCRIPTION AND PERFORMANCE INFORMATION OF COMMODITY POOLS OPERATED BY THE
GENERAL PARTNER
The following table summarizes information relating to each of the other
commodity pools operated by the general partner except those commodity pools
exempt from disclosure under CFTC Rule 4.7.
While each of these commodity pools has essentially the same
objective--appreciation of assets through speculative trading--the structure,
including fees, interest income arrangements, and trading advisors, and the
performance of these pools varies widely. There are significant differences
between the partnerships and the commodity pools described on the following
page. For example, some of the commodity pools have principal protection
features to protect investors against the loss of their investment principal,
and none of these other commodity pools has the same mix of trading advisors,
trading strategies, and fee structures as those employed by the partnerships.
All summary performance information is current as of December 31, 1999. In
reviewing the following summary performance information, you should understand
that performance is calculated on an accrual basis in accordance with generally
accepted accounting principles and is "net" of all fees and charges, and a more
complete presentation of the performance of the futures funds operated or
managed by the general partner and/or its affiliates is available without charge
upon request to the general partner.
Past performance is not necessarily indicative of future results and
material differences exist between the commodity pools described in the chart
and the partnerships. There is no assurance that the partnerships will perform
in a manner comparable to any of the commodity pools described below. You should
also note that interest income may constitute a significant portion of a
commodity pool's total income and may generate profits where there have been
realized or unrealized losses from futures, forwards, and options trading.
37
<PAGE>
DEMETER MANAGEMENT CORPORATION
CAPSULE SUMMARY OF PERFORMANCE INFORMATION REGARDING COMMODITY POOLS OPERATED
(EXCEPT AS OTHERWISE INDICATED, BEGINNING JANUARY 1, 1994 THROUGH DECEMBER 31,
1999)
<TABLE>
<CAPTION>
CURRENT CURRENT CUMULATIVE
TOTAL NET ASSET RETURN
START CLOSE AGGREGATE NET ASSET VALUE PER SINCE
FUND TYPE/FUND(1) DATE(2) DATE(3) SUBSCRIPTION(4) VALUE(5) UNIT(6) INCEPTION(7)
- ----------------- ------- ------- --------------- ----------- --------- ------------
$ $ $ %
<S> <C> <C> <C> <C> <C> <C>
PUBLICLY-OFFERED FUNDS WITH ONE ADVISOR
WITHOUT "PRINCIPAL PROTECTION"
Dean Witter Commodity Partners Jan-81 Dec-88 9,648,397 739,757 488.29 (51.37)
Columbia Futures Fund(11) Jul-83 N/A 29,276,299 8,355,156 2,900.13 195.93
DW Diversified Futures Fund L.P.(12) Apr-88 N/A 206,815,107 91,649,223 963.26 281.93
DW Multi-Market Portfolio L.P.(13) Sep-88 N/A 252,526,000 7,901,749 1,100.09 10.01
DW Diversified Futures Fund II L.P. Jan-89 N/A 13,210,576 8,053,814 2,556.25 155.63
DW Diversified Futures Fund III L.P. Nov-90 N/A 126,815,755 48,527,568 1,595.11 59.51
DW Portfolio Strategy Fund L.P.(14) Feb-91 N/A 143,522,564 109,201,218 2,419.78 141.98
DWFCM International Access Fund L.P. Mar-94 N/A 68,115,440 36,142,214 1,413.97 41.40
Morgan Stanley Dean Witter Spectrum Global Nov-94 N/A 61,233,656 57,864,012 16.12 61.20
Balanced L.P.
Morgan Stanley Dean Witter Charter Graham L.P. Mar-99 N/A 19,645,489 20,661,112 10.29 2.90
Morgan Stanley Dean Witter Charter Mar-99 N/A 25,738,736 23,303,720 9.28 (7.20)
Millburn L.P.
Morgan Stanley Dean Witter Charter Welton L.P. Mar-99 N/A 24,110,529 23,077,361 8.93 (10.70)
PUBLICLY-OFFERED FUNDS WITH MORE THAN ONE
ADVISOR WITHOUT "PRINCIPAL PROTECTION"
DW Cornerstone Fund I Jan-85 Dec-91 19,122,276 281,303 456.80 (53.15)
DW Cornerstone Fund II(15) Jan-85 N/A 65,653,270 26,708,981 3,964.87 306.65
DW Cornerstone Fund III(15) Jan-85 N/A 137,132,762 33,421,010 3,045.43 212.35
DW Cornerstone Fund IV(15) May-87 N/A 168,090,005 102,988,045 4,683.42 380.35
Morgan Stanley Dean Witter Spectrum Select L.P. Aug-91 N/A 282,761,631 213,805,674 22.00 120.00
DW Global Perspective Portfolio L.P. Mar-92 N/A 67,424,535 14,845,767 970.18 (2.98)
DW World Currency Fund L.P. Apr-93 N/A 114,945,830 20,261,082 993.59 (0.64)
Morgan Stanley Dean Witter Spectrum Nov-94 N/A 106,010,689 107,629,521 15.85 58.50
Strategic L.P.
Morgan Stanley Dean Witter Spectrum Nov-94 N/A 303,236,878 268,755,718 14.91 49.10
Technical L.P.
PUBLICLY-OFFERED FUNDS WITH ONE ADVISOR
WITH "PRINCIPAL PROTECTION"
DW Principal Guaranteed Fund III L.P. Jul-89 Sep-95 126,263,000 7,022,437 1,000.00 0.00
DW Principal Plus Fund L.P.(16) Feb-90 N/A 109,013,535 43,912,716 1,815.50 81.55
PUBLICLY-OFFERED FUNDS WITH MORE THAN ONE
ADVISOR WITH "PRINCIPAL PROTECTION"
DW Principal Guaranteed Fund II L.P. Mar-89 Mar-96 162,203,303 4,966,449 1,056.55 5.66
PRIVATELY-OFFERED FUNDS WITH ONE ADVISOR
WITHOUT "PRINCIPAL PROTECTION"
Morgan Stanley Dean Witter/Chesapeake L.P. Nov-94 N/A 34,470,990 31,833,466 1,988.42 98.84
Morgan Stanley Dean Witter/JWH Futures Feb-96 N/A 31,450,959 16,262,381 1,085.94 8.59
Fund L.P.
PRIVATELY-OFFERED FUND WITH MORE THAN ONE
ADVISOR WITHOUT "PRINCIPAL PROTECTION"
Morgan Stanley Dean Witter/Market Street Futures Oct-98 N/A 20,086,896 12,750,338 976.21 (2.38)
Fund L.P.
<CAPTION>
COMPOUND ANNUAL RATES OF RETURN(10)
WORST WORST PEAK- -------------------------------------------------------
MONTHLY % TO-VALLEY
FUND TYPE/FUND(1) DRAWDOWN(8) DRAWDOWN(9) 1999 1998 1997 1996 1995
- ----------------- ----------- ----------- ---------- --------- --------- ---------- ---------
% % % % % % %
<S> <C> <C> <C> <C> <C> <C> <C>
PUBLICLY-OFFERED FUNDS WITH ONE ADVISOR
WITHOUT "PRINCIPAL PROTECTION"
Dean Witter Commodity Partners (34.48) (64.23)
7/88 4/86-12/88
Columbia Futures Fund(11) (17.54) (42.58) (8.54) 12.01 22.60 19.09 28.21
4/86 7/83-9/85
DW Diversified Futures Fund L.P.(12) (12.85) (24.86) (11.14) 6.22 11.96 (2.66) (4.56)
5/90 5/95-6/96
DW Multi-Market Portfolio L.P.(13) (13.26) (29.84) (8.77) 5.63 13.28 (6.76) (6.37)
2/96 5/95-6/96
DW Diversified Futures Fund II L.P. (13.41) (25.62) (9.50) 5.22 11.28 (4.83) (2.90)
8/89 5/95-6/96
DW Diversified Futures Fund III L.P. (13.62) (27.00) (10.56) 5.39 12.29 (4.73) (4.02)
1/92 5/95-6/96
DW Portfolio Strategy Fund L.P.(14) (14.40) (25.65) (6.85) 9.46 11.28 25.50 25.37
1/92 1/92-4/92
DWFCM International Access Fund L.P. (12.87) (22.84) (9.21) 5.07 26.22 3.97 21.88
1/95 8/94-1/95
Morgan Stanley Dean Witter Spectrum Global (7.92) (10.64) 0.75 16.36 18.23 (3.65) 22.79
Balanced L.P. 2/96 2/96-5/96
Morgan Stanley Dean Witter Charter Graham L.P. (8.00) (9.80) 2.90
3/99 3/99-5/99 (10 months)
Morgan Stanley Dean Witter Charter (12.69) (15.00) (7.20)
Millburn L.P. 10/99 7/99-10/99 (10 months)
Morgan Stanley Dean Witter Charter Welton L.P. (7.70) (22.20) (10.70)
3/99 3/99-10/99 (10 months)
PUBLICLY-OFFERED FUNDS WITH MORE THAN ONE
ADVISOR WITHOUT "PRINCIPAL PROTECTION"
DW Cornerstone Fund I (20.88) (64.47)
8/91 4/86-8/91
DW Cornerstone Fund II(15) (11.74) (32.70) (5.42) 12.54 18.05 11.47 26.50
9/89 7/88-10/89
DW Cornerstone Fund III(15) (18.28) (32.35) (6.78) 9.13 10.24 8.24 27.50
2/89 2/89-10/89
DW Cornerstone Fund IV(15) (21.04) (45.21) (1.13) 6.80 38.41 12.97 22.96
9/89 7/89-9/89
Morgan Stanley Dean Witter Spectrum Select L.P. (12.11) (26.78) (7.56) 14.15 6.22 5.27 23.63
2/96 6/95-8/96
DW Global Perspective Portfolio L.P. (12.10) (40.90) (9.83) 11.25 11.16 9.26 16.76
10/99 8/93-1/95
DW World Currency Fund L.P. (9.68) (46.04) 2.65 (2.61) 39.35 12.97 2.02
5/95 8/93-1/95
Morgan Stanley Dean Witter Spectrum (13.38) (32.11) 37.23 7.84 0.37 (3.53) 10.49
Strategic L.P. 5/99 4/97-7/98
Morgan Stanley Dean Witter Spectrum (9.96) (14.08) (7.51) 10.18 7.49 18.35 17.59
Technical L.P. 10/99 5/99-10/99
PUBLICLY-OFFERED FUNDS WITH ONE ADVISOR
WITH "PRINCIPAL PROTECTION"
DW Principal Guaranteed Fund III L.P. (13.98) (30.93) 5.21
1/92 5/90-4/92 (9 months)
DW Principal Plus Fund L.P.(16) (7.48) (13.08) (3.82) 10.54 15.39 (5.28) 17.98
2/96 2/96-5/96
PUBLICLY-OFFERED FUNDS WITH MORE THAN ONE
ADVISOR WITH "PRINCIPAL PROTECTION"
DW Principal Guaranteed Fund II L.P. (5.62) (14.69) 1.00 7.30
1/91 8/89-4/92 (3 months)
PRIVATELY-OFFERED FUNDS WITH ONE ADVISOR
WITHOUT "PRINCIPAL PROTECTION"
Morgan Stanley Dean Witter/Chesapeake L.P. (17.34) (31.03) (3.48) 19.93 15.38 15.23 15.80
5/99 9/98-10/99
Morgan Stanley Dean Witter/JWH Futures (9.62) 26.34 (22.29) 4.04 13.66 18.17
Fund L.P. 10/99 7/99-12/99 (11 months)
PRIVATELY-OFFERED FUND WITH MORE THAN ONE
ADVISOR WITHOUT "PRINCIPAL PROTECTION"
Morgan Stanley Dean Witter/Market Street Futures (8.59) (13.38) (2.63) 0.26
Fund L.P. 3/99 3/99-10/99 (3 months)
</TABLE>
PAST PERFORMANCE IS NOT NECESSARILY INDICATIVE OF FUTURE RESULTS.
38
<PAGE>
FOOTNOTES TO DEMETER MANAGEMENT CORPORATION PERFORMANCE INFORMATION
1. "Publicly-offered" funds are pools offered to the public.
"Privately-offered" funds are pools offered in private placements exempt
from registration. Funds with "principal protection" are pools with an
investment feature that guarantees the return of the amount originally
invested, generally within 5 to 7 years. Funds without "principal
protection" do not guarantee the return of an investor's investment.
2. "Start Date" is the month and year that the pool began trading.
3. "Close Date" is the month and year that the pool liquidated its assets and
stopped doing business.
4. "Aggregate Subscriptions" is the aggregate of all amounts contributed to the
pool, including investments that were later redeemed by investors.
5. "Current Total Net Asset Value" is the net asset value of the pool as of
December 31, 1999, or, in the case of liquidated pools, the net asset value
of the pool on the date of liquidation.
6. "Current Net Asset Value per Unit" is calculated by dividing the current
total net asset value by the total number of units outstanding as of
December 31, 1999, or, in the case of liquidated pools, the date of
liquidation.
7. "Cumulative Return Since Inception" is the percentage change in the net
asset value of a unit from its Start Date through December 31, 1999, or, in
the case of liquidated pools, from its Start Date through the date of
liquidation.
8. "Drawdown" means losses experienced by the pool over the specified period
and is calculated by dividing net performance by beginning equity.
"Drawdown" is measured on the basis of monthly returns only, and does not
reflect intra-month figures. The month in which the worst monthly drawdown
occurred during the history of the pool is set forth under "Worst Monthly %
Drawdown."
9. "Peak-to-Valley Drawdown" is the largest percentage decline in the net asset
value per unit over the history of the fund. This need not be a continuous
decline, but can be a series of positive and negative returns where the
negative returns are larger than the positive ones. The months during which
the worst peak-to-valley drawdown occurred are set forth under "Worst
Peak-to-Valley Drawdown."
10. "Compound Annual Rates of Return" are calculated annually by multiplying on
a compound basis each of the monthly rates of return during the year (not
shown), and not by adding or averaging such monthly rates of return. For the
year in which a pool commenced operations and for 1999, "Compound Annual
Rates of Return" reflect the compounded monthly rates of return (not shown)
from the Start Date for, or the beginning of, such partial year.
11. Columbia was a publicly-offered fund with more than one advisor from its
inception in July 1983 through January 1988, at which point it became a
publicly-offered fund with one advisor.
12. Diversified's net asset value per unit was revalued from $3,964.23 to
$1,000.00 after the close of business on August 31, 1995. All investors in
Diversified prior to August 31, 1995 had their units increased by a
corresponding amount to reflect this revaluation, and all return
calculations in the table have been adjusted accordingly.
13. Multi-Market was a publicly-offered fund with more than one advisor with
principal protection from its inception in September 1988 through September
30, 1993, at which point it was changed to a publicly-offered fund with one
advisor without principal protection.
14. Portfolio Strategy was a publicly-offered fund with one advisor with
principal protection from its inception in February 1991 through July 31,
1996, at which point it was changed to a publicly-offered fund with one
advisor without principal protection.
15. Subscriptions for interests in Cornerstone II, Cornerstone III, and
Cornerstone IV included an up-front 7.625% of net asset value selling
commission and continuing offering expense charge until sales to new
investors were terminated on September 30, 1994. Because sales occurred
throughout the year and, therefore, the amount of the net asset value-based
charge varied among investors, it was not practicable to include the
up-front charge in determining the Cornerstone Funds' annual return for
1994.
16. The performance record of Principal Plus includes the performance of Dean
Witter Principal Plus Fund Management L.P., an affiliated pool.
39
<PAGE>
THE TRADING ADVISORS
MANAGEMENT AGREEMENTS
Each trading advisor has entered into a management agreement with a
partnership and the general partner. The trading advisor is responsible for
directing the investment and reinvestment in futures, forwards, and options of
the partnership's assets allocated to such trading advisor. Each management
agreement will terminate if the partnership terminates, and may be terminated by
the partnership at any month-end upon 5 days' prior written notice to the
trading advisor. Each partnership may also terminate its management agreements
immediately for events that the general partner believes would have an immediate
adverse effect on the partnership, such as a violation of a partnership's
trading policy. Each management agreement may also be terminated by the trading
advisor for events that it deems would have a material adverse effect on its
abilities to perform under the management agreement, such as the implementation
of a new trading limitation not agreed to by the trading advisor.
INTRODUCTION TO TRADING ADVISOR DESCRIPTIONS
The biographies of the principals and brief summaries of the trading
programs of the trading advisors for each partnership are set forth below. The
success of each partnership is dependent upon the collective success of its
trading advisors in their trading for the partnership. However, in evaluating
these descriptions, an investor should be aware that the trading advisors'
trading methods are proprietary and confidential, the trading advisors selected
for a partnership may change over time, and even if the same trading advisors
continue to trade for a partnership, they may make substantial modifications to
their trading programs. Investors generally will not be made aware of when a
trading advisor makes a modification to its trading program.
The descriptions of the trading advisors, their trading programs and their
principals are general and are not intended to be exhaustive. It is not possible
to provide a precise description of any trading advisor's trading program.
Furthermore, the trading advisors may refer to specific aspects of their trading
programs, which aspects may also be applicable to other trading advisors that
did not choose to make specific reference to these aspects of their own trading
programs. As a consequence, contrasts in the following descriptions may not, in
fact, indicate a substantive difference between the different programs involved.
However, all non-proprietary information about a trading program that the
trading advisor believes to be material has been included.
Morgan Stanley Dean Witter Commodities Management is the only trading
advisor affiliated with the general partner, Dean Witter, Morgan Stanley, Morgan
Stanley International, or any of their affiliates.
A trading advisor's registration with the CFTC or its membership in the
National Futures Association should not be taken as an indication that any such
agency has recommended or approved the trading advisor.
MORGAN STANLEY DEAN WITTER SPECTRUM CURRENCY L.P.
1. JOHN W. HENRY & COMPANY, INC. (JWH-REGISTERED TRADEMARK-)
John W. Henry & Company began managing assets in 1981 as a sole
proprietorship and was later incorporated in the state of California as John W.
Henry & Co., Inc. to conduct business as a commodity trading advisor. In 1997,
JWH reincorporated in the state of Florida. JWH's offices are at One Glendinning
Place, Westport Connecticut, 06880, 203-221-0431 and 301 Yamato Road, Suite
2200, Boca Raton, Florida. JWH's registration as a commodity trading advisor
became effective in November 1980. JWH is a member of the National Futures
Association in this capacity. "JWH" is the registered trademark of John W. Henry
& Company, Inc.
PRINCIPALS
Mr. John W. Henry is chairman of the JWH Board of Directors and is trustee
and sole beneficiary of the John W. Henry Trust dated July 27, 1990. He is also
a member of the JWH Investment Policy Committee. In addition, he is a principal
of Westport Capital Management Corporation, Global Capital
40
<PAGE>
Management Limited, and JWH Financial Products, Inc., all affiliates of JWH.
Mr. Henry currently concentrates his activities at JWH on portfolio management,
research and new system development, day-to-day decisions involving the
strategic direction and business of the firm and frequent dialogue with trading
supervisors. He is the exclusive owner of trading systems licensed to Elysian
Licensing Corporation, a corporation wholly owned by Mr. Henry, and sublicensed
by Elysian Licensing Corporation to JWH and utilized by JWH in managing investor
accounts.
Mr. Henry has served on the Board of Directors of the Futures Industry
Association, the National Association of Futures Trading Advisors, and the
Managed Futures Trade Association, and has served on the Nominating Committee of
the National Futures Association. He has also served on a panel created by the
Chicago Mercantile Exchange and the Chicago Board of Trade to study cooperative
efforts related to electronic trading, common clearing, and issues regarding a
potential merger. In 1989, Mr. Henry established residency in Florida, and since
that time has performed services from that location as well as from the offices
of JWH in Westport, Connecticut. Since the beginning of 1987, he has devoted,
and will continue to devote, considerable time to activities in businesses other
than JWH and its affiliates, including acting as chairman of the Florida Marlins
Baseball Club LLC, which continues to be operated by professional baseball
staff.
Mr. Mark H. Mitchell is vice chairman, counsel to the firm and a member of
the JWH Board of Directors. His duties include the coordination and allocation
of responsibilities among JWH and its affiliates. He is also vice chairman and a
director of JWH Financial Products, Inc. Prior to joining JWH in January 1994,
he was a partner at Chapman and Cutler in Chicago, where he headed the law
firm's futures law practice from August 1983 to December 1993. He also served as
general counsel of the MFA and general counsel of the National Association of
Futures Trading Advisors. Mr. Mitchell is currently a member of the National
Futures Association commodity pool operator/commodity trading advisor Advisory
Committee. In addition, he has served as a member of the National Futures
Association Special Committee for the Review of a Multi-tiered Regulatory
Approach to National Futures Association Rules, the MFA Government Relations
Committee, and the Executive Committee of the Futures Industry Association Law
and Compliance Division. In 1985, Mr. Mitchell received the Richard P. Donchian
Award for Outstanding Contributions to the Field of Commodity Money Management.
He received an A.B. with honors from Dartmouth College and a J.D. from the
University of California at Los Angeles, where he was named to the Order of the
Coif, the national legal honorary society.
Mr. Verne O. Sedlacek is the president and chief operating officer and a
member of the JWH Investment Policy Committee. He is responsible for the
day-to-day management of the firm. Mr. Sedlacek is also president and director
of Westport Capital Management Corporation and Global Capital Management Limited
and vice president of JWH Financial Products, Inc. Prior to joining JWH in July
1998, he was the executive vice president and chief financial officer of Harvard
Management Company, Inc., a wholly owned subsidiary of Harvard University which,
at the time of his departure, managed approximately $14 billion of
University-related funds. At Harvard Management Company, he was responsible for
managing the areas of personnel, budgets, systems, performance analysis,
contracts, credit, compliance, custody, operations, cash management, securities
lending and market risk evaluation; he joined Harvard Management in March 1983.
Mr. Sedlacek currently serves on the Boards of Directors of the Futures
Industry Association and the Chicago Mercantile Exchange, and is a member of the
Global Markets Advisory Committee of the CFTC. He is also a member of the
National Futures Association/Futures Industry Institute Best Practices Study End
User Expert Panel. He received an A.B. in Economics from Princeton University,
and an M.B.A. in Accounting from New York University and was certified as a
C.P.A. by the State of New York in 1978.
Dr. Mark S. Rzepczynski is a senior vice president, research and trading and
a member of the JWH Investment Policy Committee. He is also a vice president of
JWH Financial Products, Inc. Prior to joining JWH in May 1998, he was vice
president and director of taxable credit and quantitative research in the fixed
income division of Fidelity Management and Research from May 1995 to
April 1998, where he oversaw credit and quantitative research recommendations
for all Fidelity taxable fixed income funds. From April 1993 to April 1995, he
was a portfolio manager and director of research for CSI Asset Management, Inc.,
a fixed-income money management subsidiary of Prudential Insurance. Dr.
Rzepczynski has a B.A. CUM LAUDE, Honors in Economics from Loyola University of
Chicago, and an A.M. and Ph.D. in Economics from Brown University.
41
<PAGE>
Mr. E. Lyndon Tefft is a senior vice president and the chief financial
officer. He is also the treasurer of Westport Capital Management Corporation,
vice president of JWH Financial Products, Inc., and director, secretary, and
treasurer of JWH Securities, Inc. Prior to joining JWH in October 1998, Mr.
Tefft was the Director of MIS and a vice president at Harvard Management
Company, Inc. where he was responsible for directing the design, development,
and operation of global equity, bond, and derivative trading, accounting, and
settlement systems beginning in May 1994. Mr. Tefft received a B.S. in
Industrial Management from Purdue University, and an M.B.A. from Wharton School
of Business at the University of Pennsylvania.
Ms. Elizabeth A.M. Kenton is a senior vice president, compliance. She is
responsible for the day-to-day management of compliance, as well as overall
issues pertaining to administration and human resources. Ms. Kenton is also a
vice president of JWH Financial Products, Inc., and a director of Westport
Capital Management Corporation and Global Capital Management Limited. Since
joining JWH in March 1989, Ms. Kenton has held positions of increasing
responsibility in research and development, administration and regulatory
compliance. Ms. Kenton received a B.S. in Finance from Ithaca College.
Mr. David M. Kozak is a senior vice president, general counsel and secretary
to the corporation. He is also secretary of JWH Financial Products, Inc., and
director and secretary of Westport Capital Management Corporation. Prior to
joining JWH in September 1995, he had been a partner at the law firm of Chapman
and Cutler from 1989 and an associate from September 1983. In his practice
there, he concentrated in commodity futures law with an emphasis on commodity
money management.
Mr. Kozak is currently the secretary and a director of the MFA and is a
member of that organization's Executive Committee and chairman of its Government
Relations Committee. He is also a member of the Special Committee on CPO/CTA
Disclosure Issues and the Special Committee for the Review of Multi-tiered
Regulatory Approach to National Futures Association Rules, both of the National
Futures Association. He is chairman of the subcommittee on commodity trading
advisor and commodity pool operator issues of the Futures Regulation Committee
of the Association of the Bar of the City of New York. He received a B.A. from
Lake Forest College, an M.A. from The University of Chicago, and a J.D. from
Loyola University of Chicago.
Mr. David I. Ginsberg is a member of the JWH Board of Directors and special
advisor to the chairman. Mr. Ginsberg joined JWH in October 1999. He served as
the managing director of the Multi-Manager Group at Global Asset Management from
its inception in September 1989 until July 1995. This GAM group was, and
continues to be, one of the largest multi-advisor groups specializing in hedge
funds. Since leaving GAM, Mr. Ginsberg has been a private investor. Mr. Ginsberg
received a M.B.A. with a concentration in Finance from Boston University and a
B.A. from Kenyon College. Mr. Ginsberg is a member of the board of directors of
GAM Diversity, Inc., a global multi-advisor hedge fund with assets in excess of
$1 billion that specializes in hedge funds, and a director of the Adelphi Europe
Fund, a hedge fund specializing in European equities. He is also vice chairman
of the Florida Marlins Baseball Club LLC.
Mr. John A. Wing is a member of the JWH Board of Directors. Mr. Wing is also
a professor of Law and Finance at the Illinois Institute of Technology and
director of its Center for the Study of Law and Financial Markets. Before
joining JWH in February 2000 and the Illinois Institute of Technology in July
1998, he was chairman of the board and chief executive officer of ABN-AMRO
Incorporated, formerly The Chicago Corporation. Mr. Wing joined The Chicago
Corporation as its chief executive officer in 1981 and continued to lead the
firm following its merger with ABN-AMRO in January 1997 until his retirement in
July 1998.
Mr. Wing is currently chairman of the board for the Risk Management
Committee of the Commercial Club and of Market Liquidity Holding, LLC. He is
also a director of AmerUs Life Holdings. In addition, he has served as a
director of the Midwest Stock Exchange, The Chicago Board Options Exchange,
Securities Industry Association, Futures Industry Association, National Futures
Association and Chicago Capital Fund. Mr. Wing has also been a governor of the
National Association of Securities Dealers, a member of the New York Stock
Exchange Regional Firms Committee, and a member of the Chicago Mercantile
Exchange's special panel to review trading rules and practices. Mr. Wing has
also served as a trustee of the Illinois Institute of Technology and chairman of
the Board of Overseers of its Stuart School of Business. He received a BA in
Economics from Union College and a LLB from George Washington University.
42
<PAGE>
Mr. Kevin S. Koshi is a senior vice president, proprietary trading, and a
member of the JWH Investment Policy Committee. He is responsible for the
implementation and oversight of the firm's proprietary strategies and
investments. Mr. Koshi joined JWH in August 1988 as a professional in the
finance department, and since 1990 has held positions of increasing
responsibility in the trading department. He received a B.S. in Finance from
California State University at Long Beach.
Mr. Matthew J. Driscoll is a vice president, trading, and chief trader and a
member of the JWH Investment Policy Committee. He is responsible for the
supervision and administration of all aspects of order execution strategies and
implementation of trading policies and procedures. Mr. Driscoll joined JWH in
March 1991 as a member of the trading department. Since joining the firm, he has
held positions of increasing responsibility as they relate to the development
and implementation of JWH's trading strategies and procedures; he has played a
major role in the development of JWH's 24-hour trading operation. He attended
Pace University.
Mr. Christopher E. Deakins is a vice president, investor services,
responsible for general business development and management of the investor
services department. He is also director and vice president of JWH Securities,
Inc. Prior to joining JWH in August 1995, he was a vice president, national
sales, and a member of the management team at RXR Capital Management, Inc.,
where he was responsible for business development, institutional sales, and
broker-dealer support from August 1986 to July 1995. Currently he serves on the
Institutional Money Management Advisory Committee of the New York Mercantile
Exchange. Mr. Deakins received a BA in Economics from Hartwick College.
Mr. Edwin B. Twist is a director of JWH. He is also a director of JWH
Financial Products, Inc. Mr. Twist joined JWH as internal projects manager in
September 1991 and has been a director since August 1993. His responsibilities
include assisting with the day-to-day administration and internal projects of
JWH's Florida office.
Mr. Julius A. Staniewicz is a vice president, senior strategist and a member
of the JWH Investment Policy Committee. He is also president of JWH Financial
Products, Inc. He joined JWH in March of 1992. Mr. Staniewicz received a B.A. in
Economics from Cornell University.
The following is a list of additional principals of JWH: Ms. Nancy O. Fox,
C.P.A., vice president, investment support; Mr. Andrew D. Willard, vice
president, information technology; Mr. Paul D. Braica, C.P.A., vice president,
analytics; Ms. Florence Y. Sofer, vice president, marketing; Mr. Robert B.
Lendrim, vice president, investor services; and Ms. Wendy B. Goodyear, vice
president, investor services.
THE JWH-REGISTERED TRADEMARK- INVESTMENT PROGRAM
JWH specializes in managing institutional and individual capital in the
global futures, financial futures, and foreign exchange markets. Since 1981, JWH
has developed and implemented proprietary trend-following trading techniques
that focus on short- to long-term trends. JWH currently operates 11 investment
programs.
JWH will utilize the International Foreign Exchange Program for Spectrum
Currency.
THE INTERNATIONAL FOREIGN EXCHANGE PROGRAM. The International Foreign
Exchange Program, which began trading client capital in August 1986, seeks to
identify and capitalize on intermediate-term movements in a broad range of both
major and minor currencies primarily trading on the interbank market. Positions
are taken as outrights against the U.S. dollar, or non-dollar cross rates. This
program uses the three-phase forex investment style.
As of December 31, 1999, JWH was managing approximately $78 million of
client assets pursuant to its International Foreign Exchange Program, and
approximately $1.9 billion in all of its programs.
INVESTMENT PHILOSOPHY AND METHODOLOGY.
The JWH investment philosophy is based on the premise that market prices,
rather than market fundamentals, are the key aggregator of information necessary
to make investment decisions. The firm maintains that changes in market prices
initially reflect human reactions to new or emerging information or events that
will cause trends, but that prices eventually reflect all relevant information.
The price adjustments process takes time, however, since reactions of market
participants to changing market
43
<PAGE>
dynamics initially may be inefficient; that is, investors may not react
immediately to information because of differing abilities to process and
evaluate data, differing levels of risk tolerance, or uncertainty. Gradual price
adjustments manifest themselves in long-term trends, which themselves can
influence the course of events and from which profit opportunities can arise.
JWH believes that such market inefficiencies can be exploited through a
combination of trend detection and risk management. Systematic risk taking may
be rewarded, as markets adjust to a new price.
There is strong economic and statistical evidence to suggest that trends do
exist in most markets although they may be difficult to identify. Since the
firm's founding, JWH has employed analytical methods to identify short to
long-term trends. Comprehensive research undertaken by the firm's founder,
John W. Henry, led to the development of disciplined systematic quantitative
models. JWH's computer models examine market data for systematic price behavior
or relationships which will characterize a trend. When price trends are
identified, the JWH trading system generates buy and sell signals for
implementing trades. The strict application of these signals is one of the most
important aspects of JWH's investment process.
JWH attempts to control risk throughout the investment process. This
includes the confirmation of a trend, determining the optimal exposure in a
given market, and money management issues such as the startup or upgrade of an
account. JWH's research on these and other issues has resulted in investment
program modifications from time to time that have decreased from previous levels
the overall volatility of its investment programs while maintaining the
potential for generating attractive performance returns.
DURATION OF POSITIONS HELD.
JWH's historical performance demonstrates that, because trends often last
longer than most market participants expect, significant returns can be
generated from positions held over a long period of time. Therefore, market
exposure to profitable positions is not changed based on the time horizon of the
trade; positions held for two to four months are not unusual, and positions have
been held for more than one year. Losing positions are generally pared
relatively quickly, with most closing within a few days or weeks. However, if
the JWH system detects a profitable underlying trend, a position trading at a
loss may be retained in order to capture the potential benefits of participating
in that trend. Throughout the investment process, risk controls designed to
reduce the possibility of an extraordinary loss in any one market are
maintained.
DISCRETIONARY ASPECTS.
JWH at its sole discretion may override computer-generated signals and may
at times use discretion in the application of its quantitative models, which may
affect performance positively or negatively. This could occur, for example, when
JWH determines that markets are illiquid or erratic, such as may occur
cyclically during holiday seasons, or on the basis of irregularly occurring
market events. Subjective aspects in JWH's application of its quantitative
models also include the determination of position size in relation to account
equity, timing of commencement of trading an account, the investment of assets
associated with additions, redemptions, and reallocations, contracts and
contract months traded, and effective trade execution.
PROGRAM MODIFICATIONS.
Proprietary research is conducted on an ongoing basis to refine the JWH
investment strategies. While the basic philosophy underlying the firm's
investment methodology has remained intact throughout its history, the potential
benefits of employing more than one investment methodology, or in varying
combinations, is a subject of continual testing, review and evaluation.
Extensive research may suggest substitution of alternative investment
methodologies with respect to particular contracts; this may occur, for example,
when the testing of a different methodology has indicated that its use might
have resulted in different historical performance. In addition, risk management
research and analysis may suggest modifications regarding the relative weighting
among various contracts, the addition or deletion of particular contracts for an
investment program, or a change in position size in relation to account equity.
However, most investment programs maintain a consistent portfolio composition to
allow opportunities in as many major market trends as possible.
44
<PAGE>
All cash in a JWH investment program is available to be used to trade in a
JWH program, although the amounts committed to margin will vary from time to
time. As capital in each JWH investment program increases, additional emphasis
and weighting may be placed on markets which historically have demonstrated the
greatest liquidity and profitability. Furthermore, the weighting of capital
committed to various markets in the investment programs is dynamic, and JWH may
vary the weighting at its discretion as market conditions, liquidity, position
limit considerations and other factors warrant. Spectrum Currency
will generally not be informed of such changes.
OVERSIGHT OF TRADING POLICIES.
The JWH Investment Policy Committee is a senior-level advisory group,
broadly responsible for evaluating and overseeing trading policies. The
Investment Policy Committee provides a forum for shared responsibility, meeting
periodically to discuss issues relating to implementation of JWH's investment
process and its application to markets, including research on new markets and
strategies in relation to JWH trading models. Typical issues analyzed by the
Investment Policy Committee include liquidity, position size, capacity,
performance cycles, and new product and market strategies. The Investment Policy
Committee also makes the discretionary decisions concerning investment program
selection, asset allocation, and leverage levels for the Strategic Allocation
Program, a multi-program asset allocation methodology. Composition of the
Investment Policy Committee, and participation in its discussions and decisions
by non-members, may vary over time. All recommendations of the Investment Policy
Committee require approval by the chairman. The Investment Policy Committee does
not make day-to-day trading decisions.
ADJUSTING THE SIZE OF POSITIONS TAKEN.
Adjustments in position size in relation to account equity have been and
continue to be an integral part of JWH's investment strategy. At its discretion,
JWH may adjust the size of a position in relation to equity in the account that
is taken in markets or entire investment programs. Such adjustments may be made
at certain times for some investment programs but not for others. Factors which
may affect the decision to adjust the size of a position in relation to account
equity include ongoing research, program volatility, current market volatility,
risk exposure, subjective judgment and evaluation of these and other general
market conditions. Such decisions to change the size of a position may
positively or negatively affect performance and will alter risk exposure for an
account. Adjustments in position size relative to account equity may lead to
greater profits or losses, more frequent and larger margin calls, and greater
brokerage expense. No assurance is or can be given that such adjustments will
result in profits for client accounts. JWH reserves the right to alter, at its
sole discretion and without notification to Spectrum Currency, its policy
regarding adjustments in position size relative to account equity.
ADDITION, REDEMPTION AND REALLOCATION OF CAPITAL FOR COMMODITY POOL OR FUND
ACCOUNTS.
Investors purchase or redeem units at net asset value on the close of
business on the last business day of the month. In order to provide market
exposure commensurate with the fund's equity on the date of these transactions,
JWH's general practice is to adjust positions as near as possible to the close
of business on the last trading date of the month. The intention is to provide
for additions and redemptions at a net asset value that will be the same for
each of these transactions, and to eliminate possible variations in net asset
values that could occur as a result of inter-day price changes if, for example,
additions were calculated on the first day of the subsequent month. Therefore,
JWH may, at its sole discretion, adjust its investment of the assets associated
with the addition or redemption as near as possible to the close of business on
the last business day of the month to reflect the amount then available for
trading. Based on JWH's determination of liquidity or other market conditions,
JWH may decide to commence trading earlier in the day on, or before, the last
business day of the month, or at its sole discretion, delay adjustments to
trading for an account to a date or time after the close of business on the last
day of the month. No assurance is given that JWH will be able to achieve the
objectives described above in connection with fund equity level changes. The use
of discretion by JWH in the application of this procedure may affect performance
positively or negatively.
PHYSICAL AND CASH COMMODITIES.
JWH may trade in physical or cash commodities for immediate or deferred
delivery, including specifically gold bullion, as well as futures, options, and
forward contracts when it believes that cash markets offer comparable or
superior market liquidity or ability to execute transactions at a single price.
In
45
<PAGE>
addition, the CFTC does not comprehensively regulate cash transactions, which
are subject to the risk of counterparty failure, inability or refusal to perform
with respect to such contracts. JWH will not trade physical or cash commodities
for the Spectrum Series, other than in connection with exchange of futures for
physical transactions, without the general partner's consent.
EQUITY DRAWDOWNS.
Historically, only thirty to forty percent of all trades made pursuant to
JWH's programs have been profitable. Large profits on a few trades in positions
that typically exist for several months have produced favorable results overall.
The greatest cumulative percentage decline in daily net asset value that JWH has
experienced since inception in any single program on a composite basis was
nearly sixty percent. You should understand that similar or greater drawdowns
are possible in the future.
LEGAL CONCERNS.
There neither now exists nor has there previously ever been any material
administrative, civil or criminal action against JWH or its principals.
JWH and Mr. Henry may engage in discretionary trading for their own
accounts, and may trade for the purpose of testing new investment programs and
concepts, as long as such trading does not amount to a breach of fiduciary duty.
In the course of such trading, JWH and Mr. Henry may take positions in their own
accounts which are the same or opposite from investor positions, due to testing
a new quantitative model or program, a neutral allocation system, and/or trading
pursuant to individual discretionary methods. In addition, Mr. Ginsberg may
engage in discretionary trading for his own account pursuant to his own personal
trading approach as long as such trading does not amount to a breach of
fiduciary duty; Mr. Ginsberg's trades may be the same as or opposite to
positions that JWH takes for client accounts. Trades for the accounts of JWH,
Mr. Henry and Mr. Ginsberg may on occasion receive better fills than Spectrum
Currency's accounts. Records for these accounts will not be made available to
Spectrum Currency.
Employees and principals of JWH (other than Messrs. Henry and Ginsberg) are
not permitted to trade in futures, options on futures or forward contracts.
However, such principals and employees may invest in investment vehicles that
trade futures, options on futures, or forward contracts, when an independent
trader manages trading in that vehicle, and in the JWH Employee Fund, L.P., for
which JWH is the trading advisor. Records for these accounts will not be made
available to Spectrum Currency.
Mr. Wing is chairman of the board of Market Liquidity Holding, LLC. Market
Liquidity Holding acts as the general partner of partnerships or sponsors
entities that will trade futures, options on futures, and equity options for
hedging and risk management purposes in connection with those entities' equity
trading. Mr. Wing is not involved in directing or overseeing such trading.
Records of Market Liquidity Holding's accounts will not be made available to
Spectrum Currency.
Principals of JWH serve on the boards of directors and committees of various
organizations, both in and outside of the managed futures industry. In such
capacities, these individuals have a fiduciary duty to the other organizations
they serve, and they are required to act in the best interests of those
organizations, even if those actions were to be adverse to the interest of JWH
and its clients.
OTHER INVESTMENT PROGRAMS OPERATED BY JWH.
In addition to the International Foreign Exchange Program, JWH currently
operates ten other investment programs in three categories for U.S. and non-U.S.
investors, none of which are used by JWH for Spectrum Currency. Each program is
operated separately and independently.
- BROADLY DIVERSIFIED programs invest in a broad spectrum of worldwide
financial and nonfinancial futures and forward markets including
currencies, interest rates, non-U.S. stock indices, metals, energies, and
agricultural commodities. Investment choices include a program that always
maintains a position--long or short--in a market (two-phase investment
style), a program that takes a position when trends are identified but may
take a neutral stance or liquidate open positions in nontrending markets
(three-phase investment style), and a program that uses a combination of
the two-phase and three-phase investment styles (five-phase investment
style) to invest in both long- and short-term price trends.
46
<PAGE>
- FINANCIAL programs invest in worldwide financial futures and forward
markets including currencies, interest rates, and stock indices in
addition to the metals and energies markets. The range of investment
choices includes diversified financial programs, sector-focused programs,
and a program that takes positions from several currency perspectives.
Some programs use a two-phase investment style while others use a
three-phase investment style. Another program uses a combination of the
three-phase investment style and the three-phase forex investment style
described below.
- FOREIGN EXCHANGE programs invest in a wide range of world currencies
primarily traded on the interbank market. Investment choices include a
program that trades a range of major and minor currencies, a program
focused on major currencies only, and a program that trades major
currencies against the U.S. dollar. Programs use either the three-phase
investment style or a slight variation called three-phase forex which
incorporates specialized intra-day volatility filters.
THE ORIGINAL INVESTMENT PROGRAM. The Original Investment Program began
trading client capital in October 1982 and was the first program offered by JWH.
The Original Investment Program seeks to capitalize on long-term trends in a
broad spectrum of worldwide financial and non-financial futures markets
including interest rates, non-U.S. stock indices, currencies, metals, energies,
and agricultural commodity markets. This program always maintains a
position--long or short--in every market traded.
In 1992, a broad research effort was initiated to enhance the risk/reward
ratios of the Original Investment Program without changing its trading
philosophy. Global markets were added; sector allocations were shifted, with
increased weighting given to financial markets; and some contracts were
eliminated. The quantitative model underlying the program was not changed.
Beginning in October 1995 the position size in relation to account equity in
this program was reduced 25%. Today, the Original Investment Program is one of
JWH's largest and historically best-performing programs, manifesting lower
volatility since the above changes were implemented in 1992.
THE FINANCIAL AND METALS PORTFOLIO. The Financial and Metals Portfolio,
which began trading client capital in October 1984, is both JWH's largest and
second longest running program. The program seeks to identify and capitalize on
intermediate-term price movements in four worldwide market sectors: interest
rates, currencies, non-U.S. stock indices, and metals. This program takes a
position when trends are identified but may take a neutral stance or liquidate
open positions in nontrending markets. Beginning in August 1992 the position
size in relation to account equity in this program was reduced 50%. The
quantitative model underlying the program was not changed. Since the changes
were implemented in 1992 the Financial and Metals Portfolio has experienced
lower volatility.
THE GLOBAL DIVERSIFIED PORTFOLIO. The Global Diversified Portfolio, which
began trading client capital in June 1988, seeks to capitalize on
intermediate-term price movements in a broad spectrum of worldwide financial and
non-financial markets including interest rates, stock indices, currencies,
metals, energies, and agricultural commodity markets. This program uses the
three-phase investment style.
JWH GLOBALANALYTICS-REGISTERED TRADEMARK- FAMILY OF PROGRAMS. Introduced in
June 1997 as the firm's most broadly diversified investment program, JWH
GlobalAnalytics-Registered Trademark- Family of Programs is the result of
extensive research and testing by the firm. Unlike other JWH programs, which
invest in intermediate or long-term price movements, JWH
GlobalAnalytics-Registered Trademark- invests in both long- and short-term price
movements. The program invests in a broad spectrum of worldwide financial and
non-financial markets including interest rates, non-U.S. stock indices,
currencies, metals, energies, and agricultural commodity markets. JWH modified
this program by adding new markets to enhance overall diversification. The
quantitative model underlying the program was not changed. This program uses the
five-phase investment style.
THE WORLD FINANCIAL PERSPECTIVE. The World Financial Perspective, which
began trading client capital in April 1987, seeks to capitalize on long-term
price movements in five worldwide market sectors: interest rates, stock indices,
currencies, metals, and energies. Rather than concentrating on the profit
potential available solely from the point of view of one country, the program
trades from different vantage points. The program holds positions from several
currency perspectives, including the British pound, Canadian dollar, euro,
Japanese yen, Swiss franc and U.S. dollar. This program uses the two-phase
investment style. JWH modified The World Financial Perspective in January 1993
by adding new markets to enhance overall diversification. The quantitative model
underlying the program was not changed.
THE GLOBAL FINANCIAL PORTFOLIO. The Global Financial Portfolio, which began
trading client capital in June 1994, seeks to identify and capitalize on
long-term price movements in five worldwide market
47
<PAGE>
sectors: interest rates, non-U.S. stock indices, currencies, metals, and
energies. This program uses the two-phase investment style. Beginning in April
1995 the position size in relation to account equity in this program was reduced
50%. Since the change was implemented in 1995 the Global Financial Portfolio has
experienced lower volatility. In 1997 the sector allocation for the program was
expanded to include metals. The quantitative model underlying the program was
not changed.
THE INTERNATIONAL CURRENCY AND BOND PORTFOLIO. The International Currency
and Bond Portfolio, which began trading client capital in January 1993, seeks to
identify and capitalize on intermediate-term price movements in the currency and
interest rate markets. The International Currency and Bond Portfolio targets
currencies and the long-term portion of interest rate markets of major
industrialized nations. Currency positions are held both as outrights--positions
taken in foreign currencies versus the U.S. dollar--and cross rates--foreign
currencies traded against each other. This program uses both types of the
three-phase investment styles. Beginning in May 1998 the position size in
relation to account equity in this program was increased 20%.
THE WORLDWIDE BOND PROGRAM. The Worldwide Bond Program, which began trading
client capital in July 1996, seeks to capitalize on intermediate-term trends by
investing in the long-term portion of the worldwide interest rate markets.
Although the Worldwide Bond Program concentrates in one sector, diversification
is achieved by trading the interest rate markets of major industrialized
countries. This program uses the three-phase investment style. Due to the
limited number of markets traded, the Worldwide Bond Program may be less
diversified than other JWH financial programs.
THE G-7 CURRENCY PORTFOLIO. The G-7 Currency Portfolio, which began trading
client capital in February 1991, seeks to identify and capitalize on
intermediate-term price movements in the highly liquid currencies of major
industrialized nations. These currencies allow for trading outrights against the
U.S. dollar or non-dollar cross rates. With the advent of the European Union
single currency of 11 countries, the currency exposures formerly traded for
Germany, France, and Italy are now executed in the euro. This program uses the
three-phase forex investment style. Beginning in May 1998 the position size in
relation to account equity in this program was increased 50%. The quantitative
model underlying the program was not changed.
THE DOLLAR PROGRAM. The Dollar Program, which began trading client capital
in July 1996, seeks to identify and capitalize on intermediate-term price
movements in the foreign exchange sector, trading major currencies against the
U.S. dollar. This program uses the three-phase investment style. Due to the
limited number of markets traded in the Dollar Program, the program may be less
diversified than other JWH foreign exchange programs.
InterRate-TM- began trading client capital in 1988 and closed in 1996. This
program was designed to enhance returns available in U.S. treasury bills to
provide both secure income and collateral for a portfolio of interbank forward
and exchange-traded futures contracts. The Yen Financial Portfolio, which began
trading client capital in 1992 and closed in 1997, offered investors access to a
select group of Japanese financial futures markets. The program was designed to
capitalize on intermediate and long-term price movements and attempted to exit
the markets during periods when sustained trends were not identified. The
Delevered Yen Financial and Metals Profile, which began trading client capital
in 1995 and closed in 1996, was opened at the request of a client. This program
was traded at approximately one half of the position size in relation to account
equity of the traditional Financial and Metals Portfolio and was traded from the
perspective of the Japanese yen.
PAST PERFORMANCE OF JWH
The following are the capsule performance records of all accounts managed by
JWH and JWH Investments, Inc., an affiliate of JWH which has ceased operations.
All performance information is current as of December 31, 1999. The notes on
page 54 are an integral part of these capsules.
PERFORMANCE OF THE EXCLUSIVE FUND ACCOUNTS
Pursuant to JWH's Strategic Allocation program, which is currently subject
to an exclusivity arrangement with one client operating two funds (the
"Exclusive Fund Accounts"), JWH makes various discretionary trading adjustments
for the accounts of those funds, including selection of programs, ongoing
allocations and reallocations of fund assets among the investment programs and
periodic adjustments to the position size in relation to account equity. As a
result of a change made to these accounts on May 8,
48
<PAGE>
1998, these accounts have traded differently from the other accounts in the
respective JWH investment programs. For details concerning the Exclusive Fund
Account capsule performance records for these programs, see page 52. JWH
believes that because these modified programs have been employed as part of the
Strategic Allocation Program, which is now available on a limited basis, the
Exclusive Fund Account capsule performance records are the most representative
performance record of these programs as they have been traded in the Strategic
Allocation Program. The Exclusive Fund Account capsule performance records
reflect the performance of these accounts from May 8, 1998.
You are cautioned that the performance information set forth in the
following capsule performance summaries are not indicative of, and may have no
bearing on, any trading results which may be attained by JWH or Spectrum
Currency in the future, since past performance is not a guarantee of future
results and another trading advisor will also be investing funds of Spectrum
Currency. In addition, Spectrum Currency cannot assure you that JWH or the
partnership will make any profit or will be able to avoid incurring substantial
losses. You should also note that interest income may constitute a significant
portion of a commodity pool's total income and may generate profits where there
have been realized or unrealized losses from futures interests trading.
JOHN W. HENRY & COMPANY, INC.
INTERNATIONAL FOREIGN EXCHANGE PROGRAM
Name of commodity trading advisor: John W. Henry & Company, Inc.
Name of program: International Foreign Exchange Program
Inception of client account trading by commodity trading advisor: October
1982
Inception of client account trading in program: August 1986
Number of open accounts: 4
Aggregate assets overall: $1.9 billion
Aggregate assets in program: $78.5 million
Largest monthly drawdown: (8.3)%--(5/97)
Worst peak-to-valley drawdown: (35.9)%--(9/92 - 1/95)
1999 annual return: (5.1)%
1998 annual return: 13.9%
1997 annual return: 71.1%
1996 annual return: 3.7%
1995 annual return: 16.9%
PAST PERFORMANCE IS NOT NECESSARILY INDICATIVE OF FUTURE RESULTS.
49
<PAGE>
JOHN W. HENRY & COMPANY, INC. PROGRAMS
JANUARY 1, 1995 - DECEMBER 31, 1999
JWH BEGAN TRADING CLIENT CAPITAL IN OCTOBER 1982
<TABLE>
<CAPTION>
GLOBAL
FINANCIAL AND ORIGINAL INVESTMENT DIVERSIFIED
METALS PORTFOLIO PROGRAM PORTFOLIO
NAME OF PROGRAM: ---------------- ------------------- ---------------
<S> <C> <C> <C>
Inception of Client Account Trading in Program: October 1984 October 1982 June 1988
Number of Open Accounts: 26 18 8
Assets Managed in Program: $713,914,599 $251,400,496 $115,703,029
Assets Managed in JWH: $1.9 billion $1.9 billion $1.9 billion
(10.1)% (14.2)% (15.0)%
Worst Monthly Decline on an Individual Account Basis: (2/96) (11/98) (10/99)
(30.5)% (18.5)% (24.1)%
Worst Peak-to-Valley Decline on an Individual Account Basis: (6/94-1/95) (5/99-10/99) (6/95-10/95)
% % %
-------------- ----------------- ---------------
1999 Compound Annual Rate of Return (18.7) (10.7) (11.9)
1998 Compound Annual Rate of Return: 7.2 10.8 23.5
1997 Compound Annual Rate of Return: 15.2 5.7 3.3
1996 Compound Annual Rate of Return: 29.7 22.6 26.9
1995 Compound Annual Rate of Return: 38.5 53.2 19.6
<CAPTION>
JWH GLOBAL-
ANALYTICS-REGISTERED TRADEMARK-
GLOBAL FINANCIAL G-7 CURRENCY FAMILY OF
PORTFOLIO PORTFOLIO PROGRAMS*
NAME OF PROGRAM: ---------------- --------------- -------------------------------
<S> <C> <C> <C>
Inception of Client Account Trading in Program: June 1994 February 1991 June 1997
Number of Open Accounts: 4 4 0
Assets Managed in Program: $73,993,599 $38,749,916 $0
Assets Managed in JWH: $1.9 billion $1.9 billion $1.9 billion
(12.5)% (10.1)% (5.0)%
Worst Monthly Decline on an Individual Account Basis: (5/95) (11/98) (4/98)
(48.9)% (31.4)% (5.3)%
Worst Peak-to-Valley Decline on an Individual Account Basis: (7/94-1/95) (10/92-1/95) (4/98-5/98)
% % %
--------------- --------------- -------------
1999 Compound Annual Rate of Return 1.4 20.7 N/A
1998 Compound Annual Rate of Return: 9.9 (4.8) (3.6)
(5 mos.)
1997 Compound Annual Rate of Return: 4.9 21.0 17.6
(7 mos.)
1996 Compound Annual Rate of Return: 32.4 14.5 N/A
1995 Compound Annual Rate of Return: 86.2 32.2 N/A
<CAPTION>
JWH
GLOBAL
ANALYTICS-REGISTERED TRADEMARK- INTERNATIONAL CURRENCY
99 AND BOND PORTFOLIO
NAME OF PROGRAM: ------------------------------- ----------------------
<S> <C> <C>
Inception of Client Account Trading in Program: March 1999 January 1993
Number of Open Accounts: 1 0
Assets Managed in Program: $7,374,711 $25,447,930
Assets Managed in JWH: $1.9 billion $1.9 billion
(9.4)% (6.3)%
Worst Monthly Decline on an Individual Account Basis: (10/99) (8/97)
(15.1)% (23.6)%
Worst Peak-to-Valley Decline on an Individual Account Basis: (7/99-10/99) (7/94-1/95)
% %
-------------- -------------------
1999 Compound Annual Rate of Return (7.5) 2.3
(10 mos.)
1998 Compound Annual Rate of Return: N/A 16.1
1997 Compound Annual Rate of Return: N/A 17.0
1996 Compound Annual Rate of Return: N/A 19.9
1995 Compound Annual Rate of Return: N/A 36.5
</TABLE>
- ---------------------------
*This performance data is only through May 7, 1998. The program continues to
operate, but only as a portion of a special JWH multi-program trading strategy
that is currently the subject of an exclusivity agreement. For performance
information subsequent to May 7, 1998, see page 52 for the Exclusive Fund
Accounts.
The Notes to JWH's Programs on page 54 are an integral part of this table.
PAST PERFORMANCE IS NOT NECESSARILY INDICATIVE OF FUTURE RESULTS.
50
<PAGE>
JOHN W. HENRY & COMPANY, INC. PROGRAMS
JANUARY 1, 1995 - DECEMBER 31, 1999 (CONT'D)
JWH BEGAN TRADING CLIENT CAPITAL IN OCTOBER 1982
<TABLE>
<CAPTION>
DELEVERED YEN
DENOMINATED
THE WORLD FINANCIAL WORLDWIDE BOND FINANCIAL AND
PERSPECTIVE DOLLAR PROGRAM* PROGRAM* METALS PROFILE INTERRATE-TM-
NAME OF PROGRAM: ------------------- --------------- -------------- -------------- --------------
<S> <C> <C> <C> <C> <C>
October 1995; December 1988;
Inception of Client Account Trading ceased trading ceased trading
in Program: April 1987 July 1996 July 1996 12/96 7/96
Number of Open Accounts: 2 0 0 0 0
Assets Managed in Program: $26,427,766 $0 $0 $0 $0
Assets Managed in JWH: $1.9 billion $1.9 billion $1.9 billion $1.9 billion $1.9 billion
Worst Monthly Decline on an (8.7)% (8.4)% (3.8)% (3.2)% (3.1)%
Individual Account Basis: (11/98) (5/97) (4/97) (2/96) (11/94)
Worst Peak-to-Valley Decline on an (25.9)% (11.6)% (6.2)% (5.1)% (19.7)%
Individual Account Basis: (7/94-1/95) (5/97-9/97) (12/96-5/97) (2/96-8/96) (9/92-11/93)
% % % % %
----------------- -------------- -------------- -------------- --------------
1999 Compound Annual Rate of Return
(11 months): (1.6) N/A N/A N/A N/A
1998 Compound Annual Rate of (4.9) (0.4)
Return: 7.2 (5 mos.) (5 mos.) N/A N/A
1997 Compound Annual Rate of
Return: 10.4 6.8 9.5 N/A N/A
1996 Compound Annual Rate of 10.6 17.8 5.79
Return: 40.9 (6 mos.) (6 mos.) 9.4 (7 mos.)
1995 Compound Annual Rate of 0.2
Return: 32.2 N/A N/A (3 mos.) 5.19
<CAPTION>
JWHII
FINANCIAL AND METALS
PORTFOLIO
NAME OF PROGRAM: --------------------
<S> <C>
Inception of Client Account Trading September 1991;
in Program: ceased trading 7/95
Number of Open Accounts: 0
Assets Managed in Program: $0
Assets Managed in JWH: $0
Worst Monthly Decline on an (4.8)%
Individual Account Basis: (7/94)
Worst Peak-to-Valley Decline on an (12.2)%
Individual Account Basis: (7/94-12/94)
%
------------------
1999 Compound Annual Rate of Return
(11 months): N/A
1998 Compound Annual Rate of
Return: N/A
1997 Compound Annual Rate of
Return: N/A
1996 Compound Annual Rate of
Return: N/A
1995 Compound Annual Rate of 30.3
Return: (7 mos.)
</TABLE>
- ---------------------------
*This performance data is only through May 7, 1998. The program continues to
operate, but only as a portion of a special JWH multi-program trading strategy
that is currently the subject of an exclusivity agreement. For performance
information subsequent to May 7, 1998, see page 52 for the Exclusive Fund
Accounts.
The Notes to JWH's Programs on page 54 are an integral part of this table.
PAST PERFORMANCE IS NOT NECESSARILY INDICATIVE OF FUTURE RESULTS.
51
<PAGE>
JOHN W. HENRY & COMPANY, INC. PROGRAMS
EXCLUSIVE FUND ACCOUNTS
MAY 8, 1998 - DECEMBER 31, 1999
JWH BEGAN TRADING CLIENT CAPITAL IN OCTOBER 1982
<TABLE>
<CAPTION>
GLOBAL
DIVERSIFIED
FINANCIAL AND METALS ORIGINAL INVESTMENT PORTFOLIO GLOBAL FINANCIAL
PORTFOLIO EXCLUSIVE PROGRAM EXCLUSIVE EXCLUSIVE PORTFOLIO EXCLUSIVE
NAME OF PROGRAM: -------------------- ------------------- --------------- -------------------
<S> <C> <C> <C> <C>
Inception of Client Account Trading in
Program: May 1998 May 1998 May 1998 May 1998
Number of Open Accounts: 2 2 2 2
Assets Managed in Program: $59,456,658 $100,485,535 $49,467,198 $82,234,542
Assets Managed in JWH: $1.9 billion $1.9 billion $1.9 billion $1.9 billion
Worst Monthly Decline on an Individual Account (8.7)% (12.0)% (14.0)% (8.8)%
Basis: (10/99) (11/98) (10/99) (10/99)
Worst Peak-to-Valley Decline on an Individual (24.0)% (13.9)% (19.5)% (11.6)%
Account Basis: (7/99-12/99) (7/99-10/99) (8/99-11/99) (7/99-10/99)
% % % %
------------------ ----------------- --------------- ----------------
1999 Compound Annual Rate of Return (17.9) (5.6) (6.9) 4.0
1998 Compound Annual Rate of Return: 33.5 20.2 39.7 18.4
(8 mos.) (8 mos.) (8 mos.) (8 mos.)
1997 Compound Annual Rate of Return: N/A N/A N/A N/A
1996 Compound Annual Rate of Return: N/A N/A N/A N/A
1995 Compound Annual Rate of Return: N/A N/A N/A N/A
<CAPTION>
JWH GLOBAL-
ANALYTICS-TM-
G-7 CURRENCY WORLDWIDE BOND FAMILY OF DOLLAR PROGRAM
PORTFOLIO EXCLUSIVE PROGRAM EXCLUSIVE PROGRAMS EXCLUSIVE EXCLUSIVE
NAME OF PROGRAM: ------------------- ----------------- ------------------ --------------
<S> <C> <C> <C> <C>
Inception of Client Account Trading in
Program: May 1998 May 1998 May 1998 May 1998
Number of Open Accounts: 2 2 2 2
Assets Managed in Program: $60,647,443 $27,553,110 $95,019,512 $29,390,758
Assets Managed in JWH: $1.9 billion $1.9 billion $1.9 billion $1.9 billion
Worst Monthly Decline on an Individual Account (8.6)% (7.0)% (9.2)% (7.2)%
Basis: (11/98) (10/98) (10/99) (11/98)
Worst Peak-to-Valley Decline on an Individual (11.9)% (8.2)% (13.5)% (7.6)%
Account Basis: (11/98-1/99) (8/99-11/99) (7/99-10/99) (11/98-1/99)
% % % %
---------------- ---------------- ---------------- -------------
1999 Compound Annual Rate of Return 19.5 (6.1) (1.3) 9.0
1998 Compound Annual Rate of Return: 0.7 25.9 25.5 2.7
(8 mos.) (8 mos.) (8 mos.) (8 mos.)
1997 Compound Annual Rate of Return: N/A N/A N/A N/A
1996 Compound Annual Rate of Return: N/A N/A N/A N/A
1995 Compound Annual Rate of Return: N/A N/A N/A N/A
<CAPTION>
INTERNATIONAL
FOREIGN EXCHANGE
PROGRAM
EXCLUSIVE
NAME OF PROGRAM: ----------------
<S> <C>
Inception of Client Account Trading in
Program: April 1999
Number of Open Accounts: 2
Assets Managed in Program: $26,544,592
Assets Managed in JWH: $1.9 billion
Worst Monthly Decline on an Individual Account (6.3)%
Basis: (10/99)
Worst Peak-to-Valley Decline on an Individual (10.8)%
Account Basis: (4/99-10/99)
%
---------------
1999 Compound Annual Rate of Return (6.1)
(9 mos.)
1998 Compound Annual Rate of Return: N/A
1997 Compound Annual Rate of Return: N/A
1996 Compound Annual Rate of Return: N/A
1995 Compound Annual Rate of Return: N/A
</TABLE>
- ---------------------------
The Notes to JWH's Programs on page 54 are an integral part of this table.
For an explanation of the Exclusive Fund Accounts, please see "Performance of
the Exclusive Fund Accounts" on page 48.
PAST PERFORMANCE IS NOT NECESSARILY INDICATIVE OF FUTURE RESULTS.
52
<PAGE>
JOHN W. HENRY & COMPANY, INC. PROGRAMS
JWH BEGAN TRADING CLIENT CAPITAL IN OCTOBER 1982
YEN FINANCIAL PORTFOLIO
INCEPTION OF CLIENT ACCOUNT TRADING IN PROGRAM: JANUARY 1992
NUMBER OF OPEN ACCOUNTS: 0
ASSETS MANAGED IN PROGRAM: $0
ASSETS MANAGED BY JWH: $1.9 BILLION
<TABLE>
<CAPTION>
AGGREGATE COMPOUND WORST WORST
INCEPTION OF ASSETS ANNUAL RATE MONTHLY PEAK-TO-VALLEY
ACCOUNT NO. TRADING AUGUST 31, 1999 OF RETURN DECLINE DECLINE
- --------------------- ------------ --------------- ----------------- ------------ -----------------------
% % %
<C> <C> <C> <S> <C> <C> <C> <C> <C>
1 1/92 closed - 3/97 1997: (3.3) (3 mos.) (7.3) (7/95) (30.5) (4/95 - 7/96)
1996: (8.5)
1995: 20.6
2 1/93 closed - 1/97 1997: (0.1) (1 mo.) (6.9) (7/95) (29.0) (4/95 - 7/96)
1996: (9.9)
1995: 21.0
3 1/94 closed - 1/97 1997: (2.4) (1 mo.) (6.0) (7/95) (26.6) (4/95 - 7/96)
1996: (10.9)
1995: 22.4
4 6/94 closed - 3/97 1997: 1.4 (3 mos.) (6.5) (7/95) (22.3) (4/95 - 7/96)
1996: (0.6)
1995: 24.2
5 8/94 closed - 3/97 1997: (2.4) (3 mos.) (7.1) (7/95) (30.4) (4/95 - 7/96)
1996: (6.0)
1995: 21.1
6 1/95 closed - 3/97 1997: (3.7) (3 mos.) (7.5) (7/95) (35.5) (4/95 - 7/96)
1996: (13.5)
1995: 13.2
7 3/94 closed - 3/97 1997: 4.0 (3 mos.) (6.7) (7/96) (15.9) (2/96 - 7/96)
1996: 7.8
1995: 28.1
11 11/93 closed - 8/95 1995: 20.0 (8 mos.) (9.0) (8/95) (18.8) (4/95 - 8/95)
12 11/93 closed - 1/95 1995: (0.6) (1 mo.) (6.3) (5/94) (16.5) (4/94 - 1/95)
13 12/92 closed - 3/96 1996: (4.1) (3 mos.) (4.9) (7/95) (15.8) (12/93 - 1/95)
1995: 31.4
14 1/93 closed - 12/95 1995: 10.9 (6.2) (7/95) (15.8) (4/95 - 12/95)
17 12/92 closed - 1/96 1996: 0.3 (1 mo.) (6.0) (7/95) (12.4) (4/95 - 10/95)
1995: 26.6
18 3/94 closed - 4/96 1996: (6.3) (4 mos.) (6.2) (7/95) (18.5) (4/95 - 4/96)
1995: 18.5
19 12/94 closed - 4/96 1996: (7.8) (4 mos.) (6.6) (7/95) (21.1) (4/95 - 4/96)
1995: 18.3
21 6/94 closed - 3/95 1995: 48.1 (3 mos.) (3.6) (7/94) (9.9) (6/94 - 1/95)
</TABLE>
The Yen Financial Portfolio closed in March 1997.
- ---------
The Notes to JWH's programs on page 54 are an integral part of this table.
PAST PERFORMANCE IS NOT NECESSARILY INDICATIVE OF FUTURE RESULTS.
53
<PAGE>
NOTES TO JWH PROGRAMS' CAPSULE PERFORMANCE SUMMARIES
An investor should note that the composite capsule performance presentations
include individual accounts which, even though traded according to the same
investment program, have materially different rates of return. The reasons for
this are numerous material differences among accounts:
- procedures governing timing for the commencement of trading and means of
moving toward full portfolio commitment of new accounts;
- the period during which accounts are active;
- client trading restrictions, including futures vs. forward contracts and
contract months;
- trading size to equity ratio resulting from JWH procedures for the
commencement of trading and full portfolio commitment for new accounts and new
capital;
- the size of the account, which can influence the size of positions taken
and restrict the account from participating in all markets available to an
investment program;
- the amount of interest income earned by an account, which will depend on
the rates paid by an FCM on equity deposits and/or on the portion of an account
invested in interest-bearing obligations such as U.S. Treasury bills;
- the amount of management and incentive fees paid to JWH and the amount of
brokerage commissions paid, which will vary and will depend on the fees
negotiated by the client with the broker;
- the timing of orders to open or close positions;
- the market conditions, which in part determine the quality of trade
executions;
- variations in fill prices; and
- the timing of additions and withdrawals.
Notwithstanding these material differences among accounts, the composite
remains a valid representation of the accounts included therein.
For the purpose of determining whether material differences exist among
accounts traded pursuant to the same investment program, JWH utilizes the
following method. The gross trading performance of each JWH investment program
and each individual JWH account within the relevant program is reviewed and the
following parameters established by interpretations of the Division of Trading
and Markets of the CFTC are calculated:
- if the arithmetic average of two percentages is greater than 10 percentage
points and the difference between the two is less than 10% of their average;
- if the arithmetic average of the two percentages is greater than 5 points
but less than 10 points and the difference between the two is 1.5 percentage
points or less; and
- if the arithmetic average of the two percentages is less than 5 points and
the difference between the two is 1.0 percentage point or less.
If one of the above parameters is satisfied in the review, then the results
within the designated range are deemed "materially the same" or "not materially
different." The above parameters determine if differences between accounts are
materially different. The gross trading performance of each JWH investment
program and each individual JWH account within the relevant program not
satisfying the above parameters is then reviewed to determine whether any
material differences detected could produce misleading composite performance
results. With the exception of accounts that were established at levels below
JWH's current minimum account size, JWH's policy is to provide separate
performance capsules when an account is consistently performing differently on a
gross trading basis from the other JWH accounts traded pursuant to the same
investment program and the continued inclusion of that account in the composite
would create a distortion in the composite rate of return.
54
<PAGE>
The composite rates of return indicated should not be taken as
representative of any rate of return actually achieved by any single account
represented in the records. You are further cautioned that the data set forth in
the performance capsule records is not indicative of any results which may be
attained by JWH in the future since past performance is not necessarily
indicative of future results.
During the periods covered by the preceding capsule performance records, and
particularly since 1989, JWH has increased and decreased position size in
relation to account equity in certain markets and entire investment programs,
and also altered the composition of the markets and contracts for certain
programs. In general since 1992, JWH began implementing certain position size
adjustments that were of a more permanent nature. While historical returns
represent actual performance achieved, you should be aware that the position
size relative to account equity currently utilized may be significantly
different from that used during previous time periods. You should be aware of
the following position size adjustments relative to account equity:
Original Investment Program - reduced 25% commencing in October 1995
Financial and Metals Portfolio - reduced 50% commencing in August 1992
Global Financial Portfolio - reduced 50% commencing in April 1995
International Currency and Bond Portfolio - increased 20% commencing in May
1998
G-7 Currency Portfolio - increased 50% commencing in May 1998
From the beginning of the performance records shown, JWH and JWH
Investments, Inc. accrued incentive fees. Interest income, management fees,
commissions, and other expenses were reflected on a cash basis (with the
exception of the programs specifically noted below) until August, 1998, when the
accrual method was fully adopted for all programs not already utilizing that
method. The recording of specified items on a cash basis before August, 1998,
should not, for most months, be materially different from presenting rates of
return on an accrual basis; any differences in rates of return are immaterial to
the overall performance record. JWH reflected all items of net performance on an
accrual basis for the G-7 Currency program and International Currency and Bond
Portfolio for the entire period shown, and for the Worldwide Bond Program,
Dollar Program, and JWH Global Analytics-Registered Trademark- Family of
Programs from the inception of client trading. Beginning September 1, 1998, all
JWH programs utilized the full accrual basis.
The calculation of management and incentive fees are subject to variation
due to the agreed upon definitions contained in each account's advisory
agreement. Management fees range historically from 0% to 6% of assets under
management; incentive fees range from 0% to 25% of trading profits. From time to
time, such variations in advisory fees may have a material impact on the
performance of an account.
"Number of Open Accounts" is the number of accounts directed by JWH or JWH
Investments, Inc. pursuant to the investment program shown as of December 31,
1999.
"Assets Managed in Program" is the aggregate amount of total equity,
excluding "notional" equity under management of JWH or JWH Investments, Inc. in
the investment program shown as of December 31, 1999.
"Worst Monthly Decline on an Individual Account Basis" is the largest
monthly loss experienced by any single account in the relevant investment
program in any calendar month covered by the capsule. "Loss" for these purposes
is calculated on the basis of the loss experienced by the individual account,
expressed as a percentage of total equity (including "notional" equity) in the
account. Worst monthly decline information includes the month and year of such
decline.
"Worst Peak-to-Valley Decline on an Individual Account Basis" is the largest
percentage decline by any single account in the relevant investment program
(after eliminating the effect of additions and withdrawals) during the period
covered by the capsule from any month-end net asset value, without such month
end net asset value being equaled or exceeded as of a subsequent month-end by
the individual account, expressed as a percentage of the total equity in the
account. The worst peak-to-valley decline since inception is the worst
peak-to-valley decline by the program as a composite.
"Compound Annual Rate of Return" is calculated by compounding the monthly
rates of return over the number of periods in a given year. For example, each
month's monthly rate of return in hundredths is
55
<PAGE>
added to one (1) and the result is multiplied by the previous month's compounded
monthly rate of return similarly expressed. One (1) is then subtracted from the
product. For periods less than one year, the results are year to date.
Proprietary capital is included in the rates of return for the Original
Investment Program, the Global Diversified Portfolio, the Global Financial
Portfolio, and the G-7 Currency Portfolio pursuant to an investment in a fund.
These proprietary accounts have been traded in exactly the same manner as client
funds, and have been subject to all of the same fees and expenses charged to a
client investment in the fund; therefore there is no material impact on the
rates of return presented. The International Currency and Bond Portfolio also
had proprietary capital as an investment in a fund. This proprietary account was
traded in the exact same manner that client funds would be traded, and was
subject to all of the same fees and expenses that would be charged to a client
investment in a fund, had there been other client accounts traded; therefore
there is no material impact to the rates of return presented. In addition,
during the period from May 1991 through August 1995, the Financial and Metals
Portfolio included two proprietary accounts which had no material impact on the
rates of return.
ADDITIONAL NOTE TO THE GLOBAL FINANCIAL PORTFOLIO CAPSULE PERFORMANCE RECORD
The timing of individual account openings has had a material impact on
compound rates of return. Based on the account startup methodology used by JWH,
the performance of individual accounts composing the Global Financial Portfolio
composite performance summary has varied. In 1994, the two accounts that were
open generated separate rates of return of negative 44% and negative 17%,
respectively. For the period January 1995 through June 1995, the three open
accounts achieved separate rates of return of 101%, 75% and 67%. By June 1995,
these accounts maintained mature positions and were performing consistently with
each other. Due to the six month period in 1995 of varied performance, the three
accounts achieved annual rates of return for 1995 of 122%, 92%, and 78%.
ADDITIONAL NOTE TO THE JWH GLOBALANALYTICS-REGISTERED TRADEMARK- 99 CAPSULE
PERFORMANCE RECORD
In March 1999, an additional account began trading pursuant to the JWH
GlobalAnalytics Family of Programs methodology. Due to the size of the account,
it may have different results than other accounts using this same methodology.
ADDITIONAL NOTE TO THE YEN FINANCIAL PORTFOLIO CAPSULE PERFORMANCE RECORD
The Yen Financial Portfolio was traded from the Japanese yen perspective. As
the equity mix between U.S. dollars and Japanese yen varied, performance from
each perspective also varied.
The performance of the Yen Financial Portfolio is presented on an individual
account basis due to material differences among accounts' historical
performance. Account performance varied historically due to a number of factors
unique to this portfolio, including whether the portfolio was denominated in
U.S. dollars or yen, the extent of hedging currency conversions, the amounts and
frequency of currency conversions and account size. Several of these factors
that materially influenced performance depended on clients' specific choices
that effectively resulted in customized client portfolios.
ADDITIONAL NOTE TO THE CAPSULE PERFORMANCE RECORDS OF THE DISCONTINUED PROGRAMS
Capsule performance records are included for InterRate-TM-, the Delevered
Yen Denominated Financial and Metals Profile, and the Yen Financial Portfolio.
All of these programs have been discontinued.
2. SUNRISE CAPITAL PARTNERS, LLC
Sunrise Capital Management is a California corporation with offices at 990
Highland Drive, Suite 303, Solana Beach, California 92075-2472. Sunrise Capital
Management (formerly known as Sunrise Commodities, Inc.) was organized in 1983
and continues the business of Sunrise Commodities, a California sole
proprietorship organized in 1982. Sunrise Capital Management was registered in
February 1983 as a commodity trading advisor and in April 1990 as a commodity
pool operator with the CFTC and is a member of the National Futures Association
in such capacities. In January 1995, Sunrise and Commodity Monitors, Inc.
organized Sunrise Capital Partners, LLC, a California limited liability company.
Sunrise Capital Partners is wholly-owned by Sunrise Capital Management and
Commodity Monitors and was registered in February 1995 as a commodity trading
advisor and commodity pool operator with the
56
<PAGE>
CFTC and is a member of the National Futures Association in such capacities. CMI
is a California corporation organized in October 1977, and is the successor to
the partnership of Harris & Slaughter. CMI was registered in November 1977 with
the CFTC as a commodity trading advisor and is a member of the National Futures
Association in such capacity. Sunrise Capital Partners and CMI are also located
at the address of Sunrise Capital Management set forth above. Sunrise Capital
Management and Sunrise Capital Partners currently operate five commodity pools.
PRINCIPALS
Mr. Martin P. Klitzner is President, Secretary and a Director of Sunrise
Capital Management, and a Managing Director of Sunrise Capital Partners. In 1967
and 1968, Mr. Klitzner received a B.A. and an M.B.A, respectively, from the
University of Michigan. He did post graduate work in economics at the University
of California, Los Angeles, from 1968 to 1971. Mr. Klitzner joined Sunrise
Capital Management in December 1982, and has exclusive operational control of
day-to-day activities, which include the supervision of trading procedures.
Mr. Richard C. Slaughter is a Managing Director of Sunrise Capital Partners.
Mr. Slaughter is responsible for research and trading systems development. In
1974, he received a B.S. in finance from San Diego State University. He has
pursued graduate studies in finance at the State University and in systems
management at the University of Southern California. Mr. Slaughter has been a
Professor of Finance, instructing M.B.A. candidates in securities analysis and
portfolio management. Mr. Slaughter, a co-founder of CMI in 1977, serves as its
President. He was responsible, along with Dr. Forrest, for the development of
CMI's current trading systems. Mr. Slaughter began trading commodities on a
full-time basis in 1975 for his own account and as a commodity trading advisor.
Dr. Gary B. Davis is the Chairman of the Board and Chief Financial Officer
of Sunrise Capital Management. In 1968 and 1970, Dr. Davis received a B.S. and
Medical degree, respectively, from the University of Michigan. From 1980 to
1990, Dr. Davis served on the faculty of the University of California, San Diego
as an Associate Professor of Radiology. Dr. Davis has studied and traded the
commodity futures markets since 1979. Dr. Davis currently concentrates his
efforts in the research and trading systems development activities of Sunrise
and Sunrise Capital Partners.
Dr. John V. Forrest engages in research and trading systems development on
behalf of Sunrise Capital Partners. In 1962, he received a B.A. from Notre Dame
and in 1966 received a Medical Degree from the State University of New
York--Downstate Medical Center. Dr. Forrest retired in September 1997 as a
Professor of Radiology at the University of California, San Diego, where he has
served on the faculty since 1976. Dr. Forrest joined CMI in September 1991 and
is a co-developer, with Mr. Slaughter, of CMI's current trading systems. He was
President and sole shareholder of Cresta Commodities, a commodity trading
advisor, from September 1981 to August 1989. Dr. Forrest began trading the
commodity markets in 1975.
Mr. Martin M. Ehrlich is Vice President and a Director of Sunrise Capital
Management, and Vice President-Marketing of Sunrise Capital Partners. His
academic background includes studies at the University of Cincinnati where he
majored in business administration. Mr. Ehrlich joined Sunrise Capital
Management in 1986 after having been a long-time investor with Sunrise Capital
Management. Prior to assuming responsibilities for marketing and public
relations for Sunrise Capital Management, Mr. Ehrlich was an independent
businessman and investor.
Ms. Marie Laufik is Vice President and a Director of Sunrise Capital
Management and Vice President-Trading of Sunrise Capital Partners. Ms. Laufik is
head trader and is responsible for supervising trading and back-office
operations. In 1979, Ms. Laufik received a Master's degree in Economics from the
University of Prague. Ms. Laufik worked for a Czechoslovakian import/export
company for nine years before immigrating to the United States. Mrs. Laufik was
a commodity trader for Cresta Commodities. Mrs. Laufik joined Sunrise Capital
Management in August 1988.
Elissa Davis is a principal of Sunrise Capital Management and Sunrise
Capital Partners by virtue of her role as a Trustee of the Davis Family Trust.
Mrs. Davis is not active in the management of either Sunrise Capital Management
or Sunrise Capital Partners and has not been involved in any other business
activities during the past five years.
57
<PAGE>
The Davis Family Trust, dated October 12, 1989, is a director and the sole
shareholder of Sunrise Capital Management; Gary B. Davis and his wife, Elissa
Davis, are trustees and the sole beneficiaries of this Trust.
Sunrise Capital Management, Sunrise Capital Partners, their principals and
their affiliates intend to trade or to continue to trade commodity interests for
their own accounts. You will not be permitted to inspect the personal trading
records of Sunrise Capital Management, Sunrise Capital Partners, their
principals, or their affiliates, or the written policies relating to such
trading.
DESCRIPTION OF TRADING PROGRAMS
Sunrise Capital Partners utilizes technical trend-following systems, trading
a wide continuum of time windows. Most of these time frames are decidedly
long-term by industry standards. Pro-active money management strategies are
designed to protect open profits and to minimize exposure to non-directional
markets.
In providing commodity trading advice, Sunrise Capital Partners will trade
the Currency Program for Spectrum Currency.
The Currency Program follows approximately ten different major and minor
currency markets, which may include, but are not limited to, the Japanese yen,
British pound, euro currency, Swiss franc, Canadian dollar, Australian dollar,
Swedish krona, New Zealand dollar, Singapore dollar, and South African rand. The
Currency Program trades currency futures contracts on the International Monetary
Market Division of the Chicago Mercantile Exchange and forward currency
contracts in the interbank markets. In order to achieve adequate diversification
for the Currency Program, major and minor currencies are traded as crossrates
selectively against each other and/or as outrights against the U.S. dollar.
As of December 31, 1999 Sunrise Capital Partners was managing approximately
$61 million of client assets pursuant to the Currency Program and approximately
$501 million of client assets in all of its programs.
Relying on technical analysis, Sunrise Capital Partners believes that future
price movements in all markets may be more accurately anticipated by analyzing
historical price movements within a quantitative framework rather than
attempting to predict or forecast changes in price through fundamental economic
analysis. The trading methodologies employed by Sunrise Capital Partners are
based on programs analyzing a large number of interrelated mathematical and
statistical formulas and techniques which are quantitative, proprietary in
nature and which have been either learned or developed by Dr. Davis,
Dr. Forrest and/or Mr. Slaughter. The profitability of the trading programs,
traded pursuant to technical analysis emphasizing mathematical and charting
approaches, will depend upon the occurrence in the future, as in the past, of
major trends in some markets. If there are no trends, the trading programs are
likely to be unprofitable.
Sunrise Capital Partners' trading systems attempt to detect a trend, or lack
of a trend, with respect to a particular futures interest in a program by
analyzing price movement and volatility over time. Sunrise Capital Partners'
trading system consists of multiple, independent and parallel systems, each
designed and tested to seek out and extract different market inefficiencies on
different time horizons. These systems will generate a signal to sell a "short"
contract or purchase a "long" contract based upon their identification of a
price trend in the particular futures interest. If the systems do not detect a
price trend, a "neutral" trading signal will be generated. While this neutral
signal is designed to filter out high-risk "whipsaw" markets, it is successful
on only a limited basis. Successful speculative futures interests trading
employing trend-following techniques, such as Sunrise Capital Partners' system,
depends to a large degree upon not trading non-directional, volatile markets.
Accordingly, to the extent that this neutral trading signal is not generated
during a non-trending market, trading would likely be unsuccessful because an
account would trade such markets.
Trend-following trading systems, such as those employed by Sunrise Capital
Partners, will seldom effect market entry or exit at the most favorable price in
the particular market trend. Rather, this type of trading system seeks to close
out losing positions quickly and to hold portions of profitable positions for
58
<PAGE>
as long as the trading system determines that the particular market trend
continues to offer reasonable profit potential. The number of losing
transactions may exceed substantially the number of profitable transactions.
However, if the approach is successful, these losses should be more than offset
by gains.
While Sunrise Capital Partners relies primarily on mechanical technical
trading systems in making investment decisions, the strategy does include the
latitude to depart from this approach if market conditions are such that, in the
opinion of Sunrise Capital Partners, execution of trades recommended by the
mechanical systems would be difficult or unusually risky. There may occur the
rare instance in which Sunrise Capital Partners will override the system to
decrease market exposure. Any modification of trading instructions could
adversely affect the profitability of an account. Among the possible
consequences of such a modification would be (1) the entrance of a trade at a
price significantly worse than a system's signal price, (2) the complete
negation of a signal which subsequently would have produced a profitable trade,
or (3) the premature termination of an existing trade. Sunrise Capital Partners
is not under any obligation to notify clients, the general partner, or you of
this type of deviation from its mechanical systems, since it is an integral part
of its overall trading method.
A technical trading system consists of a series of fixed rules applied
systematically. However, the system still requires Sunrise Capital Partners to
make subjective judgments. For example, the trading advisor must select the
markets it will follow and futures interests it will actively trade, along with
the contract months in which it will maintain positions. Sunrise Capital
Partners must also subjectively determine when to liquidate positions in a
contract month which is about to expire and initiate a position in a more
distant contract month.
Sunrise Capital Partners engages in ongoing research that may lead to
significant modifications from time to time. Sunrise Capital Partners will
notify the general partner if modifications to its trading systems or portfolio
structure are material.
Sunrise Capital Partners believes that the development of a commodity
trading strategy is a continual process. As a result of further analysis and
research into the performance of Sunrise Capital Partners' methods, changes have
been made from time to time in the specific manner in which these trading
methods evaluate price movements in various futures interests, and it is likely
that similar revisions will be made in the future. As a result of such
modifications, the trading methods that may be used by Sunrise Capital Partners
in the future might differ from those presently being used.
Sunrise Capital Partners has discretionary authority to make all trading
decisions, including upgrading or downgrading the trading size of the net assets
of Spectrum Currency it manages to reflect additions, withdrawals, trading
profits, and/or trading losses, without prior consultation or notice. In
addition, Sunrise Capital Partners may from time to time adjust the leverage
applicable to the assets allocated to it; PROVIDED, HOWEVER, any such
adjustments will be consistent with the leverage parameters described herein and
in the overall investment objectives and trading policies of the account it
manages for Spectrum Currency. Such adjustments may be in respect of certain
markets or in respect of the Currency Program. Factors which may affect the
decision to adjust leverage include: inflows and outflows of capital, trading
levels below $3,000,000, ongoing research, volatility of individual markets,
risk considerations, and Sunrise Capital Partners' subjective judgement and
evaluation of general market conditions. Adjustments to leverage may result in
greater profits or losses and increased brokerage costs. No assurance can be
given that any leverage adjustment will be to your financial advantage.
SUNRISE CAPITAL PARTNERS' PERFORMANCE
The following is the composite performance of all accounts managed by
Sunrise Capital Partners. All performance information is current as of December
31, 1999. Only the Currency Program will be used by Spectrum Currency.
You are cautioned that the performance information set forth in the
following capsule performance summaries are not indicative of, and may have no
bearing on, any trading results which may be attained by Sunrise Capital
Partners in the future, since past performance is not a guarantee of future
results and another trading advisor will be investing funds of Spectrum
Currency. In addition, Spectrum Currency cannot assure you that Sunrise Capital
Partners or the partnership will make any profit or will be able to
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avoid incurring substantial losses. You should also note that interest income
may constitute a significant portion of a commodity pool's total income and may
generate profits where there have been realized or unrealized losses from
futures interests trading.
SUNRISE CAPITAL PARTNERS
CURRENCY PROGRAM
(Calculations based on Fully-Funded Subset Method)
Name of commodity trading advisor: Sunrise Capital Partners
Name of program: Sunrise Currency Program
Inception of trading by commodity trading advisor: June 1980
Inception of trading in program: October 1985
Number of open accounts: 5
Aggregate assets overall: $500.8 million
Aggregate assets in program: $60.6 million
Largest monthly drawdown: (11.22)%--(1/95)
Worst peak-to-valley drawdown: (58.60)%--(8/93 - 1/95)
1999 annual return: 6.2%
1998 annual return: (1.9)%
1997 annual return: 10.9%
1996 annual return: 20.2%
1995 annual return: 34.0%
SUNRISE CAPITAL PARTNERS
CIMCO~DIVERSIFIED FINANCIAL PROGRAM
Name of commodity trading advisor: Sunrise Capital Partners
Name of program: Sunrise CIMCO~Diversified Financial Program
Inception of trading by commodity trading advisor: June 1980
Inception of trading in program: October 1990
Number of open accounts: 2
Aggregate assets overall: $500.8 million
Aggregate assets in program: $86.3 million
Largest monthly drawdown: (10.50)%--(2/96)
Worst peak-to-valley drawdown: (44.47)%--(8/93 - 1/95)
1999 annual return: (0.7)%
1998 annual return: 7.7%
1997 annual return: (2.8)%
1996 annual return: 26.1%
1995 annual return: 50.9%
SUNRISE CAPITAL PARTNERS
DIVERSIFIED PROGRAM
(Calculations based on Fully-Funded Subset Method)
Name of commodity trading advisor: Sunrise Capital Partners
Name of program: Sunrise Diversified Program
Inception of trading by commodity trading advisor: June 1980
Inception of trading in program: June 1980
Number of open accounts: 25
Aggregate assets overall: $500.8 million
Aggregate assets in program: $51.1 million
Largest monthly drawdown: (9.79)%--(2/96)
Worst peak-to-valley drawdown: (39.68)%--(10/90 - 5/92)
1999 annual return: 5.8%
1998 annual return: 17.0%
1997 annual return: 11.3%
1996 annual return: 21.7%
1995 annual return: 40.0%
PAST PERFORMANCE IS NOT NECESSARILY INDICATIVE OF FUTURE RESULTS.
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SUNRISE CAPITAL PARTNERS
EXPANDED DIVERSIFIED PROGRAM
(Calculations based on Fully-Funded Subset Method)
Name of commodity trading advisor: Sunrise Capital Partners
Name of program: Sunrise Expanded Diversified Program
Inception of trading by commodity trading advisor: June 1980
Inception of trading in program: January 1989
Number of open accounts: 27
Aggregate assets overall: $500.8 million
Aggregate assets in program: $302.7 million
Largest monthly drawdown: (8.46)%--(1/95)
Worst peak-to-valley drawdown: (29.82)%--(8/93 - 4/94)
1999 annual return: 4.4%
1998 annual return: 25.8%
1997 annual return: 20.7%
1996 annual return: 19.3%
1995 annual return: 11.5%
PAST PERFORMANCE IS NOT NECESSARILY INDICATIVE OF FUTURE RESULTS.
NOTES TO SUNRISE CAPITAL PARTNERS' CAPSULE PERFORMANCE SUMMARIES
In reviewing Sunrise Capital Partners' performance, prospective investors
should understand that such performance is calculated on the accrual basis in
accordance with generally accepted accounting principles and is "net" of all
fees and charges and includes interest income applicable to the accounts
comprising each composite performance record. Such a composite performance is
not necessarily indicative of the performance of any individual investor
account. All accounting activity and balances, for the purposes of calculating
performance, are US dollar denominated.
The following terms used in describing Sunrise Capital Partners' performance
are defined as follows:
"Drawdown" means losses experienced by an account traded pursuant to the
identified trading program over a specified period. Drawdowns are measured on
the basis of month-end net asset values only.
"Worst peak-to-valley drawdown" means the greatest cumulative percentage
decline in month-end net asset value due to losses sustained by an account
within a trading program during any period in which the initial month-end net
asset value is not equaled or exceeded by a subsequent month-end net asset
value. With respect to certain of the performance capsules set forth above, the
Worst Peak-to-Valley Drawdown references a period which occurred prior to the
last five calendar years as prescribed by CFTC rules. This is because the
account referred to either (1) incurred a Drawdown whch began prior to the
commencement of the reportable period and ended during the reportable period, or
(2) was closed during the reportable period without having recovered from a
Drawdown in which the Worst Peak-to-Valley Drawdown was sustained before the
commencement of the reportable period.
"Annual return" is the product of the monthly rates of return; i.e.,
(1 + the Monthly Rate of Return for the first month of the year or
period) x (1 + the Monthly Rate of Return for the next succeeding month), etc.
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"Aggregate assets overall" includes all assets under management, in programs
both open and closed to investment, for Sunrise Capital Management, Inc.,
Commodity Monitors, Inc. and Sunrise Capital Partners; these assets are
estimated through the date indicated and may be subject to adjustment.
"Aggregate assets in program" are estimated through the date indicated and
may be subject to adjustment.
The Fully-Funded Subset Summaries include notional funds in excess of the
10% disclosure threshold established by the CFTC and reflect the adoption of a
method of presenting rate-of-return and performance disclosure authorized by the
CFTC, referred to as the Fully-Funded Subset method. This method permits
notional and fully-funded accounts to be included in a single performance
summary.
MORGAN STANLEY DEAN WITTER SPECTRUM COMMODITY L.P. (FORMERLY, MORGAN STANLEY
TANGIBLE ASSET FUND L.P.)
MORGAN STANLEY DEAN WITTER COMMODITIES MANAGEMENT INC.
Morgan Stanley Dean Witter Commodities Management is a Delaware corporation
and a wholly owned subsidiary of Morgan Stanley Dean Witter. The trading advisor
became registered as a commodity pool operator and a commodity trading advisor
on June 4, 1992, and is a member of the National Futures Association in such
capacities. The trading advisor currently acts as the general partner and/or
trading advisor for several U.S. and offshore funds. The trading advisor's
offices are located at 1221 Avenue of the Americas, New York, New York 10020.
PRINCIPALS
Wayne D. Peterson is a Director and the President of Morgan Stanley Dean
Witter Commodities Management. Prior to heading Morgan Stanley Dean Witter
Commodities Management, Mr. Peterson worked in Morgan Stanley's Structured
Products Group, having previously worked for eight years in Morgan Stanley's
Commodities Department. Mr. Peterson joined Morgan Stanley in 1982, was named a
Vice President in 1987 and a Principal in 1988. Mr. Peterson received a B.A.
degree in mathematics and economics from Cornell University in 1980 and an
M.B.A. from the University of Chicago in 1982.
Jeffrey S. Alvino is a Director and Vice President of Morgan Stanley Dean
Witter Commodities Management. Mr. Alvino joined Morgan Stanley in 1990, was
named a Vice President in 1996 and Principal in 1998. Prior to joining Morgan
Stanley, Mr. Alvino worked at Deloitte & Touche LLP. Mr. Alvino received a B.S.
degree in accounting from Lehigh University in 1988, is a Certified Public
Accountant and a Chartered Financial Analyst.
Messrs. Peterson and Alvino will be responsible for making trading decisions
for the partnership.
MORGAN STANLEY DEAN WITTER COMMODITIES MANAGEMENT'S TRADING PROGRAM
The trading program employed by the trading advisor on behalf of Spectrum
Commodity, which is generally technical in nature, is designed to capture the
overall rate of commodity price inflation by maintaining long positions in
commodity futures. The portfolio is maintained in a diversified manner and looks
to overweight and underweight individual commodities based on their relative
strength. The liquidity of each commodity also will influence its level of
inclusion in Spectrum Commodity's portfolio. The trading program will be
continuously evaluated over time and may be refined and modified in the future,
including the possibility, upon prior notice to investors, that Morgan Stanley
Dean Witter Commodities Management may maintain short positions in commodity
futures interests for Spectrum Commodity's account.
The trading program encompasses a broad range of commodities, including
commodity futures on metals, energy products, agriculturals, and other
commodities selected by the trading advisor from time to time. At present, the
trading advisor may invest Spectrum Commodity's assets in the following types of
commodity futures on the exchanges indicated: Chicago Board of Trade (corn,
wheat, soybeans, soybean oil, soybean meal, oats); Commodity Exchange, Inc.
(platinum, silver, copper, gold); Chicago Mercantile Exchange (live cattle,
feeder cattle, lean hogs, pork bellies, lumber); Coffee, Sugar & Cocoa Exchange,
Inc. (coffee, sugar, cocoa); London Metal Exchange (aluminum, lead, copper,
nickel, tin, zinc); New York
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Cotton Exchange (cotton, orange juice); International Petroleum Exchange (brent
crude oil, gas oil); and New York Mercantile Exchange (crude oil, heating oil,
gasoline, natural gas).
The trading advisor currently limits its trading program in the following
manner (although it may change these policies in the future with prior approval
of the general partner):
- Spectrum Commodity will maintain only long positions in commodity
futures.
- Spectrum Commodity trades only commodity futures that are now, or may
hereafter be, traded on U.S. or non-U.S. commodity exchanges.
- Spectrum Commodity will not trade futures or forwards on financial
instruments (including stock indices) and foreign currencies.
- The underlying value of the positions entered into in the commodity
futures markets (the "portfolio value") will be targeted at 1.0 to 2.0 times the
assets of Spectrum Commodity with an expected average of 1.5 times the assets of
Spectrum Commodity.
- Upon every portfolio reweighting:
- A minimum of 10% of the assets of Spectrum Commodity will be exposed
to each of the following commodities sectors: energy, precious metals
and base metals.
- A maximum of 20% of the portfolio value will be exposed to any one
particular commodity.
- A maximum of 40% of the portfolio value will be exposed to any one of
the following commodities sectors: energy, precious metals and base
metals. A maximum of 30% of the portfolio value will be exposed to any
one of the other commodities sectors.
MORGAN STANLEY DEAN WITTER COMMODITIES MANAGEMENT'S PERFORMANCE RECORD
Capsule I sets forth the actual performance record of a commodity pool that
has been traded solely by the trading advisor since the pool commenced trading
in April 1994, and that utilizes the same trading strategy on an unleveraged
basis that is employed for the partnership on a leveraged basis. Capsule II sets
forth the actual performance record of a commodity pool that had been traded by
the trading advisor since the pool commenced trading in February 1993 through
its liquidation in December 1998. The commodity pool in Capsule II did not
utilize the trading strategy that is employed for the partnership; therefore,
performance information set forth in Capsule II has less significance to a
prospective investor than the performance information set forth in Capsule I.
The commodity pools in both Capsule I and Capsule II were privately offered
pursuant to Regulation D of the Securities Act of 1933, as amended. The trading
advisor also acts as commodity pool operator and trading advisor for several
other funds that are operated pursuant to an exemption under CFTC Rule 4.7. The
performance of these funds has not been included herein. The notes following
Capsule I and Capsule II are an integral part thereof.
You should note that the fees and expenses paid by the partnership and the
leverage employed in trading for the partnership are higher than that applicable
to the account in Capsule I (which required a $250,000 minimum investment). The
account included in Capsule I was traded in a manner such that the underlying
value of its futures positions was targeted at 1.0 times the assets of the
account. The assets of the partnership are traded in a manner such that the
underlying value of its futures positions are targeted at 1.0 to 2.0 times the
assets of the partnership, with an expected average of 1.5 times the assets of
the partnership. As a result, the volatility of the partnership's account is
greater than that of the account in Capsule I. In addition, while the expenses
paid by the partnership are higher than those paid by the account in Capsule I,
the general partner and the trading advisor believe that if the account in
Capsule I had employed leverage at a constant 1.5 times its assets, the increase
in performance returns during years of positive returns would have more than
compensated for the higher expenses; during periods of negative returns, losses
would have been greater. However, while the partnership targets its leverage, on
average, at 1.5 times its assets, the partnership is not traded at a constant
leverage of 1.5 times its assets. Therefore, the partnership's performance
returns have been higher and lower than the account in Capsule I.
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You are cautioned that the performance information set forth in the
performance tables and the footnotes that follow is not indicative of, and has
no bearing on, any trading results that may be attained by Spectrum Commodity in
the future since past results are not necessarily indicative of future results.
There can be no assurance that Spectrum Commodity will make any profits at all
or will be able to avoid incurring substantial losses. You should also note that
interest income may constitute a significant portion of a commodity pool's total
income and, in certain instances, may generate profits where there have been
realized or unrealized losses from commodity trading.
MORGAN STANLEY DEAN WITTER COMMODITIES MANAGEMENT INC.
MS COMMODITY INVESTMENT PORTFOLIO STRATEGY
CAPSULE I
Name of commodity trading advisor: Morgan Stanley Dean Witter Commodities
Management Inc.
Name of program: MS Commodity Investment Portfolio Strategy
Inception of client trading by commodity trading advisor: February 1993
Inception of client trading in program: May 1994
Number of open accounts: 4
Aggregate assets overall: $194,000,000
Aggregate assets in program: $171,000,000
Largest monthly % drawdown: (7.65)%--(11/98)
Largest peak-to-valley drawdown: (34.63)%--(8/97-2/99)
<TABLE>
<CAPTION>
MONTHLY RATES OF RETURN 1999 1998 1997 1996 1995
- ----------------------- ---- -------- -------- -------- ----
% % % % %
<S> <C> <C> <C> <C> <C>
January................... (0.82) (1.68) 1.35 (0.70) (0.82)
February.................. (3.09) (5.48) 2.26 2.45 0.21
March..................... 7.72 0.43 1.30 3.93 1.69
April..................... 1.97 (1.73) 0.29 1.64 0.34
May....................... (3.39) (5.86) 0.58 (0.99) (1.17)
June...................... 4.08 (1.54) (2.24) 0.13 (0.36)
July...................... 0.57 (5.57) 3.19 (0.12) 1.40
August.................... 4.26 (6.42) (1.59) 4.91 1.86
September................. 3.44 8.02 0.86 (0.95) 1.01
October................... (1.57) (2.03) 0.49 (0.90) 0.46
November.................. 0.16 (7.65) (1.67) 2.36 1.49
December.................. 1.55 (2.10) (3.53) 2.45 5.53
Compound (period)
Rate of Return.......... 15.27 (28.12) 1.09 14.92 12.09
</TABLE>
PAST PERFORMANCE IS NOT NECESSARILY INDICATIVE OF FUTURE RESULTS.
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CAPSULE II
MORGAN STANLEY DEAN WITTER COMMODITIES MANAGEMENT INC.
MS COMMODITY YIELD FUND STRATEGY
Name of commodity trading advisor: Morgan Stanley Dean Witter Commodities
Management Inc.
Name of program: MS Commodity Yield Fund Strategy
Inception of client trading by commodity trading advisor: February 1993
Inception of client trading in program: February 1993
Number of open accounts: 0
Aggregate assets overall: $194,000,000
Aggregate assets in program: None
Largest monthly % drawdown: (8.07)%--(5/94)
Largest peak-to-valley drawdown: (16.58)%--(11/93-8/94)
1998 annual return: (2.98)%
1997 annual return: (6.07)%
1996 annual return: 16.33%
1995 annual return: (3.26)%
1994 annual return: (9.25)%
1993 annual return (11 months): 16.20%
PAST PERFORMANCE IS NOT NECESSARILY INDICATIVE OF FUTURE RESULTS.
FOOTNOTES TO MORGAN STANLEY DEAN WITTER COMMODITY MANAGEMENT'S CAPSULES I AND II
All rates of return are net of fees and expenses and include all interest
income earned by the partnership.
"Largest Monthly % Drawdown" represents the greatest cumulative percentage
decline in month-end net asset value due to losses sustained by the partnership
during any one month period.
"Largest Peak-to-Valley Drawdown" represents the greatest cumulative
percentage decline in month-end net asset value due to losses sustained by the
partnership during any period in which a month-end net asset value is not
equaled or exceeded by a subsequent net asset value.
Capsules I and II have been prepared in accordance with generally accepted
accounting principles consistently applied under the accrual basis of
accounting. Table information is current as of December 31, 1999.
"Number of Open Accounts" and "Aggregate Assets in Program" in Capsule I
include three accounts which, pursuant to CFTC Rule 4.7, are not included in the
performance results.
EXCHANGE RIGHT
If the conditions described below are satisfied, you may redeem your units
in any partnership as of the last day of any calendar month and use the proceeds
to purchase units of one or more other partnerships discussed in this prospectus
or in Spectrum Select, Spectrum Technical, Spectrum Strategic, or Spectrum
Global Balanced, which are discussed in a separate prospectus. However, a
Spectrum Series exchange will only be permitted as of the sixth month-end after
you first became an investor in any Spectrum Series partnership, and as of the
last day of each month thereafter. Each unit you purchase in a Spectrum
Series exchange will be issued and sold at a price per unit equal to 100% of the
net asset value of a unit as of the close of business on the exchange date. Any
units you redeem in a Spectrum Series exchange will not be subject to a
redemption charge. Units you acquire in a Spectrum Series exchange will be
subject to redemption charges, but will be deemed to have the same purchase date
as the units you exchanged for purposes of determining the applicability of any
redemption charges. Thus, for example, if you hold units of Spectrum Currency
for 12 months, exchange those units for units of Spectrum Commodity, then redeem
any of those units 15 months later, you will not have to pay a redemption
charge, because those units will be deemed to have been held for 27 months.
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When you request a Spectrum Series exchange, additional conditions must be
satisfied. First, the partnership from which you are redeeming must have assets
sufficient to discharge its liabilities and redeem units. In order to effect a
Spectrum Series exchange, you must send a subscription agreement to a Morgan
Stanley Dean Witter & Co. branch office, and that Agreement must be received by
the general partner at least five business days prior to the applicable exchange
date. In that agreement, you must acknowledge that you are still eligible to
purchase units on the exchange date. You must redeem a minimum of 50 units in a
Spectrum Series exchange, unless you are liquidating your entire interest in a
partnership. A form of subscription agreement is annexed to this prospectus as
Exhibit B, and additional copies of the subscription agreement may be obtained
by written request to the general partner or from a local Morgan Stanley Dean
Witter & Co. branch office.
In order to effect a Spectrum Series exchange, each partnership must have a
sufficient number of units registered and qualified for sale under federal and
applicable state securities laws pursuant to a current prospectus. While the
general partner intends to maintain a sufficient number of registered units to
effect series exchanges, it is under no obligation to do so. Therefore, the
general partner cannot assure you that any units will be available for sale on
an exchange date. Furthermore, states may impose significant burdens on, or
alter the requirements for, qualifying units for sale. In that event, the
general partner may not continue qualifying units for sale in those states, and
residents of those states would not be eligible for a Spectrum Series exchange.
In addition, states may impose more restrictive suitability and/ or investment
requirements than those set forth in the form of subscription agreement. Any
such restrictions may limit the ability of residents of those states to effect a
Spectrum Series exchange. In the event that not all subscription agreements can
be processed because an insufficient number of units is available for sale on an
exchange date, the general partner will allocate units in the manner it
determines in its sole discretion. The general partner has not yet determined
how it will allocate units in the event there are an insufficient number of
units available on an exchange date.
Units of any new partnership in the Spectrum Series of partnerships may be
offered to investors pursuant to exercise of the Spectrum Series exchange right.
Before purchasing units of a new partnership, you will be required to receive a
copy of a prospectus and any supplement to this prospectus describing the new
partnership and its units, and you will be required to execute a new
subscription agreement to purchase units of that partnership.
Since a Spectrum Series exchange is equivalent to a redemption and an
immediate reinvestment of the proceeds of the redemption, you should carefully
review the portions of this prospectus describing redemptions and the tax
consequences before effecting a Spectrum Series exchange.
REDEMPTIONS
Once you are an investor in any Spectrum Series partnership, including
Spectrum Select, Spectrum Technical, Spectrum Strategic, and Spectrum Global
Balanced, which are discussed in a separate prospectus, for at least six months,
you may redeem all or part of your units, regardless of when such units were
purchased. Redemptions may only be made in whole units, with a minimum of 50
units required for each redemption, unless you are redeeming your entire
interest in a partnership. The general partner will redeem your units in the
order in which they were purchased.
Redemptions will only be effective as of the last day of the month in which
a request for redemption in proper form has been timely received by the general
partner. A "request for redemption" is a letter in the form specified by the
general partner that must be sent by you to a local Morgan Stanley Dean
Witter & Co. branch office and received by the general partner at least 5
business days prior to the redemption date. A form of request for redemption is
annexed to the limited partnership agreement, which agreement is annexed to this
prospectus as Exhibit A. Additional copies of the request for redemption may be
obtained by written request to the general partner or a local Morgan Stanley
Dean Witter & Co. branch office.
If you redeem units, you will receive 100% of the net asset value of each
unit redeemed as of the redemption date, less any applicable redemption charges.
The "net asset value" of a unit is an amount equal to the partnership's net
assets allocated to capital accounts represented by units, divided by the number
of units outstanding. "Net assets" means the total assets of a partnership,
including all cash and cash equivalents (valued at cost), accrued interest and
amortization of original issue discount, and the
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market value of all open futures, forwards, and options positions and other
assets of the partnership, less the total liabilities of the partnership,
including, but not limited to, all brokerage, incentive and management fees, and
extraordinary expenses, as determined in accordance with generally accepted
accounting principles consistently applied under the accrual basis of
accounting. The market value of a futures contract traded on a U.S. exchange
means the settlement price on the exchange on which that futures contract is
traded on the day net assets are being determined. However, if a futures
contract could not have been liquidated on that day because of the operation of
daily limits or other rules of the exchange or otherwise, the settlement price
on the first subsequent day on which the futures contract could be liquidated
will be the market value of that futures contract for that day. The market value
of a forward or futures contract traded on a foreign exchange or market means
its market value as determined by the general partner on a basis consistently
applied for each different variety of forward contract or futures interest.
If you redeem units on or prior to the last day of the twelfth month from
the date of their purchase, those units will be subject to a redemption charge
equal to 2% of their net asset value on the redemption date. If you redeem units
after the last day of the twelfth month and on or prior to the last day of the
twenty-fourth month from the date of their purchase, those units will be subject
to a redemption charge equal to 1% of their net asset value on the redemption
date. If you redeem units after the last day of the twenty-fourth month from the
date of their purchase, those units will not be subject to a redemption charge.
All redemption charges will be paid to Dean Witter.
Your units will be exempt from redemption charges under the following
circumstances:
- If you purchase $500,000 or more of units, those units will not be subject
to redemption charges, but will be subject to the other restrictions on
redemptions.
- If you redeem units at the first redemption date following notice of an
increase in brokerage, management, or incentive fees, those units will not
be subject to redemption charges.
- If you redeem units in a Spectrum Series exchange, the units you redeem
will not be subject to redemption charges and, for purposes of determining
the applicability of future redemption charges, the units you acquire will
be deemed to have the same purchase date as the units you exchanged.
- If you redeem units of any other partnership which Demeter serves as the
general partner, the units you redeem from the other limited partnership
will be subject to any applicable redemption charges, but the Spectrum
Series units you purchase will not be subject to redemption charges.
- If you redeem units and have either paid a redemption charge with respect
to the units or held the units for at least 24 months, you will not be
subject to redemption charges with respect to any newly purchased units,
provided the new units are purchased within twelve months of and in an
amount no greater than the net proceeds of the prior redemption, and are
held for at least six months from the date of purchase. In that event, you
will still be subject to the minimum purchase and suitability
requirements.
The general partner will endeavor to pay redemptions within 10 business days
after the redemption date. A partnership may be forced to liquidate open futures
interests positions to satisfy redemptions in the event it does not have
sufficient cash on hand. SEE "RISK FACTORS--PARTNERSHIPS AND OFFERING
RISKS--RESTRICTED INVESTMENT LIQUIDITY IN THE UNITS" ON PAGE 12 . When you
redeem units, payment will be made by credit to your customer account with Dean
Witter, or by check mailed to you if your account is closed. Your right to
redeem units is contingent upon the redeeming partnership having assets
sufficient to discharge its liabilities on the redemption date, and timely
receipt by the general partner of your request for redemption as described
above.
The terms and conditions applicable to redemptions in general, other than
those prohibiting redemptions before the sixth month-end following the closing
at which you first became an investor in a Spectrum Series partnership, and
providing that redemptions may only be made as of the end of a calendar month,
will also apply to redemptions effected on "special redemption dates." See "The
Limited Partnership Agreements--Books and Records; Reports to Limited Partners"
on page 72.
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THE COMMODITY BROKERS
DEAN WITTER REYNOLDS INC., CARR FUTURES INC., MORGAN STANLEY & CO. INCORPORATED
AND MORGAN STANLEY INTERNATIONAL LIMITED
Dean Witter Reynolds Inc., a Delaware corporation, acts as the partnerships'
non-clearing commodity broker. Dean Witter, as the non-clearing commodity
broker, holds each partnership's funds in customer segregated or secured
accounts, and provides all required margin funds to the clearing commodity
brokers. Carr Futures Inc., a Delaware corporation, acts as the clearing
commodity broker and foreign currency forward counterparty for Spectrum
Currency. Morgan Stanley & Co. Incorporated, a Delaware corporation, acts as the
clearing commodity broker for Spectrum Commodity, and Morgan Stanley
International Limited serves as the clearing commodity broker for that pool's
trades that take place on the London Metal Exchange. Dean Witter monitors each
partnership's futures positions that either Carr Futures or Morgan Stanley
report they are carrying for any errors in trade prices or trade fill. Dean
Witter also serves as the non-clearing commodity broker for all of the other
commodity pools for which Demeter serves as general partner and commodity pool
operator.
Dean Witter is a principal operating subsidiary of Morgan Stanley Dean
Witter & Co., which is a publicly-owned company. Dean Witter is a financial
services company which provides to its individual, corporate and institutional
clients services as a broker in securities, futures, and options, a dealer in
corporate, municipal and government securities, an investment adviser, and an
agent in the sale of life insurance and various other products and services.
Dean Witter is a member firm of the New York Stock Exchange, the American Stock
Exchange, the Chicago Board Options Exchange, other major securities exchanges,
and the National Association of Securities Dealers, Inc. Dean Witter is
registered with the CFTC as a futures commission merchant and is a member of the
National Futures Association in such capacity. Dean Witter is currently
servicing its clients through a network of 450 offices nationwide with 12,000
financial advisors servicing individual and institutional client accounts.
Carr Futures is the broker directly accountable to the futures exchange or
clearinghouse for the trades of Spectrum Currency. All payments, including
margin payments, to and from the futures exchanges resulting from those
partnerships' trades, flow through Carr Futures. In addition, Carr Futures also
acts as the counterparty on Spectrum Currency's foreign currency forward
contracts. Carr Futures is a subsidiary of Credit Agricole Indosuez, which had
total equity of approximately $3.301 billion at December 31, 1998 and which is
itself a subsidiary of Caisse Nationale de Credit Agricole, one of the ten
largest banks in the world. Carr Futures' parent has guaranteed the payment of
the net liquidating value of the transactions in each partnership's account with
Carr Futures. Carr Futures has been registered under the Commodity Exchange Act
as a futures commission merchant and has been a member of the National Futures
Association in such capacity since August 1987. Carr Futures' global
headquarters is located at 10 South Wacker Drive, Suite 1100, Chicago, Illinois
60606. Carr Futures acts as a commodity broker to individuals, corporate and
institutional clients and is a clearing member of the Chicago Board of Trade,
the Chicago Mercantile Exchange, the Commodity Exchange Inc., and other major
commodities exchanges.
Morgan Stanley is the clearing commodity broker for Spectrum Commodity for
all U.S. futures trades. Morgan Stanley has its main business office located at
1585 Broadway, New York, New York 10036. Morgan Stanley is registered as a
futures commission merchant, is a member of the National Futures Association and
is a member of most major U.S. and foreign commodity exchanges. Morgan Stanley
is registered with the SEC as a broker-dealer and is a member of the NASD.
Morgan Stanley International, a United Kingdom corporation, acts as Spectrum
Commodity's clearing commodity broker solely with regard to any trading on the
London Metal Exchange. Morgan Stanley International has its main business office
located at 25 Cabot Square, Canary Wharf, London E14 4QA, England, is regulated
by the United Kingdom Securities and Futures Authority as a member firm, and is
a member of the London Metals Exchange and other securities and commodities
exchanges worldwide.
Morgan Stanley Dean Witter & Co., the parent company of Morgan Stanley,
Morgan Stanley International, and Dean Witter, is a worldwide financial services
firm, employing, directly and through its subsidiaries, more than 45,000 people
worldwide in 409 offices throughout the United States and 20 foreign countries.
Morgan Stanley Dean Witter & Co. is a publicly-traded company whose shares are
listed on the New York Stock Exchange; its common stock had a market value of
approximately $48 billion at
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August 31, 1999. At that date, Morgan Stanley Dean Witter & Co. had leading
market positions in its three primary businesses (securities, asset management
and credit services), and it ranked among the top five asset managers globally,
with over $415 billion in assets under management.
BROKERAGE ARRANGEMENTS
The partnerships' brokerage arrangements with Dean Witter, Carr Futures,
Morgan Stanley and Morgan Stanley International have been discussed previously.
See "Conflicts of Interest" on page 13 and "Description of Charges--Commodity
Brokers" on page 18.
The general partner will review at least annually the brokerage arrangements
of each partnership to ensure that those arrangements are fair, reasonable, and
competitive, and represent the best price and services available, taking into
consideration:
- the size of the partnership;
- the futures, forwards, and options trading activity;
- the services provided by the commodity broker or any affiliate thereof to
the partnership;
- the cost incurred by the commodity broker or any affiliate thereof in
organizing and operating the partnership and offering units;
- the overall costs to the partnership;
- any excess interest and compensating balance benefits to the commodity
broker from assets held thereby; and
- if the general partner does not receive any direct compensation from the
partnership for its services as general partner, the risks incurred by the
general partner as general partner of the partnership.
Each customer agreement sets forth a standard of liability for the commodity
broker and provides for indemnities of the commodity broker. See "Fiduciary
Responsibility and Liability" on page 15.
LITIGATION
At any given time, the commodity brokers are involved in numerous legal
actions, some of which seek significant damages.
On September 18 and 20, 1996, purported class actions were filed in the
Supreme Court of the State of New York, New York County, against Dean Witter,
Demeter, Morgan Stanley Dean Witter & Co., and certain trading advisors, on
behalf of all purchasers of interests in various limited partnership commodity
pools sold by Dean Witter. A consolidated and amended complaint was filed on
August 13, 1997, alleging that the defendants committed fraud, breach of
fiduciary duty, and negligent misrepresentation in the sale and operation of the
various limited partnership commodity pools.
The New York Supreme Court dismissed the action in November 1998, but
granted the plaintiffs leave to file an amended complaint, which they did in
early December 1998. The defendants filed a motion to dismiss the amended
complaint with prejudice on February 1, 1999 and by decision dated December 21,
1999, the New York Supreme Court dismissed the case with prejudice. On March 3,
2000, the plaintiffs filed an appeal of the dismissal. The Morgan Stanley Dean
Witter affiliated parties believe they have strong defenses to, and will
vigorously contest, the action. Although the ultimate outcome of legal
proceedings cannot be predicted with certainty, it is the opinion of management
of the Morgan Stanley Dean Witter affiliated parties that the action's
resolution will not have a material adverse effect on the financial condition or
results of operations of any of the Morgan Stanley Dean Witter affiliated
parties.
On May 16, 1996, an NASD arbitration panel awarded damages and costs against
Dean Witter and one of its financial advisors in the amount of approximately
$1.1 million, including punitive damages, to three customers who alleged, among
other things, fraud and misrepresentation in connection with their individually
managed futures accounts (not commodity pools).
On October 25, 1996, the Market Surveillance Committee of the NASD filed a
formal complaint against Morgan Stanley and seven current and former traders,
alleging violations of certain NASD rules relating to
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manipulative and deceptive practices, locked and crossed markets, and failure to
supervise. Hearings were held in June and July 1997. On April 13, 1998 the
Committee ruled that Morgan Stanley and the seven traders had engaged in
manipulative and deceptive practices and improperly locked or crossed markets,
but not that Morgan Stanley had failed to supervise its traders. The Committee
levied a fine of $1,000,000 on Morgan Stanley, a fine of $100,000 and a 90-day
suspension on one of its former traders, and fines of $25,000 and 30-day
suspensions on each of the remaining current and former traders. On January 18,
2000 the National Adjudicatory Council, which heard the appeal, issued a ruling
which upheld the Market Surveillance Committee's April 1998 decision, however,
the National Adjudicatory Council reduced the firm's fine to $495,000, reversed
all previously imposed suspensions against the traders, reduced the fine for
each of six traders to $2,500 and dismissed all charges against the seventh
trader.
On January 11, 1999, the SEC brought an action against 28 NASDAQ market
markers, including Morgan Stanley, and 51 individuals, including one current and
one former trader employed by Morgan Stanley, for certain conduct during 1994.
The core of the changes against Morgan Stanley concerns improper or undisclosed
coordination of price quotes with other broker-dealers and related reporting,
record-keeping and supervisory deficiencies in violation of Sections
15(b)(4)(E), 15(c)(1) and (2) and 17(a) of the Securities Exchange Act and Rules
15c1-2, 15c2-7 and 17a-3 promulgated thereunder. Without admitting or denying
the charges, Morgan Stanley consented to the entry of a cease and desist order
and to the payment of a civil penalty of $350,000, disgorgement of $4,170 and to
submit certain of its procedures to an independent consultant for review. In
addition, one current and one former trader employed by Morgan Stanley accepted
suspensions of less than two months each and were fined $25,000 and $30,000
respectively.
On May 30, 1995 the United Kingdom Securities and Futures Authority
announced that it had reached a settlement with Morgan Stanley International in
a disciplinary proceeding against the firm. The proceeding involved the conduct
of foreign exchange business by a former employee for five private client
accounts in 1991. In accordance with the settlement, Morgan Stanley
International paid the Authority a fine of L240,000 and made a contribution
towards the Authority's costs. In reaching its settlement with Morgan Stanley
International, the Authority took into account the following factors: Morgan
Stanley International reported the matter to the Authority and cooperated fully
in the investigation; Morgan Stanley International took over the clients'
positions promptly and offered to restore the clients to their original
positions; and Morgan Stanley International conducted its own internal review
and promptly took steps to improve its procedure.
During the five years preceding the date of this prospectus, other than as
described above, there have been no material criminal, civil, or administrative
actions pending, on appeal, or concluded against the commodity brokers, the
general partner, or any of their principals, which the general partner believes
would be material to an investor's decision to invest in the partnerships.
THE LIMITED PARTNERSHIP AGREEMENTS
This section of the prospectus summarizes all material provisions of the
limited partnership agreement of each partnership that are not discussed
elsewhere in the prospectus. A form of the limited partnership agreements is
annexed to the prospectus as Exhibit A. Each limited partnership agreement is
identical, except as noted otherwise below or in Exhibit A.
NATURE OF THE PARTNERSHIPS
Spectrum Commodity was formed on July 31, 1997 and Spectrum Currency was
formed on October 20, 1999. Each partnership was formed under Delaware law. The
fiscal year of each partnership begins on January 1 of each year and ends on the
following December 31.
The units that you purchase and pay for in this offering will be fully paid
and nonassessable. You may be liable to a partnership for liabilities that arose
before the date of a redemption or Spectrum Series exchange. Your liability,
however, will not exceed the sum of your unredeemed capital contribution,
undistributed profits, if any, any distributions and amounts received upon a
redemption or deemed received on a Spectrum Series exchange, together with
interest on any such amount. However, a partnership will not make a claim
against you for any amounts received in connection with a redemption of units or
a Spectrum Series exchange unless the net assets of the partnership are
insufficient to
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discharge the liabilities of the partnership that arose before any distributions
were made to you. The general partner will be liable for all obligations of a
partnership to the extent that the assets of the partnership are insufficient to
pay those obligations.
MANAGEMENT OF PARTNERSHIP AFFAIRS
You will not participate in the management or operations of a partnership.
Under each limited partnership agreement, the general partner is solely
responsible for managing the partnership.
The general partner may use a partnership's funds only to operate the
business of that partnership. The general partner may hire an affiliate to
perform services for the partnership if the general partner determines that the
affiliate is qualified to perform the services, and can perform those services
under competitive terms that are fair and reasonable. Any agreement with an
affiliate must be for a term not in excess of one year and be terminable by the
partnership without penalty upon 60 days' written notice.
Other responsibilities of the general partner include:
- determining whether a partnership will make a distribution;
- administering redemptions and series exchanges;
- preparing monthly and annual reports;
- preparing and filing tax returns for each partnership;
- signing documents on behalf of each partnership and its limited partners
pursuant to powers of attorney; and
- supervising the liquidation of a partnership, if necessary.
SHARING OF PROFITS AND LOSSES
You will have a capital account in each partnership in which you invest,
with an initial balance equal to the amount you paid for units of the
partnership. The general partner also has a capital account. Each partnership's
net assets will be calculated monthly, and your capital account will be adjusted
as necessary to reflect any increases or decreases that may have occurred since
the preceding month. Profits and losses will be shared by the general partner
and limited partners in proportion to the size of their respective capital
accounts. For a description of the federal tax allocations, see "Material
Federal Income Tax Considerations" on page 79.
RESTRICTIONS ON TRANSFERS OR ASSIGNMENTS
While you may transfer or assign your units, the transferee or assignee may
not become a limited partner without the written consent of the general partner.
You may only withdraw capital or profits from a partnership by redeeming units.
The general partner may withdraw any portion of its interest in a partnership
that exceeds the amount required under the limited partnership agreement without
prior notice to or consent of the limited partners. In addition, the general
partner may withdraw or assign its entire interest in a partnership if it gives
120 days' prior written notice to the limited partners. If a majority of the
limited partners elect a new general partner or partners to continue the
business of the partnership, the withdrawing general partner must pay all
reasonable expenses incurred by the partnership in connection with its
withdrawal.
Any transfer or assignment of units by you will take effect at the end of
the month in which the transfer or assignment is made, subject to the following
conditions. A partnership is not required to recognize a transfer or assignment
until it has received at least 30 days' prior written notice from the limited
partner. The notice must be signed by the limited partner and include the
address and social security or taxpayer identification number of the transferee
or assignee and the number of units transferred or assigned. A transfer or
assignment of less than all units held by you cannot occur if as a result either
party to the transfer or assignment would own fewer than the minimum number of
units required for an investment in the partnership (subject to certain
exceptions relating to gifts, death, divorce, or transfers to family members or
affiliates). The general partner will not permit a transfer or assignment of
units unless it is satisfied that the transfer or assignment would not be in
violation of the Partnership Act or applicable federal, state or foreign
securities laws; and notwithstanding the transfer or assignment,
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the partnership will continue to be classified as a partnership rather than as
an association taxable as a corporation under the Internal Revenue Code of 1986,
as amended. No transfer or assignment of units will be effective or recognized
by a partnership if the transfer or assignment would result in the termination
of that partnership for federal income tax purposes, and any attempt to transfer
or assign units in violation of the limited partnership agreement will be
ineffective. The limited partner must pay all costs, including any attorneys'
and accountants' fees, related to a transfer or assignment.
AMENDMENTS; MEETINGS
Each limited partnership agreement may be amended by the general partner and
by limited partners owning more than 50% of the units of that partnership. In
addition, the general partner may make certain amendments to a limited
partnership agreement without the consent of the limited partners, including any
amendment that is not adverse to the limited partners or required by the staff
of the SEC, the CFTC, any other federal agency, any state "Blue Sky" official,
or other governmental official, or to comply with applicable law. However, no
amendment may be made to a limited partnership agreement without the consent of
all partners affected if that amendment would reduce the capital account of any
partner, modify the percentage of profits, losses, or distributions to which any
partner is entitled, or change or alter the provisions of the limited
partnership agreement relating to amendments requiring the consent of all
partners.
Upon written request to the general partner delivered either in person or by
certified mail, you or your authorized attorney or agent may obtain a list of
the names and addresses of, and units owned by, all limited partners in your
partnership, provided that you pay reasonable duplicating and postage costs.
Limited partners owning at least 10% of the units of a partnership may request a
meeting to consider any matter upon which limited partners may vote. Upon
receipt of such a request, the general partner must call a meeting of that
partnership, by written notice sent by certified mail or delivered in person
within 15 days of such request. The meeting must be held at least 30 but not
more than 60 days after the mailing by the general partner of notice of the
meeting. The notice must specify the date, a reasonable place and time, and the
purpose of the meeting.
At any meeting of the limited partners, the following actions may be taken
upon the affirmative vote of limited partners owning more than 50% of the units:
- amend the limited partnership agreement;
- dissolve the partnership;
- remove and replace the general partner;
- elect a new general partner or general partners if the general partner
terminates or liquidates or elects to withdraw from the partnership, or
becomes insolvent, bankrupt or is dissolved;
- terminate any contract with the general partner or any of its
affiliates on 60 days' prior written notice; and
- approve the sale of all or substantially all of the assets of the
partnership.
Any of the foregoing actions may also be taken by limited partners without a
meeting, without prior notice, and without a vote, by means of written consents
signed by limited partners owning the required number of units. Notice of any
actions taken by written consent must be given to non-consenting limited
partners within seven business days.
BOOKS AND RECORDS; REPORTS TO LIMITED PARTNERS
The books and records of each partnership are maintained at its principal
office for at least five years. You or your authorized attorney or agent will
have the right during normal business hours to inspect and copy the books and
records of each partnership of which you are a limited partner. Alternatively,
you may request that copies of the books and records be sent to you, provided
that you pay all reasonable reproduction and distribution costs. The partnership
will retain copies of subscription documentation in connection with purchases
and exchanges of units for at least six years.
Within 30 days after the close of each calendar month, the general partner
will provide such financial and other information with respect to each
partnership as the CFTC and National Futures Association,
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from time to time, may require, together with information concerning any
material change in the brokerage commissions or fees payable by the partnerships
to any commodity broker. You will also receive within 90 days after the close of
each fiscal year an annual report containing audited financial statements for
the partnerships. Annual reports will provide a detailed statement of any
transactions with the general partner or its affiliates and of fees, commissions
and any compensation paid or accrued to the general partner or its affiliates.
By March 15 of each year, the partnership will provide you with the tax
information necessary for you to prepare your federal income tax return. The net
asset value of each partnership's units, which is estimated daily by the general
partner, will be promptly supplied to you upon written request.
A written notice, including a description of limited partners' redemption
and voting rights, will be mailed to the limited partners of a partnership
within seven business days if any of the following events occur:
- net asset value of a unit decreases by at least 50% from the net asset
value of that unit as of the end of the immediately preceding month;
- the limited partnership agreement is materially amended;
- any change in trading advisors or any material change in a management
agreement;
- any change in commodity brokers or any material change in the
compensation arrangements with a commodity broker;
- any change in general partners or any material change in the
compensation arrangements with a general partner;
- any change in the partnership's fiscal year;
- any material change in the partnership's trading policies as specified
in the limited partnership agreement; or
- cessation of futures interests trading by the partnership.
If you receive a notice as to a 50% decrease in net asset value per unit,
that notice will also advise you that a "special redemption date" will take
place when limited partners may redeem their units in the same manner as
described under "Redemptions" on page 66 for regular redemption dates. Further,
following the close of business on the date of the 50% decrease giving rise to
that notice, the partnership will liquidate all existing positions as promptly
as reasonably practicable, and will suspend all futures, forwards, and options
trading through the special redemption date. The general partner will then
determine whether to reinstitute futures interests trading or to terminate the
partnership.
In addition, subject to limits imposed under state guidelines incorporated
in the limited partnership agreements, no increase in any of the management,
incentive or brokerage fees payable by the partnerships, or any of the caps on
fees, may take effect until the first business day following a redemption date.
In the event of such an increase:
- notice of the increase will be mailed to limited partners at least five
business days prior to the last date on which a "request for redemption"
must be received by the general partner with respect to the applicable
redemption date;
- the notice will describe the redemption and voting rights of limited
partners; and
- units redeemed at the first redemption date following the notice will not
be subject to any redemption charges.
Each limited partner expressly agrees that in the event of his death, he
waives on behalf of himself and his estate the furnishing of any inventory,
accounting, or appraisal of the assets of the partnership and any right to an
audit or examination of the books of the partnership.
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PLAN OF DISTRIBUTION
GENERAL
Dean Witter is offering units pursuant to a selling agreement with the
partnerships and the general partner. With the approval of the general partner,
Dean Witter may appoint additional selling agents to make offers and sales of
the units. These additional selling agents may include any securities broker
which is a member in good standing of the NASD, as well as any foreign bank,
dealer, institution or person ineligible for membership in the NASD that agrees
not to make any offers or sales of units within the U.S. or its territories,
possessions or areas subject to its jurisdiction, or to U.S. citizens or
residents. Any such non-NASD member must also agree to comply with applicable
provisions of the Conduct Rules of the NASD in making offers and sales of units.
Dean Witter is offering the units on a "best efforts" basis without any
agreement by Dean Witter to purchase units. The general partner may in the
future register additional units of any partnership with the SEC. There is no
maximum amount of funds which may be contributed to a partnership. The general
partner may in the future subdivide or combine outstanding units of any
partnership, in its discretion, provided that any subdivision or combination
will not affect the net asset value of any limited partner's interest in the
partnership.
Each partnership has agreed to indemnify its trading advisors in connection
with the offer and sale of units with respect to any misleading or untrue
statement or alleged misleading or untrue statement of a material fact or
material omission or alleged omission unrelated to its trading advisor(s). Each
partnership has also agreed to indemnify Dean Witter, the general partner and
any additional sellers in connection with the offer and sale of units. See
"Fiduciary Responsibility and Liability" on page 15.
INITIAL OFFERING OF SPECTRUM CURRENCY
Units of Spectrum Currency are being offered for sale at $10 per unit at its
initial closing, which is currently scheduled to be held as of April 30, 2000.
After the initial closing, unsold units will be sold in the continuing offering
with units of the other partnerships as described below.
The period from the date of this prospectus through September 30, 2000 is
the initial offering period for Spectrum Currency. The initial offering period,
however, may be extended to November 30, 2000, in the sole discretion of the
general partner. In order for Spectrum Currency to commence trading operations,
the general partner must receive and accept subscriptions for at least
600,000 units during the initial offering period. If less than 600,000 units of
Spectrum Currency are subscribed for during the initial offering period, the
offering will terminate and each subscriber's Dean Witter customer account will
be credited for the full subscription amount, with interest, within five
business days. The general partner, Dean Witter, any additional sellers, and the
trading advisors, and their respective affiliates may, but are not required to,
subscribe for units in Spectrum Currency. Units subscribed for by such entities
will be counted for purposes of determining whether the 600,000 unit minimum
subscription requirement has been satisfied. However, units subscribed for by
such entities during the initial offering period will be for investment purposes
only and not with a view towards redistribution, and may not be redeemed for a
period of two years after the initial closing if the partnership would not have
the minimum $6,000,000 in net assets remaining immediately following the
redemption.
CONTINUING OFFERING
Units of each partnership are being offered for sale at monthly closings
held on the last day of each month, beginning the first month following its
initial closing in the case of Spectrum Currency, and beginning April 30, 2000
in the case of Spectrum Commodity. Units will be offered and sold at the net
asset value of a unit of the partnership on the date of the monthly closing. The
sale amount will be delivered to the partnership that sold the unit.
ESCROW ARRANGEMENTS
During Spectrum Currency's initial offering period and during the continuing
offering, if your subscription is not immediately rejected by the general
partner, your subscription funds will be transferred to, and held in escrow by,
The Chase Manhattan Bank, New York, New York. These subscription funds
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held in escrow will be invested in the escrow agent's money market account, and
will earn the interest rate then paid by the bank on that account. If the
general partner accepts your subscription, at the applicable month-end closing
the escrow agent will pay your subscription funds to the appropriate
partnerships and pay any interest earned on those funds to Dean Witter. Dean
Witter in turn will credit your Dean Witter customer account with the interest.
If the general partner rejects a subscription, the escrow agent will promptly
pay the rejected subscription funds and any interest earned to Dean Witter. Dean
Witter will then credit your Dean Witter customer account with those amounts,
and the funds will be immediately available for investment or withdrawal. If you
closed your Dean Witter customer account, any subscription returned and interest
earned will be paid by check. Interest will be earned on subscription funds from
the day of deposit with the escrow agent to the day that funds are either paid
to the appropriate partnerships in the case of accepted subscriptions or paid to
Dean Witter in the case of rejected subscriptions. At all times during Spectrum
Currency's initial offering period and during the continuing offering, and prior
to each closing, subscription funds will be in the possession of the escrow
agent, and at no time will the general partner hold or take possession of the
funds.
COMPENSATION TO DEAN WITTER EMPLOYEES AND ADDITIONAL SELLING AGENTS
Except as described below, employees of Dean Witter will receive from Dean
Witter (payable solely from its own funds) a gross sales credit equal to 3% of
the net asset value per unit as of the closing for each unit sold by them and
issued at the closing. In addition, Dean Witter will continue to compensate
those employees who participated in this offering and continue to render
services to limited partners by paying them up to 86% of the brokerage fees
attributable to outstanding units sold by them and received by Dean Witter as
commodity broker for each partnership. This compensation will begin:
- with the tenth month after the closing at which a unit was issued;
- the first month after a unit is issued pursuant to a non-series exchange;
or
- the month as of which such continuous compensation is first payable with
respect to units purchased in a Spectrum Series exchange, but with the
tenth month measured from the date the subscriber first became a limited
partner in a Spectrum Series partnership.
This compensation will continue until the applicable partnership terminates
or the unit is redeemed, whichever comes first. Dean Witter employees who sell
$500,000 or more of units to any single investor will not receive an initial
payment equal to 3% of the net asset value per unit. Those employees will only
be entitled to receive the continuing compensation payments described above
attributable to the outstanding units, starting with the first month after the
units are issued. No part of this compensation will be paid by any partnership.
Accordingly, net assets will not be reduced as a result of such compensation.
Each person receiving continuing compensation must be a Dean Witter employee
at the time of receipt of payment and must be registered as an associated person
with the CFTC and be a member of the National Futures Association in such
capacity only after either having passed the Series 3 or Series 31 examination
or having been "grandfathered" as an associated person qualified to do commodity
brokerage under the Commodity Exchange Act and the CFTC's regulations. These
employees must also perform additional services, including:
(a) inquiring of the general partner from time to time, at the request of
limited partners, as to the net asset value of each partnership's units;
(b) inquiring of the general partner, at the request of limited partners,
regarding the futures, forwards, and option markets and the activities of the
partnerships;
(c) responding to questions of limited partners with respect to the monthly
account statements, annual reports, financial statements and annual tax
information furnished periodically to limited partners;
(d) providing advice to limited partners as to when and whether to make
additional investments or to redeem or exchange units;
(e) assisting limited partners in the redemption or exchange of units; and
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(f) providing such other services as limited partners from time to time may
reasonably request.
The additional compensation paid by Dean Witter may be deemed to be
underwriting compensation. The selling agreement among Dean Witter, the general
partner and the partnerships provides that this compensation may only be paid by
Dean Witter as long as continuing services are provided. Any limited partner may
telephone, write or visit a financial advisor at the Morgan Stanley Dean Witter
branch office to avail himself of such services.
Dean Witter will not pay its employees the 3% initial gross sales credit
described above with respect to units purchased pursuant to a Spectrum Series
exchange or non-series exchange. Such employees will, however, receive
continuing gross sales credits with respect to brokerage fees received by Dean
Witter from a partnership at the applicable rate.
Dean Witter may at any time implement cash sales incentive and/or
promotional programs for its employees who sell units. These programs will
provide for Dean Witter, and not any partnership or the general partner, to pay
Dean Witter's employees bonus compensation based on sales of units. Any such
program will be approved by the NASD prior to its start.
The aggregate of all compensation paid to employees of Dean Witter from the
initial 3% gross sales credit, the redemption charges received by Dean Witter,
and any sales incentives will not exceed 10% of the proceeds of the sale of
units.
Dean Witter may compensate any qualified additional selling agents for each
unit sold by it by paying a selling commission, from Dean Witter's own funds, as
determined by Dean Witter and the additional selling agents, but not to exceed
3% of the net asset value of the unit sold. Additional selling agents who are
properly registered as futures commission merchants or introducing brokers with
the CFTC and are members of the National Futures Association in such capacity
may also receive from Dean Witter, payable from Dean Witter's own funds,
continuing compensation for providing to limited partners the continuing
services described above. Additional selling agents that are affiliates of Dean
Witter may receive additional compensation from Dean Witter of up to 85% of the
brokerage fees generated by outstanding units sold by such additional selling
agents and received by Dean Witter as commodity broker for each partnership.
Additional selling agents that are not affiliates of Dean Witter may receive
additional compensation paid by Dean Witter of up to 35% of the brokerage fees
generated by outstanding units sold by such additional selling agents and
received by Dean Witter as commodity broker for each partnership. Additional
selling agents may pay all or a portion of such additional compensation to their
employees who have sold units and provide continuing services to limited
partners if those employees are properly registered with the CFTC and are
members of the National Futures Association. Additional compensation paid by
Dean Witter may be deemed to be underwriting compensation.
SUBSCRIPTION PROCEDURE
The minimum subscription for most subscribers is $5,000, except that the
minimum investment is:
- $2,000 in the case of an IRA; or
- for eligible subscribers purchasing units pursuant to a
non-series exchange, the lesser of
-- $5,000,
-- the proceeds from the redemption of five units, or two units in the
case of an IRA, from commodity pools other than any of the Morgan
Stanley Dean Witter Charter Series of partnerships,
-- the proceeds from the redemption of 500 units, or 200 units in the
case of an IRA, from any Charter Series partnership, or
-- the proceeds from the redemption of such subscriber's entire interest
in any other commodity pool which the general partner serves as
general partner and commodity pool operator.
A subscription may be for units of one partnership, or may be divided among
two or more partnerships, provided that:
- in the case of a new subscription, the minimum subscription for any one
partnership is $1,000; and
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- in the case of a non-series exchange, the minimum subscription for any one
partnership is the proceeds of the redemption of one unit of the other
commodity pool, or 100 units in the case of any Charter Series
partnership.
If you are an investor in a partnership and you wish to make an additional
investment in the same partnership, you may subscribe for units at a monthly
closing with a minimum investment in that partnership of $500.
In order to make your first purchase of units of a partnership, other than
by means of an exchange, you must complete, sign, and deliver to Dean Witter a
subscription agreement which will authorize the general partner and Dean Witter
to transfer the full subscription amount from your Dean Witter customer account
to the partnerships' Escrow Account. If your subscription agreement is received
by Dean Witter and not immediately rejected, you must have the appropriate
amount in your Dean Witter customer account on the first business day following
the date that your subscription agreement is received by Dean Witter. Dean
Witter will deduct the subscription amount from your customer account and
transfer funds into escrow with the escrow agent on that date. If you do not
have a Dean Witter customer account or an account with an affiliate of Dean
Witter, or do not have sufficient funds in your existing Dean Witter customer
account, you should make appropriate arrangements with your Morgan Stanley Dean
Witter & Co. financial advisor, or contact your local Morgan Stanley Dean Witter
branch office. Do not mail any payment to the general partner, as it will be
returned to you for proper placement with the Morgan Stanley Dean Witter branch
office where your account is maintained.
In the case of a Spectrum Series exchange or a non-series exchange, you must
complete, sign, and deliver to your Morgan Stanley Dean Witter & Co. financial
advisor a subscription agreement, which will authorize the general partner to
redeem all or a portion of your interest in a partnership or another commodity
pool which the general partner serves as general partner and commodity pool
operator, subject to terms of the applicable limited partnership agreement, and
to use the proceeds, after deducting any applicable redemption charges, to
purchase units in one or more of the partnerships.
In accordance with an NASD rule, Dean Witter will not subscribe for units on
your behalf if it has discretionary authority over your customer account, unless
it gets prior written approval from you.
If you subscribe by check, units will be issued subject to the collection of
the funds represented by the check. If your check is returned unpaid, Dean
Witter will notify the general partner, and the relevant partnership will cancel
the units issued to you represented by the check. Any losses or profits
sustained by the partnership allocable to the cancelled units will be allocated
among the remaining partners. In the limited partnership agreements, each
limited partner agrees to reimburse a partnership for any expense or loss
(including any trading loss) incurred in connection with the issuance and
cancellation of any units issued to the limited partner.
Subscriptions for units are generally irrevocable by subscribers. However,
you may revoke your subscription agreement and receive a full refund of the
subscription amount and any accrued interest, or revoke the redemption of units
in the other commodity pool in the case of an Exchange, within five business
days after execution of the subscription agreement or no later than 3:00 P.M.,
New York City time, on the date of the applicable monthly closing, whichever
comes first, by delivering written notice to your Morgan Stanley Dean Witter
financial advisor. There may be other rescission rights under applicable federal
and state securities laws. The general partner may reject any subscription, in
whole or in part, in its sole discretion.
A sample form of the subscription agreement is annexed to this prospectus as
Exhibit B. A separate copy of the subscription agreement accompanies this
prospectus or you may obtain one, after delivery of this prospectus, from a
local Morgan Stanley Dean Witter branch office. You will not receive any
certificate evidencing units, but you will be sent confirmations of purchases in
Dean Witter's customary form.
Once you are an investor in a partnership, you may make additional cash
purchases of units of that partnership without executing a new subscription
agreement, by contacting your Morgan Stanley Dean Witter financial advisor and
authorizing your financial advisor to deduct the additional amount you want to
invest from your Dean Witter customer account. Those amounts will be held in
escrow, and applied
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towards the purchase of units, in the same manner as initial purchases described
above. However, before you make any additional purchase of units in this manner,
you will be required to complete a subscription agreement update form, a sample
of which is annexed to this prospectus as Exhibit C, if a new prospectus has
been issued since the date of your original subscription agreement. Further,
your Morgan Stanley Dean Witter financial advisor will be required to confirm to
the general partner that the information you provided, and the representations
and warranties you made, in your original subscription agreement, including, in
particular, that you satisfy applicable minimum financial suitability
requirements, are still true and correct. You may not use the subscription
procedure described in this paragraph to purchase additional units in a
partnership by way of an exchange, or to purchase units of a partnership in
which you are not currently an investor; in either of those cases, you must
execute a new subscription agreement.
PURCHASES BY EMPLOYEE BENEFIT PLANS--ERISA CONSIDERATIONS
Units might or might not be a suitable investment for an employee benefit
plan. If you are a person with investment discretion on behalf of an employee
benefit plan, before proceeding with a purchase of units, you should determine
whether the purchase of units is permitted under the governing instruments of
the plan, and is appropriate for that particular plan in view of its overall
investment policy, the composition and diversification of its portfolio, and the
other considerations discussed below.
As used in this section, the term "employee benefit plans" refers to plans
and accounts of various types, including their related trusts, which provide for
the accumulation of a portion of an individual's earnings or compensation, as
well as investment income earned thereon, typically free from federal income tax
until such time as funds are distributed from the plan. These plans include
corporate pension and profit-sharing plans, such as so-called "401(k)" plans,
"simplified employee pension plans," so-called "Keogh" plans for self-employed
individuals (including partners), and, for purposes of this discussion,
individual retirement accounts, as described in Section 408 of the Internal
Revenue Code of 1986, as amended.
Notwithstanding the general requirement that investors in one or more
partnerships must invest a minimum of $5,000, a minimum purchase requirement of
$2,000 has been set for IRAs. The minimum subscription for any one of the
partnerships must be at least $1,000. Greater minimum purchases may be mandated
by the securities laws and regulations of certain states, and each investor
should consult the subscription agreement to determine the applicable investment
requirements.
If the assets of an investing employee benefit plan were to be treated, for
purposes of the reporting and disclosure provisions and certain other of the
fiduciary responsibility provisions of Title I of the Employee Retirement Income
Security Act of 1974, as amended, and Section 4975 of the Internal Revenue Code
of 1986, as including an undivided interest in each of the underlying assets of
a partnership, an investment in units would in general be an inappropriate
investment for the plan. A U.S. Department of Labor regulation defines "plan
assets" in situations where employee benefit plans purchase equity securities in
investment entities such as a partnership. The regulation provides that the
assets of an entity will not be deemed to be "plan assets" of an employee
benefit plan which purchases an equity security of the entity if the equity
security is a "publicly-offered security." A "publicly-offered security" is one
which is:
- freely transferable;
- held by more than 100 investors independent of the issuer and of each
other; and
- either registered under Section 12(b) or Section 12(g) of the Securities
Exchange Act of 1934, or sold to the plan as part of a public offering of
such securities pursuant to an effective registration statement under the
Securities Act of 1933, where the security is then timely registered under
Section 12(b) or Section 12(g) of the Securities Exchange Act of 1934.
The units currently meet, and it is expected that the units will continue to
meet, the criteria of the Regulation.
The general partner believes, based upon the advice of its legal counsel,
that income earned by the partnerships will not constitute "unrelated business
taxable income" under Section 512 of the Internal Revenue Code of 1986 to
employee benefit plans and other tax-exempt entities. Although the Internal
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Revenue Service has issued favorable private letter rulings to taxpayers in
somewhat similar circumstances, other taxpayers may not use or cite such rulings
as precedent. If you have investment discretion on behalf of an employee benefit
plan, you should consult a professional tax adviser regarding the application of
the foregoing matters to the purchase of units.
Units may not be purchased with the assets of an employee benefit plan if
the general partner, Dean Witter, any additional selling agents, any trading
advisor or any of their respective affiliates either:
- has investment discretion with respect to the investment of such plan
assets;
- has authority or responsibility to give or regularly gives investment
advice with respect to such plan assets for a fee and pursuant to an
agreement or understanding that such advice will serve as a primary basis
for investment decisions with respect to the plan assets and that such
advice will be based on the particular investment needs of the plan; or
- is an employer maintaining or contributing to such plan.
Subscribing for units does not create an IRA or other employee benefit plan.
If you are considering the purchase of units on behalf of an IRA or other
employee benefit plan, you must first ensure that the plan has been properly
established in accordance with the Internal Revenue Code of 1986 and the
regulations and administrative rulings thereunder, and that the plan has been
adequately funded. Then, after all of the considerations discussed above have
been taken into account, the trustee or custodian of a plan who decides to or
who is instructed to do so may subscribe for units in one or more of the
partnerships, subject to the applicable minimum subscription requirement per
partnership.
Acceptance of subscriptions on behalf of IRAs or other employee benefit
plans is in no respect a representation by the general partner, Dean Witter, any
additional selling agents, any partnership, or any trading advisor that the
investment meets all relevant legal requirements with respect to investments by
plans generally or any particular plan, or that the investment is appropriate
for plans generally or any particular plan.
MATERIAL FEDERAL INCOME TAX CONSIDERATIONS
INTRODUCTION
The general partner has been advised by counsel, Cadwalader, Wickersham &
Taft, that in its opinion, the following summary correctly describes the
material federal income tax consequences to a U.S. taxpayer who invests in a
partnership. The opinions appearing in this section are the opinions of
Cadwalader, Wickersham & Taft, except as otherwise specifically noted. The
following summary is based upon the Internal Revenue Code of 1986 rulings
thereon, regulations promulgated thereunder and existing interpretations
thereof, any of which could be changed at any time and which changes could be
retroactive. The federal income tax summary and the state and local income tax
summary that follow, in general, relate only to the tax implications of an
investment in the partnerships by individuals who are citizens or residents of
the U.S. Except as indicated below or under "Purchases by Employee Benefit
Plans-ERISA Considerations," the summaries do not address the tax implications
of an investment in the partnerships by corporations, partnerships, trusts and
other non-individuals. Moreover, the summaries are not intended as a substitute
for careful tax planning, particularly since certain of the tax consequences of
owning an interest in the partnerships may not be the same for all taxpayers,
such as non-individuals or foreign persons, or in light of an investor's
personal investment circumstances. A complete discussion of all federal, state
and local tax aspects of an investment in each partnership is beyond the scope
of the following summary, and prospective investors are urged to consult their
own tax advisors on these matters.
PARTNERSHIP STATUS
The general partner has been advised by its legal counsel, Cadwalader,
Wickersham & Taft, that in its opinion under current federal income tax law,
each partnership will be classified as a partnership and not as an association
(or a publicly traded partnership) taxable as a corporation. This opinion is
based upon the facts set forth in this prospectus, including that a principal
activity of each partnership consists of buying and selling futures, options,
and forward contracts, and at least 90% of the partnership's gross
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income during each year consists of gains from such trading and interest income.
No ruling has been requested from the Internal Revenue Service with respect to
classification of each partnership and the general partner does not intend to
request such a ruling.
If a partnership were treated as an association (or a publicly traded
partnership) taxable as a corporation, income or loss of the partnership would
not be passed through to its partners, and the partnership would be subject to
tax on its income at the rates applicable to corporations without deduction for
any distributions to its partners. In addition, all or a portion of any
distributions by the partnership to its partners could be taxable to the
partners as dividends or capital gains. The discussion that follows assumes that
each partnership will be treated as a partnership for federal income tax
purposes.
PARTNERSHIP TAXATION
PARTNERS, RATHER THAN A PARTNERSHIP ARE SUBJECT TO FEDERAL INCOME TAX. None
of the partnerships will pay federal income tax. Except as provided below with
respect to certain nonresident aliens, each limited partner will report his
distributive share of all items of partnership income, gain, loss, deduction,
and credit for the partnership's taxable year ending within or with the
partner's taxable year. A limited partner must report and pay tax on his share
of partnership income for a particular year whether or not he has received any
distributions from the partnership in that year. The characterization of an item
of profit or loss will usually be determined at the partnership level.
SYNDICATION EXPENSES. None of the partnerships nor any partner thereof will
be entitled to any deduction for syndication expenses (I.E., those amounts paid
or incurred in connection with issuing and marketing units). There is a risk
that some of the brokerage fees paid to Dean Witter could be treated as a
nondeductible payment by the partnerships of syndication expenses.
ALLOCATION OF PARTNERSHIP PROFITS AND LOSSES. In general, each limited
partnership agreement allocates items of ordinary income and expense pro rata
among the partners based upon their respective capital accounts as of the end of
the month in which such items are accrued. Net recognized capital gain or loss
is generally allocated among all partners based upon their respective capital
accounts. However, net recognized capital gain or loss is allocated first to
partners who have redeemed units in the partnership during a taxable year to the
extent of the difference between the amount received on the redemption and the
allocation account as of the date of redemption attributable to the redeemed
units. Any remaining net recognized capital gain or loss is next allocated among
all those partners whose capital accounts differ from their allocation accounts
based on the respective differences for each partner.
The special allocation of each partnership's net gain or loss upon a
redemption of units, which retains the same character as in the hands of the
partnership, may alter the character of a redeeming limited partner's income (by
reducing the amount of long-term capital gain recognized upon receipt of
redemption proceeds) and may accelerate the recognition of income by the limited
partner.
These allocation provisions are designed to reconcile tax allocations to
economic allocations. However, the general partner cannot assure you that the
Internal Revenue Service will not challenge the allocations, including each
partnership's tax allocations in respect of redeemed units.
If the allocation provided by each limited partnership agreement is not
respected by the Internal Revenue Service for federal income tax purposes, the
amount of income or loss allocated to the partners for federal income tax
purposes may be increased or reduced or the character of the income or loss may
be modified.
CASH DISTRIBUTIONS AND REDEMPTIONS
Because of the special allocation of partnership gain or loss upon a
redemption of units, the amounts received upon the partial or complete
redemption of a limited partner's units normally will not result in additional
taxable income or loss to the limited partner. However, distributions by a
partnership and amounts received upon the partial or complete redemption of a
limited partner's units will be taxable to the limited partners to the extent
cash distributions by a partnership or amounts received upon redemption by a
limited partner exceed the partner's adjusted tax basis in his units. Such
excess will be taxable to him as though it were a gain from a sale of the units.
A loss will be recognized upon a
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redemption of units only if, following the redemption of all of a limited
partner's units, the partner has any tax basis in his units remaining. In such
case, the limited partner will recognize loss to the extent of the remaining
basis. See "Redemptions." Generally, if a limited partner is not a "dealer" with
respect to his interest in the partnership and he has held his interest in the
partnership for more than one year, the gain or loss would be long-term capital
gain or loss.
GAIN OR LOSS ON TRADING ACTIVITY
NATURE OF PARTNERSHIP INCOME. Each partnership does not expect to hold its
futures, forwards or options for sale to customers. For federal income tax
purposes substantially all of the profit and loss generated by each partnership
from its trading activities is expected to be capital gain and loss, which in
turn may be either short-term, long-term or a combination thereof. Nevertheless,
certain foreign currency transactions could result in ordinary gain or loss, as
discussed below. Further, interest paid to a partnership will be taxable
currently to the limited partners as ordinary income. Thus, during taxable years
in which little or no profit is generated from trading activities, a limited
partner may still have interest income.
MARK-TO-MARKET. Section 1256 contracts held at the end of a partnership's
taxable year will be treated as having been sold for the fair market value on
the last day of the taxable year, and gain or loss will be taken into account
for the year. Gain or loss with respect to a Section 1256 contract is generally
treated as short-term capital gain or loss to the extent of 40% of the gain or
loss, and long-term capital gain or loss to the extent of 60% of the gain and
loss. Section 1256 contracts include regulated futures contracts which are
futures contracts traded on regulated U.S. and certain foreign exchanges;
foreign currency contracts that are traded in the interbank market and relate to
currencies for which positions are also traded through regulated futures
contracts; and U.S. and certain foreign exchange-traded options on commodities,
including options on regulated futures contracts, debt securities and stock
indices. While the partnerships expect that a majority of their trading
activities will be conducted in Section 1256 contracts, the partnerships also
expect that a portion of their trading activities will be conducted in contracts
that do not presently qualify as Section 1256 contracts, such as positions in
futures contracts on most foreign exchanges and foreign currency forward
contracts that do not relate to currencies for which positions are also traded
through regulated futures contracts.
SECTION 988. Currency gain or loss with respect to foreign currency forward
contracts that do not relate to currencies for which positions are also traded
through regulated futures contracts and futures contracts traded on most foreign
exchanges may be treated as ordinary income or loss under Internal Revenue Code
of 1986 Section 988. Each partnership has elected to treat these contracts as
Section 1256 contracts (I.E., marked-to-market at year end). Pursuant to this
election, gain or loss with respect to these contracts is treated as entirely
short-term capital gain or loss.
Subject to certain limitations, a limited partner, other than a corporation,
estate or trust, may elect to carry back net Section 1256 contract losses to
each of the three preceding years. Net Section 1256 contract losses carried back
to prior years may only be used to offset net Section 1256 contract gains.
Generally, such losses are carried back as 40% short-term capital losses and 60%
long-term capital losses. Capital assets not marked to market under
Section 1256, such as any non-currency forward contracts, are not subject to the
60/40 tax regime for Section 1256 contracts, and gain or loss on sale generally
will be long-term only if such property has been held for more than one year.
STRADDLES. If a partnership incurs a loss upon the disposition of any
position which is part of a "straddle" (I.E., two or more offsetting positions),
recognition of that loss for tax purposes will be deferred until the partnership
recognizes the gain in the offsetting position of the straddle (or successor
position, or offsetting position to the successor position). Interest and other
carrying charges allocable to positions which are part of a straddle must be
capitalized, rather than deducted currently. Certain modified "short sale" rules
may apply to positions held by a partnership so that what might otherwise be
characterized as long-term capital gain would be characterized as short-term
capital gain or potential short-term capital loss as long-term capital loss.
For purposes of applying the above rules restricting the deductibility of
losses with respect to offsetting positions, if a limited partner takes into
account gain or loss with respect to a position held by the partnership, the
limited partner will be treated as holding the partnership's position, except to
the extent otherwise provided in regulations. Accordingly, positions held by a
partnership may limit the
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deductibility of realized losses sustained by a limited partner with respect to
positions held for his own account, and positions held by a limited partner for
his own account may limit his ability to deduct realized losses sustained by a
partnership. Thus, straddles may not be used to defer gain from one taxable year
to the next. Reporting requirements generally require taxpayers to disclose all
unrecognized gains with respect to positions held at the end of the taxable
year. The above principle, whereby a limited partner may be treated as holding
partnership positions, may also apply to require a limited partner to capitalize
(rather than deduct) interest and carrying charges allocable to property held by
him.
Where the positions of a straddle are comprised of both Section 1256 and
non-Section 1256 contracts, a partnership will be subject to the mixed straddle
rules of the Internal Revenue Code of 1986 and the regulations promulgated
thereunder. The appropriate tax treatment of any gains and losses from trading
in mixed straddles will depend on what elections a partnership makes. Each
partnership has elected to place all of its positions in a "mixed straddle"
account which is marked-to-market daily. Under a special account cap, not more
than 50% of net capital gain may be long-term capital gain, and not more than
40% of net capital loss may be short-term capital loss.
TAXATION OF LIMITED PARTNERS
LIMITATIONS ON DEDUCTIBILITY OF PARTNERSHIP LOSSES. The amount of
partnership loss, including capital loss, which a limited partner will be
entitled to take into account for federal income tax purposes is limited to the
tax basis of his units, except in the case of certain limited partners including
individuals and closely-held C corporations, for which he is "at risk" with
respect to the units as of the end of the partnership's taxable year in which
such loss occurred.
Generally, a limited partner's initial tax basis will be the amount paid for
each unit. A limited partner's adjusted tax basis will be his initial tax basis
reduced by the limited partner's share of partnership distributions, losses and
expenses and increased by his share of partnership income and gains. The amount
for which a limited partner is "at risk" with respect to his units in a
partnership is generally equal to his tax basis for the units, less: any amounts
borrowed in connection with his acquisition of the units for which he is not
personally liable and for which he has pledged no property other than his units;
any amounts borrowed from persons who have a proprietary interest in the
partnership; and any amounts borrowed for which the limited partner is protected
against loss through guarantees or similar arrangements.
Because of the limitations imposed upon the deductibility of capital losses
referred to below, a limited partner's share of a partnership's net capital
losses, if any, will not materially reduce his federal income tax on his
ordinary income. In addition, certain expenses of a partnership might be
deductible by a limited partner only as itemized deductions and, therefore, will
not reduce the federal taxable income of a limited partner who does not itemize
his deductions. Furthermore, an individual who is subject to the alternative
minimum tax for a taxable year may not realize any tax benefit from such
itemized deductions.
LIMITATIONS ON DEDUCTIBILITY OF PASSIVE LOSSES. The partnerships' income
will not be treated as a "passive activity" for purposes of the limitation on
the deduction of passive activity losses.
LIMITED DEDUCTION OF CERTAIN EXPENSES. Certain miscellaneous itemized
deductions, such as expenses incurred to maintain property held for investment,
are deductible only to the extent that they exceed 2% of the adjusted gross
income of an individual, trust or estate. The amount of certain itemized
deductions allowable to individuals is further reduced by an amount equal to the
lesser of (i) 3% of the individual's adjusted gross income in excess of a
certain threshold amount and (ii) 80% of the itemized deductions. Moreover, such
investment expenses are miscellaneous itemized deductions that are not
deductible by a non-corporate taxpayer in calculating its alternative minimum
tax liability. Based upon the current and contemplated activities of the
partnerships, the general partner has been advised by its legal counsel that, in
such counsel's opinion, the expenses incurred by the partnerships in their
futures interests trading businesses should not be subject to the 2% "floor" or
the 3% phaseout, except to the extent that the Internal Revenue Service
promulgates regulations that so provide. However, that advice is not binding on
a court or the Internal Revenue Service, and the Internal Revenue Service could
assert, and a court could agree, that such expenses of the partnerships
(including incentive fees) are investment expenses which are subject to these
limitations.
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TAX LIABILITY WILL EXCEED DISTRIBUTIONS. Under federal tax laws, a limited
partner must report and pay tax on his share of any partnership income each
year, even though the general partner does not intend to make any distributions
from the partnerships.
TAX ON CAPITAL GAINS AND LOSSES. For individuals, trusts and estates,
"long-term capital gains" are currently taxed at a maximum marginal tax rate of
20% and "short-term capital gains" and other income are taxed at a maximum
marginal tax rate of 39.6%. Corporate taxpayers are currently subject to a
maximum marginal tax rate of 35% on all capital gains and income.
The excess of capital losses over capital gains is deductible by an
individual against ordinary income on a one-for-one basis, subject to an annual
limitation of $3,000 ($1,500 in the case of married individuals filing a
separate return). Excess capital losses may be carried forward.
Net losses from Section 1256 contracts are treated as 60% long-term capital
loss and 40% short-term capital loss. Such losses may, at the individual
taxpayer's election, be carried back to each of the preceding three years and
applied against gains from Section 1256 contracts.
ALTERNATIVE MINIMUM TAX. The alternative minimum tax for individuals is
imposed on "alternative minimum taxable income" in excess of certain exemption
amounts. Alternative minimum taxable income consists of taxable income
determined with certain adjustments and increased by the amount of items of tax
preference. Alternative minimum taxable income may not be offset by certain
interest deductions, including (in certain circumstances) interest incurred to
purchase or carry units in the partnerships. Corporations are also subject to an
alternative minimum tax. The extent to which the alternative minimum tax will be
imposed will depend on the overall tax situation of each limited partner at the
end of such taxable year.
LIMITATION ON DEDUCTIBILITY OF INTEREST ON INVESTMENT
INDEBTEDNESS. Interest paid or accrued on indebtedness properly allocable to
property held for investment is investment interest. Such interest is generally
deductible by non-corporate taxpayers only to the extent it does not exceed net
investment income. A limited partner's distributive share of net partnership
income and any gain from the disposition of units will be treated as investment
income, except that a limited partner's net capital gain from the disposition of
units is investment income only if the limited partner waives the benefit of the
preferential tax rate on the gain. It is not clear whether a limited partner's
distributive share of partnership net capital gain constitutes investment income
where the gain is taxed at the maximum rate for capital gains. Interest expense
incurred by a limited partner to acquire his units generally will be investment
interest. Any investment interest disallowed as a deduction in a taxable year
solely by reason of the limitation above is treated as investment interest paid
or accrued in the succeeding taxable year.
TAXATION OF FOREIGN LIMITED PARTNERS. A non-resident alien individual,
foreign corporation or foreign partnership not otherwise engaged in a United
States trade or business or acting as a dealer in commodities should not be
deemed to be engaged in a United States trade or business solely by virtue of an
investment as a limited partner in the partnerships. Capital gains earned by the
partnerships and allocated to such a foreign limited partner will, as a general
rule, not be subject to United States federal income taxation or withholding,
but may be subject to taxation by the jurisdiction in which the foreign limited
partner is resident, organized or operating. Interest income earned by the
partnerships will, as a general rule, likewise not be subject to United States
federal income tax or withholding, but may be subject to tax in other
jurisdictions to which the foreign limited partner is connected. Prospective
foreign limited partners who are engaged in a United States trade or business or
who act as dealers in commodities may be subject to United States income tax and
should consult their tax advisors before investing in a partnership.
The estate of a deceased foreign limited partner may be liable for U.S.
estate tax and may be required to obtain an estate tax release from the Internal
Revenue Service in order to transfer the units of such foreign limited partner.
FOREIGN PERSONS SHOULD CONSULT THEIR OWN TAX ADVISERS BEFORE DECIDING
WHETHER TO INVEST IN THE PARTNERSHIPS.
TAX ELECTIONS. The Internal Revenue Code of 1986 provides for optional
adjustments to the basis of partnership property upon distributions of
partnership property to a partner (Section 734) and transfers of units,
including transfers by reason of death (Section 743), provided that a
partnership election has been
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made pursuant to Section 754. As a result of the complexities and added expense
of the tax accounting required to implement such an election, the general
partner does not presently intend to make such an election for any of the
partnerships. Therefore, any benefits which might be available to the partners
by reason of such an election will be foreclosed.
TAX RETURNS AND INFORMATION. The partnerships will file their information
returns using the accrual method of accounting. Within 75 days after the close
of each partnership's taxable year, the partnership will furnish each limited
partner, and any assignee of the units of a limited partner, copies of the
partnership's Schedule K-1 indicating the limited partner's distributive share
of tax items and any additional information as is reasonably necessary to permit
the limited partner to prepare his own federal and state tax returns.
PARTNERSHIP'S TAXABLE YEAR. Each partnership has the calendar year as its
taxable year.
UNRELATED BUSINESS TAXABLE INCOME OF EMPLOYEE BENEFIT PLAN LIMITED PARTNERS
AND OTHER TAX-EXEMPT INVESTORS. Income allocated to a limited partner which is
an employee benefit plan or other tax-exempt entity should not be subject to tax
under Section 511 of the Internal Revenue Code of 1986, provided that the units
purchased by such plans and entities are not "debt-financed."
However, if a partnership were to purchase physical commodities with
borrowed funds (whether upon delivery under a futures or forward contract or
otherwise) and to sell those commodities at a gain, the gain would likely
constitute unrelated business income. The partnerships are entitled to engage in
such leveraged purchases of physical commodities. Tax exempt investors should
see "Purchases by Employee Benefit Plans--ERISA Considerations."
TAX AUDITS
All partners are required under the Internal Revenue Code of 1986 to report
all the partnership items on their own returns consistently with the treatment
by the partnership, unless they file a statement with the Internal Revenue
Service disclosing the inconsistencies. Adjustments in tax liability with
respect to partnership items will be made at the partnership level. The general
partner will represent each partnership during any audit and in any dispute with
the Internal Revenue Service. Each limited partner will be informed by the
general partner of the commencement of an audit of a partnership. In general,
the general partner may enter into a settlement agreement with the Internal
Revenue Service on behalf of, and binding upon, limited partners owning less
than a 1% profits interest if the partnership has more than 100 partners.
However, prior to settlement, such a limited partner may file a statement with
the Internal Revenue Service stating that the general partner does not have the
authority to settle on behalf of the limited partner.
The period for assessing a deficiency against a partner in a partnership
with respect to a partnership item is the later of three years after the
partnership files its return or, if the name and address of the partner does not
appear on the partnership return, one year after the Internal Revenue Service is
furnished with the name and address of the partner. In addition, the general
partner may consent on behalf of each partnership to the extension of the period
for assessing a deficiency with respect to a partnership item. As a result, a
limited partner's federal income tax return may be subject to examination and
adjustment by the Internal Revenue Service for a partnership item more than
three years after it has been filed.
-------------------
All of the foregoing statements are based upon the existing provisions of
the Internal Revenue Code of 1986 and the regulations promulgated thereunder and
the existing administrative and judicial interpretations thereof. The general
partner cannot assure you that legislative, administrative, or judicial changes
will not occur which will modify such statements.
The foregoing statements are not intended as a substitute for careful tax
planning, particularly since certain of the federal income tax consequences of
purchasing units may not be the same for all taxpayers. The partnerships' tax
returns could be audited by the Internal Revenue Service and adjustments to the
returns could be made as a result of such audits. If an audit results in
adjustment, limited partners may be required to file amended returns and their
returns may be audited. Accordingly, prospective purchasers of units are urged
to consult their tax advisers with specific reference to their own tax situation
under federal law and the provisions of applicable state, local and foreign laws
before subscribing for units.
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<PAGE>
STATE AND LOCAL INCOME TAX ASPECTS
In addition to the federal income tax consequences for individuals described
under "Material Federal Income Tax Considerations" above, the partnerships and
their limited partners may be subject to various state and local taxes. Certain
of these taxes could, if applicable, have a significant effect on the amount of
tax payable in respect of an investment in the partnerships. A limited partner's
distributive share of the realized profits of a partnership may be required to
be included in determining his reportable income for state or local tax
purposes. Furthermore, state and local tax laws may not reflect recent changes
made to the federal income tax law and, therefore, may be inconsistent with the
federal income treatment of gains and losses arising from the partnerships'
transactions in Section 1256 contracts. Accordingly, prospective limited
partners should consult with their own tax advisers concerning the applicability
of state and local taxes to an investment in the partnerships.
The general partner has been advised by its legal counsel, Cadwalader,
Wickersham & Taft, that in such counsel's opinion, the partnerships should not
be liable for New York City unincorporated business tax. Limited partners who
are nonresidents of New York State will not be liable for New York State
personal income tax on such partners' income from the partnerships, but may be
liable for such tax to the extent such limited partners' allocable share of
income attributable to the partnerships' transactions involves tangible personal
property. Likewise, limited partners who are nonresidents of New York City will
not be liable for New York City earnings tax on the partners' income from the
partnerships. New York City residents may be subject to New York City personal
income tax on the partners' income from the partnerships. No ruling from the New
York State Department of Taxation and Finance or the New York City Department of
Finance has been, or will be, requested regarding such matters.
LEGAL MATTERS
Legal matters in connection with the units being offered hereby, including
the discussion of the material federal income tax considerations relating to the
acquisition, ownership and disposition of units, have been passed upon for each
partnership and the general partner by Cadwalader, Wickersham & Taft, 100 Maiden
Lane, New York, New York 10038. Cadwalader, Wickersham & Taft also has acted as
counsel for Dean Witter in connection with the offering of units. Cadwalader,
Wickersham & Taft may advise the general partner with respect to its
responsibilities as general partner of, and with respect to matters relating to,
the partnerships.
EXPERTS
The financial statements of Morgan Stanley Dean Witter Spectrum Commodity
L.P. (formerly named Morgan Stanley Tangible Asset Fund L.P.) as of
December 31, 1999 and December 31, 1998 and for the year ended December 31, 1999
and the period from January 2, 1998 through December 31, 1998, have been audited
by Deloitte & Touche LLP. The statement of financial condition of Morgan Stanley
Dean Witter Spectrum Currency L.P. as of December 31, 1999, and the statements
of financial condition of Demeter Management Corporation as of November 30, 1999
and November 30, 1998 have been audited by Deloitte & Touche LLP.
All of the aforementioned financial statements have been audited by Deloitte
& Touche LLP, independent auditors, as stated in their reports appearing herein,
and are included in reliance upon such reports of such firm given upon their
authority as experts in accounting and auditing. Deloitte & Touche LLP also acts
as independent auditors for Morgan Stanley Dean Witter & Co.
WHERE YOU CAN FIND MORE INFORMATION
The partnerships filed registration statements relating to the units
registered with SEC. This prospectus is part of the registration statements, but
the registration statements include additional information.
You may read any of the registration statements, or obtain copies by paying
prescribed charges, at the SEC's public reference rooms located at 450 Fifth
Street, N.W., Room 1024, Washington, D.C. 20549; 7 World Trade Center, Suite
1300, New York, New York 10048; and Citicorp Center, 500 West Madison Street,
Suite 1400, Chicago, Illinois 60661-2511. For further information on the public
reference rooms, please call the SEC at 1-800-SEC-0330. The registration
statements are also available to the public from the SEC's Web site at
"http://www.sec.gov."
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PART TWO
STATEMENT OF ADDITIONAL INFORMATION
THIS PROSPECTUS IS IN TWO PARTS: A DISCLOSURE DOCUMENT AND A STATEMENT OF
ADDITIONAL INFORMATION. THESE PARTS ARE BOUND TOGETHER AND MAY NOT BE
DISTRIBUTED SEPARATELY.
THE FUTURES, OPTIONS, AND FORWARDS MARKETS
FUTURES CONTRACTS
Futures contracts are standardized contracts made on a domestic or foreign
exchange that call for the future delivery of specified quantities of various
commodities at a specified price, time, and place. The following are some of the
commodities traded on an exchange:
<TABLE>
<CAPTION>
<S> <C> <C>
- - agricultural and tropical (soft) commodities - currencies - metals
- - industrial goods - financial instruments - energy products
</TABLE>
The futures markets have undergone dramatic changes in the past 25 years.
According to statistics provided by the Futures Industry Association, in 1974
and 1999 activity in futures markets was divided as follows:
<TABLE>
<CAPTION>
IN 1974 1999*
------- -----
% %
<S> <C> <C> <C>
Agricultural Products 82 Interest Rates 55
Metals 15 Stock Indices 16
Currencies 2 Agricultural Products 9
Lumber and Energy Products 1 Metals 9
Energy Products 8
Currencies 3
</TABLE>
- ---------
* Data as of June 30, 1999
A market participant can make a futures contract to buy or sell a commodity.
The contractual obligations may be satisfied either by taking or making, as the
case may be, physical delivery of an approved grade of the commodity or by
making an offsetting sale or purchase of an equivalent but opposite futures
contract on the same, or a mutually offsetting, exchange prior to the designated
date of delivery.
For example, if we sell one contract of December 2000 wheat on a commodity
exchange, we may fulfill the contract at any time prior to the December 2000
delivery date by purchasing one contract of December 2000 wheat on the same
exchange.
The difference between the price at which the futures contract is sold or
purchased and the price paid for the offsetting purchase or sale, after
allowance for brokerage commissions, constitutes the profit or loss to the
trader. Certain futures contracts, such as those for stock or other financial or
economic indices approved by the CFTC or Eurodollar contracts settle in cash
(irrespective of whether any attempt is made to offset such contracts) rather
than delivery of any physical commodity.
OPTIONS ON FUTURES
An option on a futures contract or on a physical commodity gives the buyer
of the option the right to take a position of a specified amount at a specified
price of a specific commodity (the "striking," "strike," or "exercise" price) in
the underlying futures contract or commodity.
The buyer of a "call" option acquires the right to take a long position
(I.E., the obligation to take delivery of a specified amount at a specified
price of a specific commodity) in the underlying futures contract or commodity.
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<PAGE>
The buyer of a "put" option acquires the right to take a short position
(I.E., the obligation to make delivery of a specified amount at a specified
price of a specified commodity) in the underlying futures contract or commodity.
The purchase price of an option is referred to as its "premium." The seller
(or "writer") of an option is obligated to take a futures position at a
specified price opposite to the option buyer if the option is exercised. Thus,
the seller of a call option must stand ready to sell (take a short position in
the underlying futures contract) at the striking price if the buyer should
exercise the option. The seller of a put option, on the other hand, must stand
ready to buy (take a long position in the underlying futures contract) at the
striking price.
A call option on a futures contract is said to be "in-the-money" if the
striking price is below current market levels, and "out-of-the-money" if the
striking price is above current market levels. Conversely, a put option on a
futures contract is said to be "in-the-money" if the striking price is above
current market levels, and "out-of-the-money" if the striking price is below
current market levels.
Options have limited life spans, usually tied to the delivery or settlement
date of the underlying futures contract. An option that is out-of-the-money and
not offset by the time it expires becomes worthless. Options usually trade at a
premium above their intrinsic value (I.E., the difference between the market
price for the underlying futures contract and the striking price), because the
option trader is speculating on (or hedging against) future movements in the
price of the underlying contract. As an option nears its expiration date, the
market and intrinsic value typically move into parity. The difference between an
option's intrinsic and market values is referred to as the "time value" of the
option.
FORWARD CONTRACTS
Contracts for the future delivery of certain commodities may also be made
through banks or dealers pursuant to what are commonly referred to as "forward
contracts." A forward contract is a contractual right to purchase or sell a
specified quantity of a commodity at or before a specified date in the future at
a specified price and, therefore, it is similar to a futures contract. In
forward contract trading, a bank or dealer generally acts as principal in the
transaction and includes its anticipated profit (the "spread" between the "bid"
and the "asked" prices), and in some instances a mark-up, in the prices it
quotes for forward contracts. Unlike futures contracts, forward contracts are
not standardized contracts; rather, they are the subject of individual
negotiation between the parties involved. Because there is no clearinghouse
system applicable to forward contracts, forward contracts are not fungible, and
there is no direct means of "offsetting" a forward contract by purchase of an
offsetting position on the same exchange as one can a futures contract. In
recent years, the terms of forward contracts have become more standardized and
in some instances such contracts now provide a right of offset or cash
settlement as an alternative to making delivery on the contract.
HEDGERS AND SPECULATORS
The two broad classes of persons who trade futures interests contracts are
"hedgers" and "speculators." Commercial interests, including farmers, that
market or process commodities and financial institutions that market or deal in
commodities, including interest rate sensitive instruments, foreign currencies
and stocks, which are exposed to currency, interest rate and stock market risks,
may use the futures markets for hedging. Hedging is a protective procedure
designed to minimize losses that may occur because of price fluctuations
occurring, for example, between the time a processor makes a contract to buy or
sell a raw or processed commodity at a certain price and the time he must
perform the contract. The futures markets enable the hedger to shift the risk of
price fluctuations to the speculator. The speculator risks his capital with the
hope of making profits from price fluctuations in futures, forwards, and options
contracts. Speculators rarely take delivery of commodities, but rather close out
their positions by entering into offsetting purchases or sales of futures,
forwards, and options, contracts. Since the speculator may take either a long or
short position in the futures markets, it is possible for him to make profits or
incur losses regardless of whether prices go up or down. The partnerships will
trade for speculative rather than for hedging purposes.
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<PAGE>
FUTURES EXCHANGES
Futures exchanges provide centralized market facilities for trading futures
contracts and options (but not forward contracts). Members of, and trades
executed on, a particular exchange are subject to the rules of that exchange.
Among the principal exchanges in the United States are the Chicago Board of
Trade, the Chicago Mercantile Exchange, the New York Mercantile Exchange, and
the New York Board of Trade.
Each futures exchange in the United States has an associated
"clearinghouse." Once trades between members of an exchange have been confirmed,
the clearinghouse becomes substituted for each buyer and each seller of
contracts traded on the exchange and, in effect, becomes the other party to each
trader's open position in the market. Thereafter, each party to a trade looks
only to the clearinghouse for performance. The clearinghouse generally
establishes some sort of security or guarantee fund to which all clearing
members of the exchange must contribute; this fund acts as an emergency buffer
that enables the clearinghouse to meet its obligations with regard to the "other
side" of an insolvent clearing member's contracts. Clearinghouses require margin
deposits and continuously mark positions to market to provide some assurance
that their members will be able to fulfill their contractual obligations. Thus,
a central function of the clearinghouses is to ensure the integrity of trades,
and members effecting futures transactions on an organized exchange need not
worry about the solvency of the party on the opposite side of the trade; their
only remaining concerns are the respective solvencies of their commodity broker
and the clearinghouse.
Foreign futures exchanges differ in certain respects from their U.S.
counterparts. In contrast to United States exchanges, certain foreign exchanges
are "principals' markets," where trades remain the liability of the traders
involved, and the exchange does not become substituted for any party. SEE
"REGULATIONS" BELOW AND "RISK FACTORS--TRADING AND PERFORMANCE RISKS--TRADING ON
FOREIGN EXCHANGES PRESENTS GREATER RISKS TO EACH PARTNERSHIP THAN TRADING ON
U.S. EXCHANGES."
SPECULATIVE POSITION LIMITS
The CFTC and U.S. futures exchanges have established limits, referred to as
"speculative position limits" or "position limits," on the maximum net long or
net short speculative position that any person or group of persons (other than a
hedger, which the partnerships are not) may hold, own or control in certain
futures interests contracts. Among the purposes of speculative position limits
is to prevent a "corner" on a market or undue influence on prices by any single
trader or group of traders. The CFTC has jurisdiction to establish position
limits with respect to all commodities and has established position limits for
all agricultural commodities. In addition, the CFTC requires each United States
exchange to submit position limits for all commodities traded on such exchange
for approval by the CFTC. However, position limits do not apply to many currency
futures contracts. Position limits do not apply to forward contract trading or
generally to trading on foreign exchanges. SEE "RISK FACTORS--TRADING AND
PERFORMANCE RISKS--THE PARTNERSHIPS ARE SUBJECT TO SPECULATIVE POSITION LIMITS."
DAILY LIMITS
Most United States futures exchanges (but generally not foreign exchanges or
banks or dealers in the case of forward contracts) limit the amount of
fluctuation in futures interests contract prices during a single trading day by
regulation. These regulations specify what are referred to as "daily price
fluctuation limits" or more commonly "daily limits." The daily limits establish
the maximum amount that the price of a futures contract may vary either up or
down from the previous day's settlement price. Once the daily limit has been
reached in a particular futures market, no trades may be made at a price beyond
the limit. SEE "RISK FACTORS--TRADING AND PERFORMANCE RISKS--MARKET ILLIQUIDITY
MAY CAUSE LESS FAVORABLE TRADE PRICES."
REGULATIONS
Futures exchanges in the United States are subject to regulation under the
Commodity Exchange Act by the CFTC, the governmental agency having
responsibility for regulation of futures exchanges and trading on those
exchanges.
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<PAGE>
The CFTC also regulates the activities of "commodity trading advisors" and
"commodity pool operators" and has adopted regulations with respect to certain
of such persons' activities. The CFTC requires a commodity pool operator (such
as the general partner) to keep accurate, current and orderly records with
respect to each pool it operates. The CFTC may suspend the registration of a
commodity pool operator if the CFTC finds that the operator has violated the
Commodity Exchange Act or regulations thereunder and in certain other
circumstances. Suspension, restriction or termination of the general partner's
registration as a commodity pool operator would prevent it, until such time (if
any) as such registration were to be reinstated, from managing, and might result
in the termination of, the partnerships. The Commodity Exchange Act gives the
CFTC similar authority with respect to the activities of commodity trading
advisors, such as the trading advisors. If the registration of a trading advisor
as a commodity trading advisor were to be terminated, restricted or suspended,
the trading advisor would be unable, until such time (if any) as such
registration were to be reinstated, to render trading advice to the relevant
partnership. The partnerships themselves are not registered with the CFTC in any
capacity.
The Commodity Exchange Act requires all "futures commission merchants," such
as Dean Witter, Morgan Stanley, and Carr Futures, to meet and maintain specified
fitness and financial requirements, segregate customer funds from proprietary
funds and account separately for all customers' funds and positions, and to
maintain specified books and records open to inspection by the staff of the
CFTC. The partnerships have no present intention of using any introducing
brokers in their trading.
The Commodity Exchange Act also gives the states certain powers to enforce
its provisions and the regulations of the CFTC.
You are afforded certain rights for reparations under the Commodity Exchange
Act. You may also be able to maintain a private right of action for certain
violations of the Commodity Exchange Act. The CFTC has adopted
rules implementing the reparation provisions of the Commodity Exchange Act which
provide that any person may file a complaint for a reparations award with the
CFTC for violation of the Commodity Exchange Act against a floor broker, futures
commission merchant, introducing broker, commodity trading advisor, commodity
pool operator, and their respective associated persons.
Pursuant to authority in the Commodity Exchange Act, the National Futures
Association has been formed and registered with the CFTC as a "registered
futures association." At the present time, the National Futures Association is
the only non-exchange self-regulatory organization for commodities
professionals. National Futures Association members are subject to National
Futures Association standards relating to fair trade practices, financial
condition, and consumer protection. As the self-regulatory body of the
commodities industry, the National Futures Association promulgates rules
governing the conduct of commodity professionals and disciplines those
professionals who do not comply with such standards. The CFTC has delegated to
the National Futures Association responsibility for the registration of
commodity trading advisors, commodity pool operators, futures commission
merchants, introducing brokers and their respective associated persons and floor
brokers. Dean Witter, the general partner, Morgan Stanley, Carr Futures, and the
trading advisors are all members of the National Futures Association (the
partnerships themselves are not required to become members of the National
Futures Association).
The CFTC has no authority to regulate trading on foreign commodity exchanges
and markets. SEE "RISK FACTORS--TRADING AND PERFORMANCE RISKS--TRADING ON
FOREIGN EXCHANGES PRESENTS GREATER RISKS TO EACH PARTNERSHIP THAN TRADING ON
U.S. EXCHANGES."
MARGINS
"Initial" or "original" margin is the minimum amount of funds that a futures
trader must deposit with his commodity broker in order to initiate futures
trading or to maintain an open position in futures contracts. "Maintenance"
margin is the amount (generally less than initial margin) to which a trader's
account may decline before he must deliver additional margin. A margin deposit
is like a cash performance bond. It helps assure the futures trader's
performance of the futures contracts he purchases or sells. Futures contracts
are customarily bought and sold on margins that represent a very small
percentage (ranging upward from less than 2%) of the purchase price of the
underlying commodity being traded. Because of such low margins, price
fluctuations occurring in the futures markets may create profits and losses that
are greater, in relation to the amount invested, than are customary in other
forms of investment or speculation. The minimum amount of margin required in
connection with a particular futures contract
89
<PAGE>
is set by the exchange on which such contract is traded, and may be modified
from time to time by the exchange during the term of the contract. SEE "RISK
FACTORS--TRADING AND PERFORMANCE RISKS--THE PARTNERSHIPS' TRADING IS LEVERAGED."
Brokerage firms, such as Dean Witter, Morgan Stanley, and Carr Futures,
carrying accounts for traders in futures contracts may not accept lower, and
generally require higher, amounts of margin as a matter of policy in order to
afford further protection for themselves. Dean Witter, Morgan Stanley, and Carr
Futures presently intend to require each partnership to make margin deposits
equal to the exchange minimum levels for all futures contracts.
Trading in the currency forward contract market does not require margin, but
generally does require the extension of credit by a bank or dealer to those with
whom the bank or dealer trades. Since each partnership's trading will be
conducted through Carr Futures (Spectrum Commodity does not trade such currency
forwards), each partnership will be able to take advantage of Carr Futures'
credit lines with several participants in the interbank market. Carr Futures
will require margin with respect to a partnership's trading of currency forward
contracts.
Margin requirements are computed each day by a trader's commodity broker.
When the market value of a particular open futures contract position changes to
a point where the margin on deposit does not satisfy maintenance margin
requirements, a margin call is made by the commodity broker. If the margin call
is not met within a reasonable time, the broker may close out the trader's
position. With respect to a partnership's trading, that partnership, and not its
limited partners personally or any other partnership, will be subject to margin
calls.
POTENTIAL ADVANTAGES
Developing a comprehensive financial plan entails evaluating options and
acting upon those options. In this fast-paced and ever-changing financial
environment, selecting from the broad array of investments available can be
difficult and time-consuming. Astute investors often turn to professional money
managers for the expertise and guidance needed to map out a successful
investment strategy. Morgan Stanley Dean Witter & Co., a global leader in
financial management, has developed the Spectrum Series of partnerships to
provide professional money management in the futures and forward markets.
An investment in a partnership is speculative and involves a high degree of
risk. The general partner and Dean Witter believe that managed futures
investments (such as the partnerships) can provide you with the potential for
long-term capital appreciation (with commensurate risk), but are appropriate
only for the aggressive growth portion of your comprehensive financial plan. SEE
"RISK FACTORS." Taking the risks into consideration, this investment does offer
the following potential advantages.
INVESTMENT DIVERSIFICATION
If you are not prepared to make a significant investment or spend
substantial time trading various futures, forwards, and options, you may still
participate in these markets through an investment in a Spectrum Series
partnership, obtaining diversification from more traditional investments in
stocks, bonds, and real estate. The general partner believes, on the basis of
the past experience of the partnerships, that the profit potential of a
partnership does not depend upon favorable general economic conditions, and that
a partnership is as likely to be profitable during periods of declining stock,
bond, and real estate markets as at any other time; conversely, a partnership
may be unprofitable during periods of generally favorable economic conditions.
Managed futures investments can serve to diversify your portfolio and smooth
overall portfolio volatility. Modern Portfolio Theory is the academic
affirmation of the value of diversification. Modern Portfolio Theory was
developed in the 1950s by Nobel Laureates William Sharpe and Harold Markowitz.
These two pioneers developed a framework for efficiently diversifying assets
within a portfolio. They suggested that investing in any asset class with
positive returns and low correlation to other assets improves the overall
risk/reward characteristics of the entire portfolio. In 1983, Dr. John H.
Lintner of Harvard University focused on the concepts of Modern Portfolio Theory
in a ground-breaking study about portfolio diversification. Specifically, Modern
Portfolio Theory was utilized to evaluate the addition of a managed futures
component to a diversified portfolio comprised of 60% stocks and 40% bonds. The
results of Lintner's work demonstrated that by including a variety of assets,
such as commodities, in a
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<PAGE>
hypothetical portfolio, an investor may lower the portfolio's overall volatility
or risk. Lintner's findings were further supported by the works of Dr. Thomas
Schneeweis of the University of Massachusetts, Amherst, in his 1999 study, "The
Benefits of Managed Futures." Dr. Schneeweis concluded that "while ... the
correlation between managed futures and most traditional investments is
approximately zero, when asset returns are segmented according to whether the
traditional asset rose or fell, managed futures are often negatively correlated
in months when traditional asset returns are negative while being positively
correlated when traditional asset returns are positive."
The partnerships' combined benefits of growth potential (with commensurate
risk) and diversification can potentially reduce the overall volatility of your
portfolio, while increasing profits. By combining asset classes, you may create
a portfolio mix that provides the potential to offer the greatest possible
return within acceptable levels of volatility. While past performance is no
guarantee of future results, managed futures investments, such as the
partnerships, may profit (with commensurate risk) from futures interests market
moves, with the potential to enhance your overall portfolio.
The trading advisors' speculative trading techniques will be the primary
factor in the partnerships' success or failure. You should note that there are
always two parties to a futures, forward, or option contract; consequently, for
any gain achieved by one party on a contract, a corresponding loss is suffered.
Therefore, due to the nature of futures, forwards, and options trading, only 50%
of contract interests held by all market participants can experience gain at any
one time. Brokerage commissions and other costs of trading may reduce or
eliminate any gain that would otherwise be achieved.
The first step toward a sound financial future is to establish your
investment objectives. Based on your financial goals, requirements, and
investment preferences, your Morgan Stanley Dean Witter financial advisor can
help you determine the combination of asset classes as well as the type of
trading advisor that most suits your investment profile.
Asset allocation is the next critical step to help you achieve your
investment objectives. Asset allocation refers to the division of investment
dollars over a variety of asset classes in order to reduce overall volatility
through portfolio diversification, while increasing the long-term performance
potential of an investment portfolio. A fully diversified portfolio should
contain cash, income, growth and aggressive growth investments.
Managed futures investments are designed to fit into a total financial plan
as aggressive growth vehicles with the potential for long-term capital
appreciation (with commensurate risk). As part of a well-balanced and fully
diversified portfolio, managed futures can offer significant benefits.
EDGAR REPRESENTATION OF DATA POINTS USED IN PRINTED GRAPHIC
<TABLE>
<S> <C>
AGGRESSIVE GROWTH
GROWTH
INCOME
CASH & EQUIVALENTS
STOCKS 60%
MANAGED FUTURES 10%
CASH 5%
BONDS 25%
</TABLE>
91
<PAGE>
The table below is an empirical example of how different assets can react to
business cycles. In each case, the asset class is represented by a recognized
industry index for that asset.
ANNUAL RETURNS OF VARIOUS ASSET CLASSES OVER TIME
<TABLE>
<CAPTION>
U.S. TREASURY PUBLIC
U.S. BONDS (LEHMAN U.S. CORPORATE NON-U.S. MANAGED MANAGED
STOCKS BROTHERS BONDS STOCKS GLOBAL STOCKS FUTURES FUTURES FUNDS
(S&P 500 TREASURY (SALOMON CORPORATE (MSCI EAFE (MSCI WORLD (BARCLAY (MAR PUBLIC
INDEX) BOND INDEX) BOND INDEX) INDEX) INDEX) CTA INDEX) FUND INDEX)
-------- ------------- ------------------ ----------- ------------- ---------- -------------
<S> <C> <C> <C> <C> <C> <C> <C>
% % % % % % %
1981...... (5.0) 1.1 (1.2) (1.0) (3.3) 23.9 N/A
1982...... 21.6 41.1 42.5 (0.8) 11.3 16.7 N/A
1983...... 22.5 1.8 6.3 24.6 23.3 23.8 N/A
1984...... 6.2 14.7 16.9 7.9 5.8 8.7 1.4
1985...... 31.7 32.0 30.1 56.7 41.8 25.5 21.9
1986...... 18.6 24.2 19.9 69.9 42.8 3.8 (14.4)
1987...... 5.2 (2.7) (0.3) 24.9 16.8 57.3 43.1
1988...... 16.5 9.1 10.7 28.6 23.9 21.8 7.3
1989...... 31.6 18.9 16.2 10.8 17.2 1.8 4.7
1990...... (3.1) 4.6 6.8 (23.2) (16.5) 21.0 14.2
1991...... 30.4 17.9 19.9 12.5 19.0 3.7 10.0
1992...... 7.6 7.8 9.4 (11.8) (4.7) (0.9) (1.4)
1993...... 10.1 16.4 13.2 32.9 23.1 10.4 10.7
1994...... 1.3 (6.9) (5.8) 8.1 5.6 (0.7) (7.7)
1995...... 37.5 30.7 27.2 11.6 21.3 13.7 13.9
1996...... 22.8 (0.4) 1.3 6.4 14.0 9.1 9.8
1997...... 33.4 14.9 11.6 2.1 16.2 10.9 7.6
1998...... 28.6 13.5 12.5 20.3 24.8 7.0 7.9
1999...... 21.0 (8.7) (6.6) 27.3 25.3 (1.2) (1.4)
</TABLE>
PAST PERFORMANCE IS NOT NECESSARILY INDICATIVE OF FUTURE RESULTS.
NOTES TO "ANNUAL RETURNS OF VARIOUS ASSET CLASSES OVER TIME" TABLE
For the analyses used in this table, the performance of independent indices
has been used to represent seven asset classes: U.S. stocks, U.S. Treasury
bonds, U.S. corporate bonds, international stocks, global stocks, managed
futures, and public managed futures funds. The respective indices used are the
Standard and Poor's 500 Stock Index, the Lehman Brothers Treasury Bond Index,
the Salomon Corporate Bond Index, the Morgan Stanley Capital International
("MSCI") EAFE Index, the MSCI World Index, the Barclay CTA Index, and the
Managed Account Reports Public Fund Index.
The S&P 500 Index and the Salomon Corporate Bond Index are compiled assuming
dividends and interest are re-invested.
The S&P 500 Index is based on a portfolio of 500 stocks (consisting of 400
industrials, 40 utilities, 20 transportations, and 40 financials). The weights
of the stocks in the portfolio at a given time reflect the stocks' total market
capitalization. The S&P 500 Index accounts for approximately 80% of the market
capitalization of all stocks listed on the New York Stock Exchange.
The Lehman Brothers Treasury Bond Index consists of all existing U.S.
Treasury bond issues.
The Salomon Corporate Bond Index is a benchmark of investment grade fixed
rate corporate issues with maturities of at least one year and in minimum
outstanding amounts of $100 million. The corporate issues encompass such
industry sectors as Manufacturing, Service, Energy, Consumer, Transportation,
Industrial-Other, Utility, and Finance.
92
<PAGE>
The MSCI EAFE Index is comprised of 1,098 companies, representing a market
structure of 21 European and Pacific based countries covering 38 industries. The
index is used to represent international equities.
The MSCI World Index is comprised of 1,456 companies, representing a market
structure of 22 countries around the world. The index is used to represent
global equities, including U.S. and Canadian markets.
The Barclay CTA Index provides a benchmark of performance of commodity
trading advisors. In order to qualify for inclusion in the Barclay CTA Index, a
commodity trading advisor must meet the following criteria: (1) the commodity
trading advisor must have four years of prior performance history; and (2) in
cases where a commodity trading advisor who is in the Barclay CTA Index
introduces an additional program, this additional program is added to the Index
only after its second year of trading. In 1998, there were 327 commodity trading
advisor programs which were included in the calculation of the Barclay CTA
Index.
The MAR Index averages managed futures fund performance for public funds.
MAR indices are dollar, or equity, weighted to reflect performance. To qualify
for inclusion in MAR's fund indices, an investment product must appear in MAR's
fund performance tables. MAR imposes no minimum size restriction on the funds
and/or pools that it tracks. As of December 31, 1999, there were 89 public funds
included in the calculation of the MAR Index.
The S&P 500 Index, Salomon Corporate Bond Index, and MSCI EAFE Index
performance data for stocks, corporate bonds, and international stocks,
respectively, are provided by Thomson Financial Software Solutions, Boston, MA.
The MSCI World Index performance data for global stocks are provided by Morgan
Stanley Capital International Inc., New York, NY. The Lehman Brothers Treasury
Bond Index and the Barclay CTA Index performance data for U.S. Treasury bonds
and managed futures, respectively, are provided by the Barclay Trading Group
Ltd., Fairfield, IA. The MAR Index performance data for public managed futures
funds was provided by Managed Account Reports, Inc., New York, NY. Performance
of any of these indices (which, by definition, are averages of many individual
investments) may not be representative of any specific investment within that
index's asset class.
The performance information of the asset classes above does not reflect the
effect of fees identical to those to be paid by the partnerships, including
management, incentive, and brokerage fees. Past performance is no guarantee of
future results. Note that while the Barclay CTA Index and the MAR Index reflect
results net of actual fees and expenses, the Barclay commodity trading advisor
Index includes accounts with trading advisors and fee structures that differ
from public managed futures funds (such as the partnerships), and the MAR Index
includes funds with trading advisors and fee structures that differ from the
partnerships. Also, the partnerships' trading strategies may be different from
the trading strategies employed by the trading advisors included in the Barclay
CTA Index and the public managed futures funds included in the MAR Index.
Accordingly, while the Barclay CTA Index is believed to be representative of
managed futures in general, and the MAR Index is believed to be representative
of public managed futures funds in general, the performance of the partnerships
may differ from the performance reflected in such indices.
CORRELATION TO TRADITIONAL INVESTMENTS
Managed futures have historically performed independently of traditional
investments, such as stocks and bonds. This is referred to as non-correlation,
or the potential for managed futures to perform when traditional markets such as
stocks and bonds may experience difficulty performing. Of course, managed
futures funds will not automatically be profitable during unfavorable periods
for these traditional investments, and vice versa. The degree of non-correlation
of any given managed futures fund will vary, particularly as a result of market
conditions, and some funds will have a significantly lesser degree of
non-correlation (I.E., greater correlation) with stocks and bonds than others.
The factors that influence the stock and bond markets can affect the futures
markets in different ways and to varying degrees. In this connection, an article
in the June 8, 1998 issue of BUSINESS WEEK, "Commodities are Cheap--Time to
Leap?" discusses the risks and potential rewards of investing in managed futures
funds, noting the low correlation of their performance to stocks and bonds.
93
<PAGE>
The following chart was prepared by the general partner to illustrate the
performance of managed futures against that of stocks from January 1982 through
December 31, 1999, using the recognized market indices of each asset. The Notes
on the next page are an integral part of the following chart.
EDGAR REPRESENTATION OF DATA POINTS USED IN PRINTED GRAPHIC
<TABLE>
<CAPTION>
MANAGED FUTURES VS. STOCKS MANAGED FUTURES STOCKS
12-MONTH HOLDING PERIOD PERFORMANCE BARCLAY'S CTA INDEX S&P 500 INDEX
RATES OF RETURN (BARCLAY TRADING (THOMPSON FINANCIAL SOFTWARE
GROUP, FAIRFIELD, IA) SOLUTIONS, BOSTON, MA)
<S> <C> <C>
12/81 23.90% -5.03%
1/82 19.68% -2.15%
2/82 22.38% -9.18%
3/82 36.81% -13.11%
4/82 34.16% -7.44%
5/82 33.64% -10.76%
6/82 22.58% -11.57%
7/82 14.52% -13.34%
8/82 15.91% 3.13%
9/82 30.14% 9.75%
10/82 29.02% 16.10%
11/82 14.97% 15.99%
12/82 16.68% 21.34%
1/83 35.84% 27.49%
2/83 19.89% 38.16%
3/83 13.97% 43.99%
4/83 13.88% 48.68%
5/83 21.23% 52.53%
6/83 3.85% 60.89%
7/83 17.83% 58.92%
8/83 23.21% 43.89%
9/83 12.85% 44.18%
10/83 18.58% 27.76%
11/83 19.50% 25.42%
12/83 23.75% 22.47%
1/84 6.22% 17.39%
2/84 15.67% 10.73%
3/84 15.59% 8.60%
4/84 13.59% 1.55%
5/84 7.70% -3.26%
6/84 6.16% -4.94%
7/84 24.90% -3.17%
8/84 5.36% 5.89%
9/84 9.35% 4.43%
10/84 2.87% 6.12%
11/84 4.15% 2.79%
12/84 8.74% 5.99%
1/85 9.78% 14.95%
2/85 16.02% 20.55%
3/85 12.57% 18.65%
4/85 13.21% 17.48%
5/85 10.18% 31.66%
6/85 16.27% 31.02%
7/85 9.21% 32.48%
8/85 16.78% 18.28%
9/85 3.67% 14.61%
10/85 15.37% 19.40%
11/85 24.49% 29.06%
12/85 25.50% 31.83%
1/86 24.64% 23.02%
2/86 35.92% 30.68%
3/86 45.10% 37.86%
4/86 38.81% 36.48%
5/86 31.60% 35.84%
6/86 36.26% 35.97%
7/86 23.46% 28.49%
8/86 31.90% 39.25%
9/86 34.95% 31.77%
10/86 21.01% 33.29%
11/86 13.05% 27.68%
12/86 3.82% 18.66%
1/87 12.63% 33.88%
2/87 -0.72% 29.39%
3/87 -2.84% 26.08%
4/87 26.48% 26.34%
5/87 29.26% 21.06%
6/87 26.93% 24.99%
7/87 28.75% 39.16%
8/87 20.42% 34.36%
9/87 28.42% 43.30%
10/87 34.78% 6.32%
11/87 49.66% -4.68%
12/87 57.27% 5.30%
1/88 39.63% -3.14%
2/88 39.76% -2.58%
3/88 30.57% -8.17%
4/88 2.74% -6.22%
5/88 13.99% -6.50%
6/88 50.09% -6.86%
7/88 31.52% -11.56%
8/88 34.50% -17.78%
9/88 34.61% -12.32%
10/88 36.00% 14.94%
11/88 28.51% 23.20%
12/88 21.76% 16.56%
1/89 25.93% 19.91%
2/89 20.71% 11.76%
3/89 29.56% 17.98%
4/89 31.52% 22.76%
5/89 35.10% 26.67%
6/89 7.40% 20.49%
7/89 15.00% 31.72%
8/89 7.71% 39.10%
9/89 3.61% 32.83%
10/89 -3.91% 26.12%
11/89 -4.21% 30.61%
12/89 1.80% 31.37%
1/90 1.86% 14.25%
2/90 6.36% 18.59%
3/90 5.71% 18.94%
4/90 13.34% 10.24%
5/90 -4.29% 16.29%
6/90 -4.34% 16.18%
7/90 2.83% 6.27%
8/90 16.50% -5.11%
9/90 23.49% -9.30%
10/90 32.87% -7.44%
11/90 29.27% -3.44%
12/90 21.02% -3.07%
1/91 13.35% 8.45%
2/91 11.53% 14.78%
3/91 12.89% 14.56%
4/91 5.95% 17.73%
5/91 10.30% 11.92%
6/91 11.85% 7.53%
7/91 2.34% 12.92%
8/91 -5.91% 26.95%
9/91 -5.97% 31.09%
10/91 -7.88% 33.32%
11/91 -7.21% 20.28%
12/91 3.73% 30.34%
1/92 4.13% 22.61%
2/92 2.26% 15.96%
3/92 -3.71% 10.99%
4/92 -2.64% 13.97%
5/92 -1.77% 9.81%
6/92 -0.07% 13.26%
7/92 7.86% 12.61%
8/92 12.50% 7.77%
9/92 7.76% 10.94%
10/92 8.96% 9.96%
11/92 9.97% 18.44%
12/92 -0.91% 7.71%
1/93 1.91% 10.55%
2/93 10.36% 10.66%
3/93 11.84% 15.18%
4/93 16.34% 9.25%
5/93 17.93% 11.65%
6/93 14.02% 13.69%
7/93 13.36% 8.78%
8/93 7.37% 15.34%
9/93 8.20% 13.06%
10/93 7.37% 14.97%
11/93 6.26% 10.07%
12/93 10.37% 9.97%
1/94 8.69% 12.80%
2/94 1.57% 8.23%
3/94 4.16% 1.45%
4/94 -0.86% 5.29%
5/94 1.27% 4.26%
6/94 2.79% 1.46%
7/94 -1.92% 5.22%
8/94 -1.92% 5.53%
9/94 0.59% 3.72%
10/94 1.25% 3.82%
11/94 2.80% 1.09%
12/94 -0.65% 1.39%
1/95 0.90% 0.61%
2/95 5.85% 7.44%
3/95 10.41% 15.63%
4/95 13.71% 17.46%
5/95 11.20% 20.24%
6/95 7.09% 26.03%
7/95 6.88% 26.03%
8/95 12.88% 21.42%
9/95 10.86% 29.76%
10/95 10.74% 26.47%
11/95 10.05% 36.97%
12/95 13.64% 37.51%
1/96 18.77% 38.58%
2/96 9.38% 34.71%
3/96 3.39% 32.10%
4/96 8.28% 30.17%
5/96 5.62% 28.42%
6/96 6.63% 26.03%
7/96 6.19% 16.53%
8/96 2.92% 18.74%
9/96 5.35% 20.33%
10/96 11.17% 24.07%
11/96 13.84% 27.88%
12/96 9.12% 22.98%
1/97 10.42% 26.19%
2/97 20.00% 26.07%
3/97 18.59% 19.70%
4/97 10.37% 25.01%
5/97 12.94% 29.40%
6/97 13.43% 34.68%
7/97 21.88% 52.15%
8/97 17.97% 40.68%
9/97 16.58% 40.55%
10/97 8.74% 32.21%
11/97 6.59% 28.64%
12/97 10.89% 33.50%
1/98 7.39% 27.09%
2/98 2.74% 35.15%
3/98 3.91% 48.12%
4/98 1.79% 41.13%
5/98 2.24% 30.76%
6/98 2.52% 30.26%
7/98 -3.28% 19.28%
8/98 6.72% 8.04%
9/98 8.99% 8.97%
10/98 9.93% 21.85%
11/98 7.38% 23.60%
12/98 7.01% 28.58%
1/99 4.79% 32.52%
2/99 8.58% 19.79%
3/99 6.67% 18.53%
4/99 12.39% 21.94%
5/99 9.95% 21.07%
6/99 11.25% 22.70%
7/99 10.83% 20.19%
8/99 4.35% 39.87%
9/99 1.36% 27.90%
10/99 -2.18% 25.73%
11/99 0.68% 20.87%
12/99 -1.20% 20.99%
PAST PERFORMANCE IS NOT NECESSARILY INDICATIVE OF FUTURE
RESULTS.
</TABLE>
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<PAGE>
NOTES TO "MANAGED FUTURES VS. STOCKS" TABLE:
Stocks are represented by the S&P 500 Index, provided by Thomson Financial
Software Solutions, Boston, MA; managed futures are represented by the Barclay
CTA Index, provided by Barclay Trading Group Ltd., Fairfield, IA. Each bar
represents the asset class performance derived from successive 12-month
hypothetical holding periods or windows. (A 12-month holding period is defined
as a period of 12 consecutive months, E.G., from January 1989 to December 1989;
the next would be from February 1989 to January 1990, etc.) Performance of any
of these indices (which, by definition, are averages of many individual
investments) may not be representative of any specific investment within that
index's asset class.
By overlaying returns, investors can see the potential benefits of a
diversified portfolio that includes both traditional asset classes as well as
assets that are non-traditional and non-correlated. There are many times when
both the managed futures and stock indices showed positive performance.
Obviously, though, there is no investment that only appreciates. There are 21
periods when managed futures showed negative returns, while stocks experienced
26 periods of negative returns during the studied time frame. While not a
guarantee of future results, this chart provides a clear indication of the
non-correlated aspect of managed futures. This non-correlation enables investors
with managed futures to potentially lower the overall volatility of their
portfolios.
The performance information of the asset classes above does not reflect the
effect of fees identical to those to be paid by the partnerships, including
management, incentive and brokerage fees. Past performance is no guarantee of
future results. Note that while the Barclay CTA Index reflects results net of
actual fees and expenses, it includes accounts with trading advisors and fee
structures that differ from public managed futures funds (such as the
partnerships). Also, the partnerships' trading strategies may be different from
the trading strategies employed by the trading advisors included in the Barclay
CTA Index. Accordingly, while the Barclay CTA Index is believed to be
representative of managed futures in general, the performance of public managed
futures funds as a subclass, or individually (in particular, the partnerships),
may differ.
-------------------
The following chart was prepared by the general partner to illustrate the
risk/return characteristics of a portfolio consisting of different combinations
of domestic stocks, corporate bonds, international equities and/or managed
futures, based on the performance of recognized market indices of each asset
over the period January 1981--December 31, 1999. The Notes on the next page are
an integral part of the following chart.
IMPROVED PORTFOLIO EFFICIENCY
JANUARY 1981 THROUGH DECEMBER 1999
U.S. STOCKS/BONDS/INTERNATIONAL EQUITIES/MANAGED FUTURES
EDGAR REPRESENTATION OF DATA POINTS USED IN PRINTED GRAPHIC
<TABLE>
<CAPTION>
STANDARD DEVIATION OF MONTHLY RETURNS AVERAGE MONTHLY RETURN
<S> <C> <C>
100% Stocks (S&P 500 Index) 4.2667% 1.4168%
100% Bonds (Salomon Corporate Bond Index) 2.6405% 0.9474%
100% Int'l Eqs. (MSCI EAFE Index) 5.0281% 1.2415%
100% Mgd. Futures (Barclay CTA Index) 4.9943% 1.1234%
50% Stocks/50% Bonds 2.9101% 1.1821%
50% Stocks/30% Bonds/10% Int'l Eqs./10% Mgd. Futures 2.8680% 1.2291%
60% Stocks/40% Bonds 3.1236% 1.2290%
60% Stocks/30% Bonds/10% Mgd. Futures 3.0101% 1.2466%
70% Stocks/30% Bonds 3.3726% 1.2759%
70% Stocks/20% Bonds/10% Mgd. Futures 3.2736% 1.2935%
PAST PERFORMANCE IS NOT NECESSARILY INDICATIVE OF FUTURE
RESULTS.
</TABLE>
95
<PAGE>
NOTES TO "IMPROVED PORTFOLIO EFFICIENCY" TABLE ON PRIOR PAGE:
Stocks are represented by the S&P 500 Index, corporate bonds are represented
by the Salomon Corporate Bond Index, and international equities are represented
by the MSCI EAFE Index, each provided by Thomson Financial Software Solutions,
Boston, MA; managed futures are represented by the Barclay CTA Index, provided
by the Barclay Trading Group Ltd., Fairfield, IA. Performance of any of these
indices (which, by definition, are averages of many individual investments) may
not be representative of any specific investment within that index's asset
class.
The performance information of the asset classes above does not reflect the
effect of fees identical to those to be paid by the partnerships, including
management, incentive, and brokerage fees. Past performance is no guarantee of
future results. Note that while the Barclay CTA Index reflects results net of
actual fees and expenses, it includes accounts with trading advisors and fee
structures that differ from public managed futures funds (such as the
partnerships). Also, the partnerships' trading strategies may be different from
the trading strategies employed by the trading advisors included in the Barclay
CTA Index. Accordingly, while the Barclay CTA Index is believed to be
representative of managed futures in general, the performance of public managed
futures funds as a subclass, or individually (in particular, the partnerships),
may differ.
-------------------
PROFESSIONAL MANAGEMENT
Professional money management is one of the most significant benefits a
managed futures investment can offer. A professional trading advisor has several
advantages over an individual investor.
- CAPITALIZATION --A professional trading advisor is well capitalized, and
capable of managing market volatility.
- DISCIPLINE --A professional trading advisor applies an established,
disciplined approach to futures trading, with strict money management
policies and techniques.
- PLANNED STRATEGY --A professional trading advisor utilizes a researched
trading strategy designed to reduce risk while seeking long-term profit
opportunities.
- RISK CONTROL --Professional trading advisors offer a full time commitment
to risk control, applying risk management strategies and years of research
and experience.
- RESEARCH AND DEVELOPMENT --A professional trading advisor is committed to
ongoing research and development, in an effort to continuously improve
upon existing systems and technology in order to keep pace with industry
developments and potentially capitalize on market opportunities as they
occur.
In considering the advantages of utilizing a professional trading advisor,
you also should consider the fees a trading advisor will be paid to manage a
partnership's account. Depending on the partnership, the annual management fees
range from 2.5% to 4.0% of the average month-end net assets of a partnership
managed by the trading advisor, and incentive fees range from 15.0% to 20.0% of
trading profits.
THE TRADING ADVISOR SELECTION PROCESS
Each of the trading advisors for the partnerships was chosen by the general
partner based upon a strict selection process, including such criteria as
performance history, experience, personnel, and due diligence. The performance
history and trading experience of the trading advisors chosen for the
partnerships span a range of seven to twenty-two years, and each trading advisor
employs experienced personnel. Additionally, the general partner monitors daily
each trading advisor's activities on behalf of a partnership and periodically
conducts on-site due diligence visits to remain abreast of each trading
advisor's continuing efforts toward research and development. This selection
process is described below.
In order for a trading advisor to be selected by the general partner, a
qualitative and quantitative due diligence process is undertaken, considering
the factors described below. The general partner's primary objective in the
selection process is to allocate assets to trading advisors with
well-established performance histories and whom it believes have the potential
to continue to be successful in the future.
Monitoring is an important second phase in the due diligence process. The
general partner has invested significant resources into its proprietary Fund
Management System, a comprehensive
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<PAGE>
computerized management system. This sophisticated system produces daily control
reports generated from actual trading data and enables the general partner to
closely monitor the activity and performance of trading advisors relative to
their historical profile.
Monitoring also occurs on a periodic basis by discussing with the trading
advisors their performance relative to profile and peer trading advisors, recent
market conditions and trading opportunities. Ongoing research and development,
and continued on-site due diligence visits are conducted. While the due
diligence process cannot guarantee future success, the general partner believes
the process can provide the basis for sound decision-making and can increase the
potential for future success.
TRADING ADVISOR EVALUATION AND SELECTION
<TABLE>
<S> <C>
Screening Trading advisors are screened from a pool of approximately
400.
Evaluation Trading advisors are categorized and evaluated based on
quantitative and qualitative factors.
Selection Trading advisors are selected based on quantitative and
qualitative analysis.
Monitoring Daily and periodic monitoring and reporting takes place on
an ongoing basis.
</TABLE>
Trading advisors are analyzed by a combination of qualitative and
quantitative factors, including:
QUALITATIVE FACTORS
- Experience of staff responsible for development and management of trading
approach
- Development of trading advisor's profile
- Consistency of trading approach
- On-site office visit to trading advisor headquarters
- Ongoing commitment to research and development
- Flexibility to expand in order to meet demands of growth in assets
QUANTITATIVE MEASURES
- Review of historic performance returns
- Review of performance versus managed futures industry
- Review of risk, including standard deviation of monthly returns and worst
decline periods
- Scrutiny of performance in key periods
- Leverage policies of trading advisors
- Correlation analysis of trading advisor returns versus managed futures
industry indices and other asset class indices
FUTURES, FORWARDS AND OPTIONS TRADED
Adding managed futures investments to a traditional portfolio of stocks and
bonds can provide qualified investors with access to major world economic
markets. At any given time, managed futures investments can participate in a
broad array of markets, selected from among approximately 75 global futures and
forward markets on approximately 20 exchanges worldwide.
<TABLE>
<CAPTION>
PARTICIPATION IN OVER 75 MARKETS WORLDWIDE
PLUS ENERGIES, AGRICULTURALS, AND METALS
UNITED STATES UNITED KINGDOM FRANCE GERMANY
- --------------------- -------------- ------ -------
<S> <C> <C> <C>
Bonds, Bills, & Notes Long Gilt Notional Bond Bund
Dollar Short Sterling Pibor Mark
S&P 500 Pound Franc DAX
FT-SE 100 CAC 40
</TABLE>
<TABLE>
<CAPTION>
RUSSIA CHINA JAPAN AUSTRALIA
- ------ ----- ----- ---------
<S> <C> <C> <C>
Ruble Hang Seng Index Government Bonds 3-year & 10-year bonds
Yen Dollar
Nikkei 225 All Ordinaries Index
</TABLE>
97
<PAGE>
<TABLE>
<CAPTION>
MAJOR FUTURES MARKETS TRADED
AGRICULTURALS FOREIGN EXCHANGE STOCK INDICES INTEREST RATES
- ------------- ---------------- ------------- --------------
<S> <C> <C> <C>
Azuki (R. Beans) Australian dollar ASE All Australian bonds
Corn Brazilian real Ordinaries British bonds
Feeder cattle British pound CAC 40 Canadian bonds
Lean hogs Canadian dollar DAX Euro bonds
Live cattle Czech koruna Dow Jones Eurodollar
Oats Euro Industrial French bonds
Pork bellies French franc E-mini S&P German bonds
Soybean meal German mark FTSE 100 Italian bonds
Soybean oil Greek drachma Hang Seng Japanese bonds
Soybeans Hong Kong dollar IBEX 35 Plus Mexican bonds
Wheat Indonesian rupiah Mexican IPC New Zealand bonds
Japanese yen MIB 30 Spanish bonds
Malaysian ringgit NASDAQ 100 Swiss bonds
Mexican peso Nikkei 225 U.S. Treasury bonds
New Zealand dollar NYSE Composite U.S. Treasury notes
Norwegian krone S&P 500
Singapore dollar Swedish
South African rand Taiwan
Spanish peseta Toronto
Swedish krona
Swiss franc
Thai baht
U.S. dollar
</TABLE>
<TABLE>
<CAPTION>
METALS SOFTS ENERGIES
- ------ ----- --------
<S> <C> <C> <C>
Aluminum Cocoa Crude oil
Copper Coffee Gas oil
Gold Cotton Heating oil
Lead Lumber Natural gas
Nickel Orange juice Unleaded gas
Palladium Rubber
Platinum Sugar
Silver
Tin
Zinc
</TABLE>
Each partnership normally trades a portfolio of diverse futures, forwards,
or options, but may trade a greater or lesser number of futures, forwards, or
options from time to time. Each limited partner will obtain greater
diversification in futures, forwards, or options traded than would be possible
trading individually, unless substantially more than the minimum investment
described herein were committed to the futures interests markets.
EXCHANGE RIGHT
At the sixth month-end after a person first becomes a limited partner in any
of the six Spectrum Series partnerships, and each calendar month thereafter, a
limited partner may shift his investment among the partnerships. This permits a
limited partner to select one or more partnerships which best suit his
investment needs and objectives, which may change from time to time. A limited
partner is not required to pay any redemption charges in connection with a
Spectrum Series exchange.
DIVERSIFIED PROFESSIONAL TRADING MANAGEMENT
Trading decisions for each partnership will be made by trading advisors
retained by the general partner. The trading approaches employed on behalf of
each partnership by its trading advisors are not
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<PAGE>
available for investments as small as the required minimum investment in each
partnership. A limited partner's investment in each partnership is allocated
among the trading advisors for such partnership. This permits a limited partner
to receive the benefits from different trading systems being employed by such
partnership. A limited partner can further diversify his professional trading
management by dividing his investment among one or more of the partnerships. For
example, an investor owning units of all six partnerships in the Spectrum Series
would have the benefit of having his investment managed by 11 trading advisors.
LIMITED LIABILITY
Unlike an individual who invests directly in futures, forwards, or options,
an investor in a partnership cannot be individually subject to margin calls and
cannot lose more than the amount of his unredeemed capital contribution, his
share of undistributed profits, if any, and, under certain circumstances, any
distributions and amounts received upon redemption, or deemed received on an
exchange of units, and interest thereon.
INTEREST INCOME
Many commodity brokers permit accounts above a certain size to deposit
margin for futures, forwards, or options in the form of interest-bearing
obligations, such as U.S. Treasury bills, rather than cash, thus enabling the
account to earn interest on funds being used for futures trading, or such
brokers pay interest at U.S. Treasury bill rates on a portion of the cash
deposited in the account. Each partnership deposits its assets in separate
commodity trading accounts with the commodity brokers. Dean Witter credits each
partnership at each month-end with interest income as if 80% of each
partnership's average daily net assets for the month were invested at a
prevailing rate on U.S. Treasury bills. Generally, an individual trader would
not receive any interest on the funds in his commodity account unless he
committed substantially more than the minimum investment required for the
partnerships. While the partnerships are credited with interest by Dean Witter
on the respective percentage of their assets deposited as margin as described
above, the form of margin posted, whether cash or interest-bearing obligations
(such as U.S. Treasury bills), does not reduce the risks inherent in the trading
of futures, forwards, or options.
ADMINISTRATIVE CONVENIENCE
The partnerships are structured so as to provide limited partners with
numerous services designed to alleviate the administrative details involved in
engaging directly in futures, forwards, and options trading, including monthly
and annual financial reports (showing, among other things, the net asset value
of a unit, trading profits or losses, and expenses), and all tax information
relating to the partnerships necessary for limited partners to complete their
federal income tax returns.
SUPPLEMENTAL PERFORMANCE INFORMATION
The tables on the following pages contain summary performance information
and certain other data for each partnership, supplementing the information in
Part I of this prospectus.
99
<PAGE>
MORGAN STANLEY DEAN WITTER SPECTRUM CURRENCY L.P.
- --------------------------------------------------------------------------------
All of the performance data below is a pro forma of Cornerstone IV based on the
Spectrum Currency fee structure and is through December 31, 1999.
STATISTICS
- ------------------------------------------------
<TABLE>
<S> <C>
Trading Advisors: John W. Henry & Company, Inc.
Sunrise Capital Partners, LLC
Cornerstone IV Began Trading: May 1, 1987
Net Assets in Cornerstone IV: $ 103.0 Million
Minimum Investment: $5,000 ($2,000/IRA)
Average Leverage Employed: 2.7x
Monthly Management Fee: 1/12 of 4.00% of Beg. Net Assets
to John W. Henry &
Company, Inc. and 1/12 of 3.00%
to Sunrise Capital Partners, LLC
Monthly Brokerage Fee: 1/12 of 4.60% of Beg. Net Assets
Monthly Incentive Fee: 15.00% of Monthly Trading Profits
Investment Style: Technical
</TABLE>
RISK ANALYSIS
- ------------------------------------------------
<TABLE>
<S> <C>
Compounded Annual Rate of Return: 13.33%
Standard Deviation of Monthly Returns: 8.51%
Annualized Standard Deviation: 29.44%
Sharpe Ratio: 0.30
Sortino Ratio: 0.54
Largest Decline Period (7/89 - 9/89): -43.60%
Average Recovery (No. of months): 7.42
Average Monthly Loss: -5.42%
Standard Deviation of Monthly Loss: 4.74%
% of Losing Months: 43.42%
Average Monthly Gain: 6.63%
Standard Deviation of Monthly Gain: 6.90%
% of Winning Months: 56.58%
</TABLE>
SECTOR PARTICIPATION
- ------------------------------------------------
EDGAR REPRESENTATION OF DATA POINTS USED IN PRINTED GRAPHIC
<TABLE>
<S> <C>
Currencies 100%
</TABLE>
TRADING STRATEGY
- ------------------------------------------------
Spectrum Currency, managed by John W. Henry & Company, Inc. and Sunrise Capital
Partners, LLC, is structured to exclusively trade a portfolio of diverse world
currencies. Each trading advisor implements a technical, trend-following program
to participate in international currencies via the interbank market (a network
of major world banks and financial institutions) and futures contracts, and may
also trade in spot (cash) currency markets.
JWH employs the International Foreign Exchange Program, which seeks to identify
and capitalize on intermediate-term price movements in a broad range of both
major and minor currencies primarily trading on the interbank market. Positions
are taken as outrights against the U.S. dollar, or non-dollar cross rates.
Sunrise's Currency Program follows approximately ten different major and minor
currency markets, which may include, but are not limited to, the Japanese yen,
British pound, Euro, Swiss franc, Canadian dollar, Australian dollar, Swedish
krona, New Zealand dollar, Singapore dollar and South African rand. In order to
achieve adequate diversification for the Currency Program, major and minor
currencies are traded as crossrates selectively against each other and/or as
outrights against the U.S. dollar.
MARKETS TRADED
- ------------------------------------------------
Markets traded may include but are not limited to the following:
FOREIGN
EXCHANGE
Australian dollar
British pound
Canadian dollar
Czech koruna
Danish krone
Euro
Greek drachma
Hong Kong dollar
Japanese yen
Malaysian ringgit
Mexican peso
New Zealand dollar
Norwegian krone
Singapore dollar
South African rand
Swedish krona
Swiss franc
Thai baht
PAST PERFORMANCE IS NOT NECESSARILY INDICATIVE OF FUTURE RESULTS.
100
<PAGE>
PRO FORMA FOR SPECTRUM CURRENCY PERFORMANCE
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
1987 1988 1989 1990 1991 1992 1993 1994 1995 1996 1997 1998 1999
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
10.22% 36.99% -9.52% 59.88% 37.10% 9.78% -7.54% -13.78% 21.34% 13.14% 34.68% 3.09% -2.18%
</TABLE>
(8 MONTHS)
ROLLING 12-MONTH PRO FORMA PERFORMANCE VS. MAR INDEX
- --------------------------------------------------------------------------------
EDGAR REPRESENTATION OF DATA POINTS USED IN PRINTED GRAPHIC
<TABLE>
<CAPTION>
PRO FORMA FOR MAR INDEX
SPECTRUM CURRENCY
<S> <C> <C>
4/30/88 -2.56% -1.22%
5/31/88 39.28% 7.84%
6/30/88 58.34% 26.45%
7/31/88 72.83% 15.67%
8/31/88 104.62% 21.13%
9/30/88 94.29% 23.80%
10/31/88 74.08% 25.14%
11/30/88 71.54% 17.59%
12/31/88 36.99% 7.26%
1/31/89 102.27% 19.88%
2/28/89 65.64% 11.23%
3/31/89 63.00% 16.74%
4/30/89 60.08% 17.87%
5/31/89 43.26% 22.71%
6/30/89 26.64% 6.35%
7/31/89 1.43% 13.47%
8/31/89 -19.74% 6.40%
9/30/89 -32.16% 3.32%
10/31/89 -30.21% -3.07%
11/30/89 -28.86% -2.00%
12/31/89 -9.52% 4.68%
1/31/90 -20.30% 0.71%
2/28/90 -2.32% 7.36%
3/31/90 -0.50% 7.69%
4/30/90 0.58% 12.99%
5/31/90 -18.96% -3.66%
6/30/90 -8.46% -2.20%
7/31/90 30.48% 1.07%
8/31/90 74.04% 11.28%
9/30/90 110.34% 16.17%
10/31/90 123.99% 22.75%
11/30/90 97.93% 20.62%
12/31/90 59.88% 14.23%
1/31/91 37.39% 7.28%
2/28/91 26.49% 6.80%
3/31/91 53.48% 9.85%
4/30/91 51.62% 5.39%
5/31/91 66.74% 10.61%
6/30/91 62.20% 9.53%
7/31/91 18.42% 2.06%
8/31/91 -1.01% -6.24%
9/30/91 9.49% -3.79%
10/31/91 -6.91% -6.22%
11/30/91 -0.57% -6.50%
12/31/91 37.10% 10.01%
1/31/92 36.62% 6.45%
2/29/92 33.84% 2.77%
3/31/92 6.13% -3.03%
4/30/92 -2.44% -5.17%
5/31/92 -0.67% -4.35%
6/30/92 6.20% 0.74%
7/31/92 28.78% 10.82%
8/31/92 64.81% 20.71%
9/30/92 46.75% 13.91%
10/31/92 52.45% 14.62%
11/30/92 45.45% 15.01%
12/31/92 9.78% -1.40%
1/31/93 16.18% 5.66%
2/28/93 45.83% 15.85%
3/31/93 38.98% 15.98%
4/30/93 48.94% 22.42%
5/31/93 50.86% 22.74%
6/30/93 29.80% 17.48%
7/31/93 27.56% 14.79%
8/31/93 1.44% 8.84%
9/30/93 4.30% 9.38%
10/31/93 -1.98% 8.75%
11/30/93 -9.53% 6.98%
12/31/93 -7.54% 10.74%
1/31/94 -2.70% 7.66%
2/28/94 -17.44% -1.18%
3/31/94 -14.73% 1.65%
4/30/94 -17.72% -3.13%
5/31/94 -24.16% -1.70%
6/30/94 -19.87% 0.14%
7/31/94 -27.75% -6.92%
8/31/94 -25.33% -8.75%
9/30/94 -22.50% -6.98%
10/31/94 -12.32% -5.24%
11/30/94 -11.88% -3.91%
12/31/94 -13.78% -7.72%
1/31/95 -19.27% -8.09%
2/28/95 -11.84% -0.20%
3/31/95 11.60% 7.72%
4/30/95 17.77% 13.02%
5/31/95 16.20% 13.48%
6/30/95 7.71% 8.31%
7/31/95 11.07% 7.93%
8/31/95 21.40% 12.11%
9/30/95 19.12% 8.67%
10/31/95 14.08% 7.38%
11/30/95 18.90% 7.98%
12/31/95 21.34% 13.89%
1/31/96 35.28% 22.29%
2/29/96 19.83% 7.63%
3/31/96 -3.22% -2.00%
4/30/96 -2.31% -0.53%
5/31/96 3.99% -5.67%
6/30/96 4.68% -3.39%
7/31/96 2.27% -1.85%
8/31/96 -5.64% -2.71%
9/30/96 -4.97% 3.01%
10/31/96 2.97% 11.68%
11/30/96 10.34% 17.01%
12/31/96 13.14% 9.77%
1/31/97 15.50% 10.59%
2/28/97 30.39% 22.30%
3/31/97 28.42% 20.87%
4/30/97 25.69% 13.80%
5/31/97 17.35% 15.63%
6/30/97 19.14% 15.43%
7/31/97 33.77% 24.78%
8/31/97 40.32% 20.31%
9/30/97 39.85% 17.36%
10/31/97 31.73% 7.78%
11/30/97 31.49% 3.00%
12/31/97 34.63% 7.62%
1/31/98 25.45% 4.09%
2/28/98 13.18% 0.69%
3/31/98 14.98% 1.49%
4/30/98 9.12% -0.72%
5/31/98 21.70% 4.29%
6/30/98 34.08% 3.85%
7/31/98 23.82% -3.46%
8/31/98 22.00% 8.24%
9/30/98 17.09% 11.53%
10/31/98 20.38% 12.61%
11/30/98 9.63% 8.10%
12/31/98 3.09% 7.92%
1/31/99 1.86% 5.55%
2/28/99 6.96% 8.33%
3/31/99 6.74% 7.04%
4/30/99 12.79% 16.26%
5/31/99 5.16% 8.95%
6/30/99 -6.38% 11.26%
7/31/99 -11.37% 9.55%
8/31/99 -10.83% 2.28%
9/30/99 -4.97% -1.35%
10/31/99 -13.40% -5.74%
11/30/99 -3.89% -0.98%
12/31/99 -2.18% -1.41%
</TABLE>
HISTORICAL PRO FORMA PERFORMANCE COMPARISON (4/30/87 = $10)
- --------------------------------------------------------------------------------
EDGAR REPRESENTATION OF DATA POINTS USED IN PRINTED GRAPHIC
<TABLE>
<CAPTION>
PRO FORMA FOR MAR INDEX S & P SALOMON CORP. MSCI EAFE
SPECTRUM CURRENCY 500 BOND INDEX INDEX
INDEX
<S> <C> <C> <C> <C> <C>
5/1/87 10.0000 10.0000 10.0000 10.0000 10.0000
5/31/87 8.9360 9.7460 10.0900 9.9500 10.0000
6/30/87 8.9083 9.5959 10.5945 10.0993 9.6800
7/31/87 8.7257 9.9404 11.1348 9.9781 9.6606
8/31/87 7.6603 9.5706 11.5468 9.8983 10.3851
9/30/87 7.6434 9.4060 11.2928 9.4826 10.2189
10/31/87 8.7005 9.4540 8.8648 9.9662 8.7883
11/30/87 9.6723 10.1763 8.1379 10.0958 8.8762
12/31/87 11.0216 10.8490 8.7564 10.3078 9.1425
1/31/88 8.7820 10.2469 9.1417 10.8438 9.3071
2/29/88 8.8698 10.3811 9.5531 10.9956 9.9307
3/31/88 9.3869 10.0946 9.2665 10.7867 10.5464
4/30/88 9.7436 9.8776 9.3777 10.6249 10.7046
5/31/88 12.4465 10.5098 9.4340 10.5612 10.3621
6/30/88 14.1056 12.1336 9.8680 10.9625 10.0927
7/31/88 15.0803 11.4978 9.8483 10.8419 10.4157
8/31/88 15.6745 11.5932 9.4938 10.8961 9.7387
9/30/88 14.8500 11.6442 9.9020 11.2557 10.1672
10/31/88 15.1455 11.8305 10.1892 11.5709 11.0416
11/30/88 16.5919 11.9666 10.0262 11.3742 11.7041
12/31/88 15.0986 11.6363 10.2067 11.4197 11.7743
1/31/89 17.7635 12.2844 10.9620 11.6481 11.9862
2/28/89 14.6922 11.5473 10.6770 11.4967 12.0461
3/31/89 15.3005 11.7840 10.9332 11.5657 11.8172
4/30/89 15.5973 11.6426 11.5127 11.8086 11.9236
5/31/89 17.8308 12.8965 11.9502 12.2573 11.2797
6/30/89 17.8629 12.9042 11.8904 12.7353 11.0879
7/31/89 15.2960 13.0461 12.9724 12.9645 12.4850
8/31/89 12.5810 12.3351 13.2059 12.7571 11.9232
9/30/89 10.0749 12.0304 13.1531 12.8081 12.4717
10/31/89 10.5706 11.4674 12.8506 13.1667 11.9728
11/30/89 11.8031 11.7277 13.0948 13.2589 12.5714
12/31/89 13.6609 12.1804 13.4091 13.2722 13.0365
1/31/90 14.1582 12.3716 12.5241 13.0200 12.5541
2/28/90 14.3508 12.3976 12.6619 13.0070 11.6753
3/31/90 15.2233 12.6902 13.0038 12.9940 10.4611
4/30/90 15.6876 13.1547 12.6917 12.7471 10.3774
5/31/90 14.4498 12.4246 13.8974 13.2442 11.5604
6/30/90 16.3514 12.6197 13.8140 13.5356 11.4564
7/31/90 19.9585 13.1851 13.7864 13.6710 11.6168
8/31/90 21.8965 13.7270 12.5318 13.2745 10.4900
9/30/90 21.1914 13.9755 11.9303 13.3940 9.0319
10/31/90 23.6772 14.0761 11.8945 13.5681 10.4409
11/30/90 23.3623 14.1465 12.6439 13.9480 9.8249
12/31/90 21.8414 13.9131 12.9979 14.1851 9.9919
1/31/91 19.4520 13.2717 13.5828 14.3979 10.3216
2/28/91 18.1526 13.2412 14.5336 14.5707 11.4260
3/31/91 23.3642 13.9403 14.8969 14.7310 10.7404
4/30/91 23.7848 13.8636 14.9416 14.9372 10.8478
5/31/91 24.0940 13.7430 15.5542 14.9969 10.9671
6/30/91 26.5227 13.8227 14.8543 14.9669 10.1665
7/31/91 23.6344 13.4564 15.5673 15.2213 10.6647
8/31/91 21.6751 12.8710 15.9098 15.6323 10.4514
9/30/91 23.2032 13.4463 15.6393 16.0544 11.0471
10/31/91 22.0407 13.2002 15.8583 16.1186 11.2018
11/30/91 23.2287 13.2266 15.2081 16.2959 10.6865
12/31/91 29.9441 15.3058 16.9418 17.0129 11.2422
1/31/92 26.5754 14.1273 16.6538 16.7237 11.0061
2/29/92 24.2952 13.6074 16.8536 16.8909 10.6099
3/31/92 24.7957 13.5176 16.5334 16.7727 9.9096
4/30/92 23.2038 13.1472 17.0294 16.8062 9.9591
5/31/92 23.9324 13.1446 17.0805 17.2264 10.6264
6/30/92 28.1684 13.9254 16.8243 17.5020 10.1270
7/31/92 30.4360 14.9127 17.5309 18.0446 9.8738
8/31/92 35.7227 15.5361 17.1452 18.2070 10.4958
9/30/92 34.0509 15.3170 17.3509 18.3891 10.2964
10/31/92 33.6014 15.1301 17.4377 18.0949 9.7610
11/30/92 33.7862 15.2118 18.0131 18.2216 9.8586
12/31/92 32.8740 15.0916 18.2473 18.6407 9.9079
1/31/93 30.8753 14.9271 18.4115 19.1067 9.9079
2/28/93 35.4294 15.7645 18.6508 19.6035 10.2150
3/31/93 34.4622 15.6778 19.0425 19.6427 11.1037
4/30/93 34.5587 16.0948 18.6045 19.7409 12.1586
5/31/93 36.1035 16.1334 19.0696 19.7804 12.4139
6/30/93 36.5620 16.3593 19.1268 20.3540 12.2277
7/31/93 38.8252 17.1184 19.0694 20.5575 12.6557
8/31/93 36.2356 16.9096 19.7750 21.1537 13.3391
9/30/93 35.5145 16.7540 19.6168 21.2383 13.0456
10/31/93 32.9361 16.4541 20.0484 21.3445 13.4500
11/30/93 30.5680 16.2731 19.8279 20.9390 12.2799
12/31/93 30.3938 16.7125 20.0658 21.0856 13.1641
1/31/94 30.0412 16.0707 20.7681 21.5073 14.2830
2/28/94 29.2511 15.5789 20.1866 20.8836 14.2402
3/31/94 29.3857 15.9372 19.3186 20.0900 13.6279
4/30/94 28.4365 15.5914 19.5891 19.8891 14.2139
5/31/94 27.3815 15.8596 19.8829 19.7698 14.1286
6/30/94 29.2955 16.3814 19.4057 19.6116 14.3264
7/31/94 28.0504 15.9342 20.0655 20.2196 14.4697
8/31/94 27.0574 15.4307 20.8681 20.1589 14.8170
9/30/94 27.5228 15.5850 20.3464 19.6146 14.3577
10/31/94 28.8797 15.5912 20.8144 19.5165 14.8459
11/30/94 26.9361 15.6364 20.0443 19.5555 14.1333
12/31/94 26.2061 15.4222 20.3450 19.8684 14.2181
1/31/95 24.2537 14.7698 20.8943 20.3850 13.6778
2/28/95 25.7890 15.5482 21.6883 20.9762 13.6368
3/31/95 32.7933 17.1668 22.3389 21.1860 14.4959
4/30/95 33.4885 17.6217 23.0091 21.5462 15.0467
5/31/95 31.8174 17.9970 23.9065 22.9036 14.8661
6/30/95 31.5533 17.7432 24.4563 23.0868 14.6134
7/31/95 31.1557 17.1985 25.2878 22.8559 15.5340
8/31/95 32.8475 17.3000 25.3384 23.3359 14.9437
9/30/95 32.7851 16.9367 26.4026 23.6859 15.2426
10/31/95 32.9457 16.7419 26.3234 24.1122 14.8310
11/30/95 32.0265 16.8842 27.4553 24.6909 15.2463
12/31/95 31.7991 17.5646 27.9770 25.2588 15.8714
1/31/96 32.8103 18.0617 28.9562 25.2841 15.9349
2/29/96 30.9040 16.7342 29.2168 24.3486 15.9986
3/31/96 31.7384 16.8229 29.5090 24.0321 16.3346
4/30/96 32.7159 17.5278 29.9516 23.6476 16.8083
5/31/96 33.0856 16.9757 30.7004 23.6712 16.5058
6/30/96 33.0294 17.1421 30.8232 24.0736 16.6048
7/31/96 31.8635 16.8798 29.4670 24.0977 16.1233
8/31/96 30.9936 16.8308 30.0858 23.9290 16.1555
9/30/96 31.1548 17.4468 31.7706 24.5512 16.5917
10/31/96 33.9245 18.6977 32.6602 25.4350 16.4258
11/30/96 35.3392 19.7560 35.1097 26.0709 17.0828
12/31/96 35.9788 19.2799 34.4075 25.5756 16.8607
1/31/97 37.8965 19.9740 36.5408 25.4989 16.2706
2/28/97 40.2953 20.4654 36.8331 25.5754 16.5472
3/31/97 40.7587 20.3344 35.3229 25.0127 16.6134
4/30/97 41.1215 19.9460 37.4423 25.4629 16.7131
5/31/97 38.8269 19.6289 39.7263 25.7939 17.7995
6/30/97 39.3511 19.7879 41.5140 26.2840 18.7785
7/31/97 42.6369 21.0622 44.8351 27.6771 19.0790
8/31/97 43.5024 20.2492 42.3243 27.0128 17.6672
9/30/97 43.5807 20.4760 44.6521 27.6341 18.6566
10/31/97 44.7007 20.1525 43.1786 27.9933 17.2200
11/30/97 46.4798 20.3480 45.1648 28.2732 17.0478
12/31/97 48.4552 20.7489 45.9326 28.5559 17.2012
1/31/98 47.5588 20.7904 46.4379 28.9557 17.9925
2/28/98 45.6232 20.6074 49.7814 28.9267 19.1440
3/31/98 46.8824 20.6383 52.3203 29.0424 19.7375
4/30/98 44.8899 19.8024 52.8435 29.1876 19.8954
5/31/98 47.2691 20.4717 51.9452 29.6838 19.7959
6/30/98 52.7807 20.5495 54.0750 30.0400 19.9543
7/31/98 52.7965 20.3337 53.4802 30.3404 20.1538
8/31/98 53.0763 21.9177 45.7256 30.6135 17.6547
9/30/98 51.0329 22.8361 48.6566 31.8687 17.1180
10/31/98 53.8142 22.6945 52.6124 31.2632 18.9154
11/30/98 50.9620 21.9955 55.8218 32.1073 19.8801
12/31/98 49.9530 22.3914 59.0595 32.1394 20.6753
1/31/99 48.4444 21.9436 61.5400 32.5251 20.6133
2/28/99 48.7980 22.3232 59.6323 31.2241 20.1186
3/31/99 50.0423 22.0910 62.0176 31.2241 20.9636
4/30/99 50.6328 23.0232 64.4363 31.1617 21.8231
5/31/99 49.7062 22.3049 62.8898 30.6008 20.7101
6/30/99 49.4129 22.8625 66.3487 30.1112 21.5178
7/31/99 46.7940 22.2749 64.2919 29.7800 22.1633
8/31/99 47.3275 22.4175 63.9704 29.6907 22.2520
9/30/99 48.4965 22.5273 62.2432 29.9579 22.4745
10/31/99 46.6051 21.3919 66.1645 30.0777 23.3285
11/30/99 48.9820 21.7791 67.4878 30.1379 24.1450
12/31/99 48.8644 22.0753 71.4696 30.0173 26.3181
</TABLE>
CORRELATION ANALYSIS (5/87 - 12/99)
- --------------------------------------------------------------------------------
Note: The closer the value to zero, the lower the correlation to the indexes
compared.
<TABLE>
<CAPTION>
Pro Forma for
Spectrum Currency MAR S&P SAL EAFE
<S> <C> <C> <C> <C> <C>
- ---------------------------------------------------------------------------------------------------------------------------
Pro Forma for Spectrum Currency 1.00 0.71 -0.10 0.10 -0.09
MAR Index 1.00 0.06 0.28 -0.05
S&P 500 Index 1.00 0.31 0.54
Salomon Corporate Bond Index 1.00 0.10
MSCI EAFE Index 1.00
</TABLE>
The S&P 500 Index, Salomon Corporate Bond Index and MSCI EAFE Index performance
data for stocks, corporate bonds and international stocks, respectively, are
provided by Thomson Financial Software Solutions, Boston, MA. The MAR Index
performance data for managed futures is provided by Managed Account
Reports, Inc., New York, N.Y.
Risk Considerations: Typically, managed futures investments are speculative,
involve a high degree of risk, have substantial charges and are suitable only
for the risk capital portion of an investor's portfolio. Before investing in any
partnership and in order to make an informed decision, you should read the
Spectrum Series prospectus carefully for complete information, including
charges, expenses and risks. Financial advisors should also read the prospectus
before discussing managed futures with clients.
PAST PERFORMANCE IS NOT NECESSARILY INDICATIVE OF FUTURE RESULTS.
101
<PAGE>
MORGAN STANLEY DEAN WITTER SPECTRUM COMMODITY L.P.
(formerly, Morgan Stanley Tangible Asset Fund L.P.)
- --------------------------------------------------------------------------------
All of the performance data below is through December 31, 1999.
SPECTRUM COMMODITY STATISTICS
- ------------------------------------------------
<TABLE>
<S> <C>
Trading Advisor: Morgan Stanley Dean Witter
Commodities Management Inc.
Began Trading: January 2, 1998
Net Assets in Fund: $23.6 Million
Minimum Investment: $5,000 ($2,000/IRA)
Average Leverage Employed: 1.5x
Monthly Management Fee: 1/12 of 2.50% of Beg. Net Assets
Monthly Brokerage Fee: 1/12 of 4.60% of Beg. Net Assets
Annual Incentive Fee: 20.00% of Trading Profits
Investment Style: Technical
</TABLE>
RISK ANALYSIS
- ------------------------------------------------
<TABLE>
<S> <C>
Compounded Annual Rate of Return: -12.77%
Standard Deviation of Monthly Returns: 4.95%
Annualized Standard Deviation: 17.14%
Sharpe Ratio: -1.01
Sortino Ratio: -2.14
Largest Decline Period (2/98 - 2/99): -38.60%
Average Recovery (No. of months): N/A
Average Monthly Loss: -4.83%
Standard Deviation of Monthly Loss: 2.33%
% of Losing Months: 54.17%
Average Monthly Gain: 3.50%
Standard Deviation of Monthly Gain: 2.93%
% of Winning Months: 45.83%
</TABLE>
CURRENT SECTOR PARTICIPATION
- ------------------------------------------------
EDGAR REPRESENTATION OF DATA POINTS USED IN PRINTED GRAPHIC
<TABLE>
<S> <C>
Agriculturals 17%
Energies 29%
Metals 37%
Softs 17%
</TABLE>
TRADING STRATEGY
- ------------------------------------------------
Spectrum Commodity features a long-only, broadly-diversified, actively-managed
portfolio of traditional commodities.
Its trading advisor, Morgan Stanley Dean Witter Commodities Management Inc.,
uses a technical approach to investing that is unique in the marketplace. The
trading strategy seeks to benefit from supply and demand dynamics (based on
consumer and producer reactions to price movements) by over-weighting exposure
to commodities that are historically undervalued and showing signs of
strengthening, and under-weighting exposure to those markets that are
historically overvalued and showing signs of weakening.
FUTURES MARKETS TRADED
- ------------------------------------------------
Markets traded may include but are not limited to the following:
<TABLE>
<S> <C>
AGRICULTURALS METALS
Corn Aluminum
Feeder cattle Copper
Lean hogs Gold
Live cattle Lead
Oats Nickel
Pork bellies Platinum
Soybean meal Silver
Soybean oil Tin
Soybeans Zinc
Wheat
SOFTS
Cocoa
Coffee
Cotton
Lumber
Orange juice
Sugar
ENERGIES
Crude oil
Gas oil
Heating oil
Natural gas
Unleaded gas
</TABLE>
PAST PERFORMANCE IS NOT NECESSARILY INDICATIVE OF FUTURE RESULTS.
102
<PAGE>
SPECTRUM COMMODITY PERFORMANCE
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
1998 1999
<S> <C>
- -34.30% 15.83%
</TABLE>
ROLLING 12-MONTH PERFORMANCE VS. MAR INDEX
- --------------------------------------------------------------------------------
EDGAR REPRESENTATION OF DATA POINTS USED IN PRINTED GRAPHIC
<TABLE>
<CAPTION>
DEC-98 SPECTRUM COMMODITY MAR
JAN-99 -34.30% INDEX
-36.13% 7.92%
5.55%
<S> <C> <C>
Feb-99 -34.73% 8.33%
Mar-99 -29.14% 7.04%
Apr-99 -25.67% 16.27%
May-99 -24.91% 8.96%
Jun-99 -18.95% 11.26%
Jul-99 -12.99% 9.55%
Aug-99 0.28% 2.28%
Sep-99 -2.19% -1.35%
Oct-99 -1.47% -5.74%
Nov-99 8.97% -0.98%
Dec-99 15.83% -1.41%
</TABLE>
HISTORICAL PERFORMANCE COMPARISON (12/31/97 = $10)
- --------------------------------------------------------------------------------
EDGAR REPRESENTATION OF DATA POINTS USED IN PRINTED GRAPHIC
<TABLE>
<CAPTION>
SPECTRUM MAR PUB S&P 500 SALOMON MSCI
CORP. EAFE
<S> <C> <C> <C> <C> <C>
Commodity Index Index Bond Index Index
Dec-97 $10.00 $10.00 $10.00 $10.00 $10.00
Jan-98 $10.13 $10.02 $10.11 $10.14 $10.46
Feb-98 $9.53 $9.93 $10.84 $10.13 $11.13
Mar-98 $9.54 $9.95 $11.39 $10.17 $11.47
Apr-98 $9.31 $9.54 $11.50 $10.22 $11.57
May-98 $8.67 $9.87 $11.31 $10.40 $11.51
Jun-98 $8.39 $9.90 $11.77 $10.52 $11.60
Jul-98 $7.85 $9.80 $11.64 $10.63 $11.72
Aug-98 $7.23 $10.56 $9.95 $10.72 $10.26
Sep-98 $7.75 $11.01 $10.59 $11.16 $9.95
Oct-98 $7.48 $10.94 $11.45 $10.95 $11.00
Nov-98 $6.80 $10.60 $12.15 $11.24 $11.56
Dec-98 $6.57 $10.79 $12.86 $11.25 $12.02
Jan-99 $6.47 $10.58 $13.40 $11.39 $11.98
Feb-99 $6.22 $10.76 $12.98 $10.93 $11.70
Mar-99 $6.76 $10.65 $13.50 $10.93 $12.19
Apr-99 $6.92 $11.10 $14.03 $10.91 $12.69
May-99 $6.51 $10.75 $13.69 $10.72 $12.04
Jun-99 $6.80 $11.02 $14.44 $10.54 $12.51
Jul-99 $6.83 $10.74 $13.99 $10.43 $12.88
Aug-99 $7.25 $10.80 $13.92 $10.40 $12.94
Sep-99 $7.58 $10.86 $13.55 $10.49 $13.07
Oct-99 $7.37 $10.31 $14.40 $10.53 $13.56
Nov-99 $7.41 $10.50 $14.69 $10.55 $14.04
Dec-99 $7.61 $10.64 $15.56 $10.51 $15.30
</TABLE>
CORRELATION ANALYSIS (1/98 - 12/99)
- --------------------------------------------------------------------------------
Note: The closer the value to zero, the lower the correlation to the indexes
compared.
<TABLE>
<CAPTION>
Spectrum Commodity MAR S&P SAL EAFE
<S> <C> <C> <C> <C> <C>
- ------------------------------------------------------------------------------------------------------------------------------
Spectrum Commodity 1.00 0.14 0.24 0.03 0.21
MAR Index 1.00 -0.35 0.10 -0.38
S&P 500 Index 1.00 0.12 0.78
Salomon Corporate Bond Index 1.00 -0.13
MSCI EAFE Index 1.00
</TABLE>
The S&P 500 Index, Salomon Corporate Bond Index and MSCI EAFE Index performance
data for stocks, corporate bonds and international stocks, respectively, are
provided by Thomson Financial Software Solutions, Boston, MA. The MAR Index
performance data for managed futures is provided by Managed Accounts
Reports, Inc., New York, N.Y.
Risk Considerations: Typically, managed futures investments are speculative,
involve a high degree of risk, have substantial charges and are suitable only
for the risk capital portion of an investor's portfolio. Before investing in any
partnership and in order to make an informed decision, you should read the
Spectrum Series prospectus carefully for complete information, including
charges, expenses and risks. Financial advisors should also read the prospectus
before discussing managed futures with clients.
PAST PERFORMANCE IS NOT NECESSARILY INDICATIVE OF FUTURE RESULTS.
103
<PAGE>
The following chart was prepared by the general partner to illustrate the
change in fund assets from the inception of trading in Spectrum Commodity
through December 31, 1999, to reflect the partnership's performance and net
additions of capital. Since Spectrum Currency is a new partnership without an
operating history, comparable information is not available for that partnership.
SPECTRUM COMMODITY
(FORMERLY, MORGAN STANLEY TANGIBLE ASSET FUND L.P.)
FUND ASSET HISTORY
EDGAR REPRESENTATION OF DATA POINTS USED IN PRINTED GRAPHIC
<TABLE>
<CAPTION>
MILLIONS SPECTRUM COMMODITY
<S> <C>
Jan-98* $25.7
Dec-98* $24.9
Dec-99 $23.6
</TABLE>
Year-end net assets (millions)
* Fund had multiple closings during initial offering
-------------------
The following chart was prepared by the general partner to illustrate the
monthly performance, on a net asset value basis, of Spectrum Commodity versus
that of the MAR Index, from the inception of trading through December 31, 1999.
Since Spectrum Currency is a new partnership without an operating history,
comparable information is not available for that partnership. The MAR Index
represents the dollar-weighted average performance of public managed futures
funds. To qualify for inclusion in the MAR Index, an investment product must
appear in MAR's fund performance tables. MAR imposes no minimum size
restrictions on the public managed futures funds that it tracks. As of
December 31, 1999, there were 89 public managed futures funds included in the
calculation of the MAR Index.
SPECTRUM COMMODITY (FORMERLY, MORGAN STANLEY TANGIBLE ASSET FUND L.P.) VS. MAR
INDEX
HISTORICAL PERFORMANCE COMPARISON
EDGAR REPRESENTATION OF DATA POINTS USED IN PRINTED GRAPHIC
<TABLE>
<CAPTION>
NET ASSET VALUE PER UNIT SPECTRUM COMMODITY MAR INDEX
<S> <C> <C>
Dec-97 $10.00 $10.00
Jan-98 $10.13 $10.02
Feb-98 $9.53 $9.93
Mar-98 $9.54 $9.95
Apr-98 $9.31 $9.54
May-98 $8.67 $9.87
Jun-98 $8.39 $9.90
Jul-98 $7.85 $9.80
Aug-98 $7.23 $10.56
Sep-98 $7.75 $11.01
Oct-98 $7.48 $10.94
Nov-98 $6.80 $10.60
Dec-98 $6.57 $10.79
Jan-99 $6.47 $10.58
Feb-99 $6.22 $10.76
Mar-99 $6.76 $10.65
Apr-99 $6.92 $11.10
May-99 $6.51 $10.75
Jun-99 $6.80 $11.02
Jul-99 $6.83 $10.74
Aug-99 $7.25 $10.80
Sep-99 $7.58 $10.86
Oct-99 $7.37 $10.31
Nov-99 $7.41 $10.50
Dec-99 $7.61 $10.60
</TABLE>
PAST PERFORMANCE IS NOT NECESSARILY INDICATIVE OF FUTURE RESULTS.
104
<PAGE>
-------------------
The following chart was prepared by the general partner to illustrate the
performance, on a rate of return basis, of Spectrum Commodity versus that of the
MAR Index, from the inception of trading through December 31, 1999. Since
Spectrum Currency is a new partnership without an operating history, comparable
information is not available for that partnership.
SPECTRUM COMMODITY (FORMERLY, MORGAN STANLEY TANGIBLE ASSET FUND L.P.) VS. MAR
INDEX
HISTORICAL PERFORMANCE COMPARISON (RATE OF RETURN)
EDGAR REPRESENTATION OF DATA POINTS USED IN PRINTED GRAPHIC
<TABLE>
<CAPTION>
SPECTRUM COMMODITY MAR INDEX
<S> <C> <C>
ITD -12.77% 3.15%
2 YR. -12.77% 3.15%
1 YR. 15.83% -1.41%
</TABLE>
Data: January 2, 1998 through December 31, 1999
All returns are annualized.
PAST PERFORMANCE IS NOT NECESSARILY INDICATIVE OF FUTURE RESULTS.
105
<PAGE>
The following chart was prepared to illustrate certain period peformance and
statistical information relating to Spectrum Commodity, from the inception of
trading in January 1998 through December 1999. Since Spectrum Currency is a new
partnership without an operating history, comparable information is not
available for that partnership.
<TABLE>
<CAPTION>
SPECTRUM COMMODITY
(FORMERLY, MORGAN STANLEY TANGIBLE ASSET FUND L.P.)
HISTORICAL PERFORMANCE
- ---------------------------------------------------------------------------------------------------------
MONTH-END 12 MO. 24 MO.
MONTHLY NAV/ QRTLY ANNUAL HOLDING HOLDING
MONTH RETURN UNIT RETURN RETURN PERIOD PERIOD
----- -------- --------- -------- -------- -------- --------
% $ % % % %
<S> <C> <C> <C> <C> <C> <C>
Beginning NAV
per unit 10.00
Jan-98 1.30 10.13
Feb-98 (5.92) 9.53
Mar-98 0.10 9.54 (4.60)
Apr-98 (2.41) 9.31
May-98 (6.87) 8.67
Jun-98 (3.23) 8.39 (12.05)
Jul-98 (6.44) 7.85
Aug-98 (7.90) 7.23
Sep-98 7.19 7.75 (7.63)
Oct-98 (3.48) 7.48
Nov-98 (9.09) 6.80
Dec-98 (3.38) 6.57 (15.23) (34.30) (34.30)
Jan-99 (1.52) 6.47 (36.13)
Feb-99 (3.86) 6.22 (34.73)
Mar-99 8.68 6.76 2.89 (29.14)
Apr-99 2.37 6.92 (25.67)
May-99 (5.92) 6.51 (24.91)
Jun-99 4.45 6.80 0.59 (18.95)
Jul-99 0.44 6.83 (12.99)
Aug-99 6.15 7.25 0.28
Sep-99 4.55 7.58 11.47 (2.19)
Oct-99 (2.77) 7.37 (1.47)
Nov-99 0.54 7.41 8.97
Dec-99 2.70 7.61 0.40 15.83 15.83 (23.90)
Compounded annual rate of return: (12.77)
Standard deviation of monthly returns: 4.95
</TABLE>
PAST PERFORMANCE IS NOT NECESSARILY INDICATIVE OF FUTURE RESULTS.
106
<PAGE>
GLOSSARY OF TERMS
The following glossary may assist prospective investors in understanding
certain terms used in this prospectus:
CLEARING BROKER. The entity responsible for assuring that futures and
options trades are properly processed and recorded or "cleared" by the
clearinghouse affiliated with the exchange on which the trades took place.
COMMODITY BROKER. The entity responsible for assuring that futures and
options trades for a client are properly processed and recorded or "cleared" by
the clearinghouse affiliated with the exchange on which the trade took place and
for holding the client's funds deposited with it as margin for the trades. In
the U.S. commodity brokers are registered under the Commodity Exchange Act as
futures commission merchants.
COMMODITY POOL. A partnership, trust or similar form of collective
investment vehicle which consolidates funds from investors for the purpose of
trading in commodity futures and options contracts.
COMMODITY POOL OPERATOR. Any person or entity that solicits funds in
connection with the sale of interests in a commodity pool or that manages the
operations of a commodity pool. A commodity pool operator must register under
the Commodity Exchange Act.
COUNTER-TREND LIQUIDATIONS. Closing out a position after a significant
price move on the assumption that the market is due for a correction.
CROSS RATE. The trading of one foreign currency against another foreign
currency.
DAILY PRICE FLUCTUATION LIMIT. The maximum permitted fluctuation imposed by
commodity exchanges in the price of a commodity futures contract for a given
commodity that can occur on an exchange on a given day in relation to the
previous day's settlement price, which maximum permitted fluctuation is subject
to change from time to time by the exchange. These limits generally are not
imposed on option contracts or outside the U.S.
DELIVERY. The process of satisfying a futures contract or a forward
contract by transferring ownership of a specified quantity and grade of a
commodity, product or instrument to the purchaser of the contract.
EXCHANGE FOR PHYSICAL. A transaction permitted under the rules of futures
exchanges in which two parties exchange a cash market (physical) commodity
position for a futures contract (or vice versa) without making a trade on the
exchange. The prices at which such transactions are executed are negotiated
between the parties.
FORWARD CONTRACT. A cash market transaction in which the buyer and seller
agree to the purchase and sale of a specific quantity of a commodity, product,
instrument or currency for delivery at some future time under such terms and
conditions as the two may agree upon.
FUNDAMENTAL ANALYSIS. The analysis of fundamental market information such
as supply and demand levels, weather, economic indicators and geopolitical
events.
FUTURES CONTRACT. A contract providing for the delivery or receipt at a
future date of a specified amount and grade of a traded commodity, product,
instrument, or indices at a specified price and delivery point, or for cash
settlement. A market participant can make a futures contract to buy or sell the
underlying commodity, product, instrument, or indices. The contractual
obligations may be satisfied either by taking or making, as the case may be,
physical delivery of the commodity, product, instrument, or indices or by making
an offsetting sale or purchase of an equivalent but opposite futures contract on
the same, or a mutually offsetting, exchange prior to the designated date of
delivery.
LONG CONTRACT OR LONG POSITION. A contract to accept delivery (I.E., to
buy) a specified amount of a commodity, product, instrument, or index at a
future date at a specified price.
MARGIN. A good faith deposit with a broker to assure fulfillment of a
purchase or sale of a futures, forward or options contract. Margins on these
contracts do not usually involve the payment of interest.
MARGIN CALL. A demand for additional funds after the initial good faith
deposit required to maintain a customer's account in compliance with the
requirements of a particular commodity exchange or of a commodity broker.
107
<PAGE>
NON-SERIES EXCHANGE. The use of proceeds from the redemption of interests
from another commodity pool for which Dean Witter acts as general partner and
commodity pool operator to acquire units in one or more of the partnerships.
NOTIONAL FUNDS. The amount by which the nominal account size exceeds the
amount of actual funds in the account.
OPEN POSITION. A contractual commitment arising under a long contract or a
short contract that has not been extinguished by an offsetting trade or by
delivery.
OPTION ON A FUTURES CONTRACT. A contract that gives the purchaser of the
option, in exchange for a one-time payment known as premium, the right, but not
the obligation, to buy or sell a futures contract at a specified price within a
specified period of time. The seller of an option on a futures contract receives
the premium payment and has the obligation to buy or sell the futures contract
at the specified price within the specified period of time.
OUTRIGHTS. The trading of one foreign currency against the U.S. dollar as
compared to a cross rate trade between two non-U.S. currencies.
PARAMETERS. A value that can be freely assigned in a trading system in
order to vary the timing of signals.
PATTERN RECOGNITION. The ability to identify patterns that appeared to act
as precursors of price advances or declines in the past.
RESISTANCE. A previous high. A price level over the market where selling
pressure overcomes buying pressure and a price advance is turned back.
SECULAR TREND. Intermediate upswings and downswings in price that over a
long period of time constitutes a big move.
SHORT CONTRACT OR SHORT POSITION. A contract to make delivery of (sell) a
specified amount of a commodity, product, instrument or index at a future date
at a specified price.
SPECTRUM SERIES EXCHANGE. A redemption of units in either partnership
discussed in this prospectus and any of the four other partnerships discussed in
the separate prospectus for Spectrum Select, Spectrum Technical, Spectrum
Strategic, and Spectrum Global Balanced, with the proceeds used to purchase
units of one or more of the other partnerships discussed in this prospectus or
the separate prospectus for Spectrum Select, Spectrum Technical, Spectrum
Strategic and Spectrum Global Balanced.
SPECULATIVE POSITION LIMIT. The maximum number of speculative futures or
option contracts in any one commodity (on one exchange), imposed by the CFTC or
a U.S. commodity exchange, that can be held or controlled at one time by one
person or a group of persons acting together. These limits generally are not
imposed for trading on markets or exchanges outside the U.S.
STOP-LOSS ORDER. An order to buy or sell at the market when a definite
price is reached, either above or below the price of the instrument that
prevailed when the order was given.
SUPPORT. A previous low. A price level under the market where buying
interest is sufficiently strong to overcome selling pressure.
SYSTEMATIC TECHNICAL CHARTING SYSTEMS. A system that is technical in nature
and based on chart patterns as opposed to pure mathematical calculations.
TECHNICAL ANALYSIS. The analysis of technical market information by a
trading advisor such as analyzing actual daily, weekly and monthly price
fluctuations, trading volume variations and changes in numbers of open positions
in various futures and options contracts.
TRADING ADVISOR. Any person or entity that provides advice as to the
purchase or sale of futures, forwards or options contracts. A commodity trading
advisor must register under the Commodity Exchange Act.
108
<PAGE>
INDEPENDENT AUDITORS' REPORT
To the Limited Partners and the General Partner:
We have audited the accompanying statements of financial condition of Morgan
Stanley Tangible Asset Fund L.P. (to be renamed Morgan Stanley Dean Witter
Spectrum Commodity, L.P.) (the "Partnership") as of December 31, 1999 and 1998
and the related statements of operations, changes in partners' capital, and cash
flows for the year ended December 31, 1999 and the period from January 2, 1998
through December 31, 1998. These financial statements are the responsibility of
the Partnership's management. Our responsibility is to express an opinion on
these financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, such financial statements present fairly, in all material
respects, the financial position of Morgan Stanley Tangible Asset Fund L.P. at
December 31, 1999 and 1998 and the results of its operations and its cash flows
for the year ended December 31, 1999 and the period from January 2, 1998 to
December 31, 1998 in conformity with generally accepted accounting principles.
/s/ Deloitte & Touche LLP
February 7, 2000
New York, New York
F-1
<PAGE>
MORGAN STANLEY TANGIBLE ASSET FUND L.P.
(TO BE RENAMED MORGAN STANLEY DEAN WITTER SPECTRUM COMMODITY L.P.)
STATEMENTS OF FINANCIAL CONDITION
<TABLE>
<CAPTION>
DECEMBER 31,
-------------------------
1999 1998
----------- -----------
$ $
<S> <C> <C>
ASSETS
Equity in futures interests trading accounts:
Cash 23,430,137 26,519,891
Unrealized gain (loss) on open contracts:
Net unrealized gain (loss) on open contracts (Morgan
Stanley International) 643,258 (134,255)
Net unrealized loss on open contracts (Morgan Stanley) (100,830) (501,388)
---------- ----------
Unrealized gain (loss) on open contracts 542,428 (635,643)
---------- ----------
Total Trading Equity 23,972,565 25,884,248
Interest receivable (Morgan Stanley) 76,192 78,722
---------- ----------
Total Assets 24,048,757 25,962,970
========== ==========
LIABILITIES AND PARTNERS' CAPITAL
LIABILITIES
Redemptions payable 269,545 895,547
Accrued brokerage fees (Morgan Stanley and Morgan Stanley
International) 70,827 81,222
Accrued management fees (Morgan Stanley Dean Witter
Commodities Management) 48,511 55,632
Service fees payable (Demeter) 19,404 22,253
---------- ----------
Total Liabilities 408,287 1,054,654
---------- ----------
PARTNERS' CAPITAL
Limited Partners (3,062,471.522 and 3,745,069.052 Units,
respectively) 23,310,162 24,622,999
General Partner (43,395.648 Units) 330,308 285,317
---------- ----------
Total Partners' Capital 23,640,470 24,908,316
---------- ----------
Total Liabilities and Partners' Capital 24,048,757 25,962,970
========== ==========
NET ASSET VALUE PER UNIT 7.61 6.57
========== ==========
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-2
<PAGE>
MORGAN STANLEY TANGIBLE ASSET FUND L.P.
(TO BE RENAMED MORGAN STANLEY DEAN WITTER SPECTRUM COMMODITY L.P.)
STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
FOR THE PERIOD FROM
JANUARY 2, 1998
(COMMENCEMENT OF
FOR THE YEAR ENDED OPERATIONS) TO
DECEMBER 31, 1999 DECEMBER 31, 1998
------------------ -------------------
$ $
<S> <C> <C>
REVENUES
Trading profit (loss):
Realized 3,003,270 (11,870,063)
Net change in unrealized 1,178,071 (635,643)
--------- -----------
Total Trading Results 4,181,341 (12,505,706)
Interest Income (Morgan Stanley) 864,383 1,265,793
--------- -----------
Total Revenues 5,045,724 (11,239,913)
--------- -----------
EXPENSES
Brokerage fees (Morgan Stanley and Morgan Stanley
International) 852,484 1,176,024
Management fees (Morgan Stanley Dean Witter Commodities
Management) 583,893 805,496
Service fees (Demeter) 233,558 322,198
--------- -----------
Total Expenses 1,669,935 2,303,718
--------- -----------
NET INCOME (LOSS) 3,375,789 (13,543,631)
========= ===========
Net Income (Loss) Allocation
Limited Partners 3,330,798 (13,398,948)
General Partner 44,991 (144,683)
Net Income (Loss) Per Unit
Limited Partners 1.04 (3.43)
General Partner 1.04 (3.43)
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-3
<PAGE>
MORGAN STANLEY TANGIBLE ASSET FUND L.P.
(TO BE RENAMED MORGAN STANLEY DEAN WITTER SPECTRUM COMMODITY L.P.)
STATEMENTS OF CHANGES IN PARTNERS' CAPITAL
FOR THE YEAR ENDED DECEMBER 31, 1999 AND FOR THE PERIOD FROM JANUARY 2, 1998
(COMMENCEMENT OF OPERATIONS) TO DECEMBER 31, 1998
<TABLE>
<CAPTION>
UNITS OF
PARTNERSHIP LIMITED GENERAL
INTEREST PARTNERS PARTNER TOTAL
------------- ----------- -------- -----------
<S> <C> <C> <C> <C>
$ $ $
Partners' Capital, January 2, 1998
(commencement of operations) 200.000 1,000 1,000 2,000
Initial Offering 2,573,486.803 25,475,868 259,000 25,734,868
Offering of Units 1,665,202.477 15,758,355 170,000 15,928,355
Net Loss -- (13,398,948) (144,683) (13,543,631)
Redemptions (450,424.580) (3,213,276) -- (3,213,276)
------------- ----------- -------- -----------
Partners' Capital, December 31, 1998 3,788,464.700 24,622,999 285,317 24,908,316
Net income -- 3,330,798 44,991 3,375,789
Redemptions (682,597.530) (4,643,635) -- (4,643,635)
------------- ----------- -------- -----------
Partners' Capital, December 31, 1999 3,105,867.170 23,310,162 330,308 23,640,470
============= =========== ======== ===========
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-4
<PAGE>
MORGAN STANLEY TANGIBLE ASSET FUND L.P.
(TO BE RENAMED MORGAN STANLEY DEAN WITTER SPECTRUM COMMODITY L.P.)
STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
FOR THE PERIOD FROM
JANUARY 2, 1998
(COMMENCEMENT OF
FOR THE YEAR ENDED OPERATIONS) TO
DECEMBER 31, 1999 DECEMBER 31, 1998
------------------ -------------------
$ $
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES
Net income (loss) 3,375,789 (13,543,631)
Noncash item included in net income (loss):
Net change in unrealized (1,178,071) 635,643
(Increase) decrease in operating assets:
Interest receivable (Morgan Stanley) 2,530 (78,722)
Increase (decrease) in operating liabilities:
Accrued brokerage fee (Morgan Stanley and Morgan Stanley
International) (10,395) 81,222
Accrued management fees (Morgan Stanley Dean Witter
Commodities Management) (7,121) 55,632
Service fees payable (Demeter) (2,849) 22,253
---------- -----------
Net cash provided by (used for) operating activities 2,179,883 (12,827,603)
---------- -----------
CASH FLOWS FROM FINANCING ACTIVITIES
Initial offering -- 25,736,868
Offering of units -- 15,928,355
Increase (decrease) in redemptions payable (626,002) 895,547
Redemptions of units (4,643,635) (3,213,276)
---------- -----------
Net cash provided by (used for) financing activities (5,269,637) 39,347,494
---------- -----------
Net increase (decrease) in cash (3,089,754) 26,519,891
Balance at beginning of period 26,519,891 --
---------- -----------
Balance at end of period 23,430,137 26,519,891
========== ===========
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-5
<PAGE>
MORGAN STANLEY TANGIBLE ASSET FUND L.P.
(TO BE RENAMED MORGAN STANLEY DEAN WITTER SPECTRUM COMMODITY L.P.)
NOTES TO FINANCIAL STATEMENTS
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
ORGANIZATION--Morgan Stanley Tangible Asset Fund L.P. (to be renamed Morgan
Stanley Dean Witter Spectrum Commodity L.P.) (the "Partnership") is a limited
partnership organized to engage primarily in speculative trading of futures
contracts in metals, energy and agricultural markets, (collectively, "futures
interests"). The Partnership's general partner is Demeter Management Corporation
("Demeter"). The commodity brokers are Morgan Stanley & Co. Incorporated and
Morgan Stanley & Co. International Limited, (collectively, the "Commodity
Brokers"). The trading advisor is Morgan Stanley Dean Witter Commodities
Management, Inc. Morgan Stanley Dean Witter Commodities Management, the
commodity brokers and Demeter are wholly-owned subsidiaries of Morgan Stanley
Dean Witter & Co.
Demeter is required to maintain a 1% minimum interest in the equity of the
Partnership and income (losses) are shared by the General and Limited Partners
based upon their proportional ownership interests.
USE OF ESTIMATES--The financial statements are prepared in accordance with
generally accepted accounting principles, which require management to make
estimates and assumptions that affect the reported amounts in the financial
statements and related disclosures. Management believes that the estimates
utilized in the preparation of the financial statements are prudent and
reasonable. Actual results could differ from those estimates.
REVENUE RECOGNITION--Futures interests are open commitments until settlement
date. They are valued at market on a daily basis and the resulting net change in
unrealized gains and losses is reflected in the change in unrealized profits
(loss) on open contracts from one period to the next in the statements of
operations. Morgan Stanley credits the Partnership at each month-end with
interest income as if 80% of the Partnership's average daily "Net Assets" for
the month, as defined in the Limited Partnership Agreement, were invested at a
rate based on U.S. Treasury bills. For purposes of such interest payments, Net
Assets do not include monies due the Partnership on futures interests, but not
actually received.
NET INCOME (LOSS) PER UNIT--Net income (loss) per unit of limited partnership
interest is computed using the weighted average number of units outstanding
during the period.
EQUITY IN FUTURES INTERESTS TRADING ACCOUNTS--The Partnership's asset "Equity in
futures interests trading accounts," reflected in the statements of financial
condition, consists of (A) cash on deposit with the Commodity Brokers to be used
as margin for trading; and (B) net unrealized gains or losses on open contracts,
which are valued at market, and calculated as the difference between original
contract value and market value.
The Partnership, in the normal course of business, enters into various contracts
with MS & Co. and MSIL acting as its commodity brokers. Pursuant to brokerage
arrangements with MS & Co. and MSIL, to the extent that such trading results in
receivables from and payables to MS & Co. and MSIL, these receivables and
payables are offset and reported as a net receivable from or payable to MS & Co.
and MSIL.
BROKERAGE AND RELATED TRANSACTION FEES AND COSTS--Brokerage fees are accrued at
a monthly rate of 1/12 of 3.65% of the Net Assets as of the first day of each
month (a 3.65% annual rate). Such fees cover all costs of executing trades by
the Partnership, including floor brokerage fees, exchange fees, clearing house
fees, NFA fees, "give-ups" or transfer fees and any costs associated with taking
delivery of commodities.
SERVICE FEE--The Partnership pays Demeter a monthly service fee equal to 1/12 of
1% per month (a 1% annual rate) of the Partnership's Net Assets as of the first
day of each month.
OPERATING EXPENSES--The Partnership incurs monthly management fees and may incur
incentive fees as described in Note 2. All administrative expenses are borne by
Demeter.
INCOME TAXES--No provision for income taxes has been made in the accompanying
financial statements, as partners are individually responsible for reporting
income or loss based upon their respective share of the Partnership's revenues
and expenses for income tax purposes.
F-6
<PAGE>
DISTRIBUTIONS--Distributions, other than on redemption of Units, are made on a
pro-rata basis at the sole discretion of Demeter. No distributions have been
made to date.
OFFERING OF UNITS--Units were offered to the public at a price equal to 100% of
the net asset value as of the close of business on the last day of the month
immediately preceding the four closings held on January 2, February 2, March 2
and April 1, 1998.
The Partnership, Demeter, Morgan Stanley Dean Witter Commodities Management and
Dean Witter, the selling agent and an affiliate of Demeter, extended the
Offering Period for those Units already registered with the SEC but still
unsold, until October 16, 1998. The remaining unsold Units were offered to the
public at a price equal to 100% of the Net Asset Value as of the close of
business on the last day of the month immediately preceding the three closings
held on August 3, September 1, and October 1, 1998.
REDEMPTIONS--Limited Partners may redeem some or all of their Units at 100% of
the Net Asset Value per Unit effective as of the last day of the sixth month
following the closing at which a person first becomes a Limited Partner, upon
five business days advance notice by redemption form to Demeter. Thereafter,
units may be redeemed as of the end of any month upon five business days advance
notice by redemption form to Demeter. However, any units redeemed at or prior to
the last day of the twelfth month after such units were purchased were subject
to a redemption charge equal to 2% of the Net Asset Value of a unit on the date
of such redemption. Units redeemed after the last day of the twelfth month and
on or prior to the last day of the twenty-fourth month after which such Units
were purchased will be subject to a redemption charge equal to 1% of the Net
Asset Value per Unit on the date of such redemption. Units redeemed after the
last day of the twenty-fourth month after which such Units were purchased will
not be subject to a redemption charge. Limited Partners who obtained their Units
via an exchange from another Dean Witter-sponsored commodity pool were not
subject to the six month holding period or the redemption charges.
DISSOLUTION OF THE PARTNERSHIP--The Partnership will terminate on December 31,
2027 or at an earlier date if certain conditions occur as defined in the
Partnership's Limited Partnership Agreement.
2. RELATED PARTY TRANSACTIONS
The Partnership pays brokerage fees to the Commodity Brokers and a service fee
to Demeter as described in Note 1. The Partnership's cash is on deposit with the
Commodity Brokers in futures interests trading accounts to meet margin
requirements as needed. Morgan Stanley pays interest on these funds as described
in Note 1.
Demeter, on behalf of the Partnership and itself entered into a Management
Agreement with Morgan Stanley Dean Witter Commodities Management whereby Morgan
Stanley Dean Witter Commodities Management makes all trading decisions for the
Partnership. Compensation to Morgan Stanley Dean Witter Commodities Management
by the Partnership consists of a management fee and an incentive fee as follows:
MANAGEMENT FEE--The management fee is accrued at the rate of 5/24 of 1% of the
Net Assets on the first day of each month (a 2.5% annual rate).
INCENTIVE FEE--The Partnership will pay an annual incentive fee equal to 20% of
trading profits as of the end of each calendar year. Trading profits represent
the amount by which profits from futures trading exceed losses, after brokerage
and management fees have been paid. Such incentive fee is accrued in each month
in which trading profits occur. In those months in which trading profits are
negative, previous accruals, if any, during the incentive period will be
reduced. Any accrued incentive fees with respect to Units redeemed at the end of
a month that is not the end of a calendar year will be deducted and paid to
Morgan Stanley Dean Witter Commodities Management at the time of such
redemption.
3. FINANCIAL INSTRUMENTS
The Partnership trades futures contracts in metals, energy and agricultural
markets. Futures and forwards represent contracts for delayed delivery of an
instrument at a specified date and price. Risk arises from changes in the value
of these contracts and the potential inability of counterparties to perform
under the terms of the contracts. There are numerous factors which may
significantly influence the market value of these contracts, including interest
rate volatility.
F-7
<PAGE>
In June 1998, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standard ("SFAS") No. 133, "Accounting for Derivative
Instruments and Hedging Activities" effective for fiscal years beginning after
June 15, 1999. The issuance of SFAS No. 137, "Accounting for Derivative
Instruments and Hedging Activities--Deferral of the Effective Date of SFAS
No. 133," defers the required implementation of SFAS No. 133 until fiscal years
beginning after June 15, 2000. However, the Partnership has elected to adopt the
provisions of SFAS No. 133 beginning with the fiscal year that ended
December 31, 1998. SFAS No. 133 supersedes SFAS No. 119 and No. 105, which
required the disclosure of average aggregate fair values and contract/notional
values, respectively, of derivative financial instruments for an entity which
carries its assets at fair value. The application of SFAS No. 133 does not have
a significant effect on the Partnership's financial statements.
The net unrealized gain (loss) on open contracts is reported as a component of
"Equity in futures interests trading accounts" on the statements of financial
condition and totaled $542,428 and $(635,643) at December 31, 1999 and 1998
respectively.
The $542,428 net unrealized gain on open contracts at December 31, 1999 and the
$(635,643) net unrealized loss on open contracts at December 31, 1998, were
related to exchange-traded futures contracts that mature through April 2000 and
June 1999, respectively.
The Partnership also has credit risk because Morgan Stanley and Morgan Stanley
International act as the futures commission merchants or the counterparties with
respect to most of the Partnership's assets. Exchange-traded futures contracts
are marked to market on a daily basis, with variations in value settled on a
daily basis. Each of Morgan Stanley and Morgan Stanley International, as a
futures commission merchant for the Partnership's exchange-traded futures
contracts, are required, pursuant to regulations of the Commodity Futures
Trading Commission to segregate from their own assets, and for the sole benefit
of their commodity customers, all funds held by them with respect to
exchange-traded futures contracts, including an amount equal to the net
unrealized gain on all open futures contracts, which funds, in the aggregate,
totaled $23,972,565 and $25,884,248 at December 31, 1999 and 1998, respectively.
4. LEGAL MATTERS
The class actions first filed in 1996 in California and in New York State courts
were each dismissed in 1999. On September 6, 10, and 20, 1996 and on March 13,
1997, similar purported class actions were filed in the Superior Court of the
State of California, County of Los Angeles, on behalf of all purchasers of
interests in limited partnership commodity pools sold by Dean Witter. Named
defendants include Dean Witter, Demeter, Dean Witter Futures & Currency
Management, Inc., Morgan Stanley Dean Witter & Co. (all such parties referred to
hereafter as the "Dean Witter Parties"), certain limited partnership commodity
pools of which Demeter is the general partner, and certain trading advisors to
those pools. On June 16, 1997, the plaintiffs in the above actions filed a
consolidated amended complaint, alleging, among other things, that the
defendants committed fraud, deceit, negligent misrepresentation, various
violations of the California Corporations Code, intentional and negligent breach
of fiduciary duty, fraudulent and unfair business practices, unjust enrichment,
and conversion in the sale and operation of the various limited partnership
commodity pools. The court entered an order denying class certification on
August 24, 1999. On September 24, 1999, the court entered an order dismissing
the case without prejudice on consent. Similar purported class actions were also
filed on September 18 and 20, 1996, in the Supreme Court of the State of New
York, New York County, and on November 14, 1996 in the Superior Court of the
State of Delaware, New Castle County against the Dean Witter Parties and certain
trading advisors on behalf of all purchasers of interests in various limited
partnership commodity pools sold by Dean Witter. A consolidated and amended
complaint in the action pending in the Supreme Court of the State of New York
was filed on August 13, 1997, alleging that the defendants committed fraud,
breach of fiduciary duty, and negligent misrepresentation in the sale and
operation of the various limited partnership commodity pools. The New York
Supreme Court dismissed the New York action in November 1998, but granted
plaintiffs leave to file an amended complaint, which they did in early
December 1998. The defendants filed a motion to dismiss the amended complaint
with prejudice on February 1, 1999. By decision dated December 21, 1999, the New
York Supreme Court dismissed the case with prejudice.
In addition, on December 16, 1997, upon motion of the plaintiffs, the action
pending in the Superior Court of the State of Delaware was voluntarily dismissed
without prejudice.
F-8
<PAGE>
INDEPENDENT AUDITORS' REPORT
To the Limited Partners and the General Partner of
Morgan Stanley Dean Witter Spectrum Currency L.P.:
We have audited the accompanying statement of financial condition of Morgan
Stanley Dean Witter Spectrum Currency L.P. (the "Partnership") as of
December 31, 1999. This financial statement is the responsibility of the
Partnership's management. Our responsibility is to express an opinion on this
financial statement based on our audit.
We conducted our audit in accordance with generally accepted auditing standards.
Those standards require that we plan and perform the audit to obtain reasonable
assurance about whether the statement of financial condition is free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the statement of financial condition. An audit
also includes assessing the accounting principles used and significant estimates
made by management, as well as evaluating the overall statement of financial
condition presentation. We believe that our audit of the statement of financial
condition provides a reasonable basis for our opinion.
In our opinion, such statement of financial condition presents fairly, in all
material respects, the financial position of Morgan Stanley Dean Witter Spectrum
Currency L.P. at December 31, 1999 in conformity with generally accepted
accounting principles.
/s/ Deloitte & Touche LLP
February 18, 2000
New York, New York
F-9
<PAGE>
MORGAN STANLEY DEAN WITTER SPECTRUM CURRENCY L.P.
(LIMITED PARTNERS SHOULD NOTE THAT THEIR OWNERSHIP OF UNITS IN THE PARTNERSHIP
DOES NOT RESULT IN THE OWNERSHIP OF ANY INTEREST IN THE GENERAL PARTNER)
STATEMENT OF FINANCIAL CONDITION
DECEMBER 31, 1999
<TABLE>
<S> <C>
ASSETS
Equity in Commodity Interest Trading Account:
Cash...................................................... $20
===
PARTNERS' CAPITAL
Limited Partner--1 Unit Outstanding....................... $10
General Partner--1 Unit Outstanding....................... 10
---
$20
===
</TABLE>
The accompanying notes are an integral part of this financial statement.
F-10
<PAGE>
MORGAN STANLEY DEAN WITTER SPECTRUM CURRENCY L.P.
NOTES TO STATEMENT OF FINANCIAL CONDITION
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
ORGANIZATION--Dean Witter Spectrum Currency L.P. (the "Partnership") is a
limited partnership organized under the Delaware Revised Uniform Limited
Partnership Act on October 20, 1999 to engage in the speculative trading of
futures interests in global currency markets. Demeter Management Corporation, as
the general partner of the Partnership (the "General Partner"), and Robert E.
Murray, President of the General Partner, acting as initial Limited Partner,
each made initial capital contributions of $10 to facilitate the filing of a
Certificate of Limited Partnership under the Delaware Revised Uniform Limited
Partnership Act.
The Partnership will offer 12,000,000 Units of Limited Partnership Interest
("Units") for sale to the public at an initial price of $10 per Unit. The
minimum subscription for most subscribers will be $5,000, or $2,000 in the case
of an IRA or in a Non-Series Exchange, as described in the Partnerships'
Prospectus. If at least 600,000 Units of the Partnership are subscribed for
during the "Initial Offering Period" (defined in the Prospectus as the period
ending July 31, 2000, subject to earlier termination or extension to no later
than September 30, 2000) the General Partner may accept such subscriptions at
the "Initial Closing" (currently scheduled for March 31, 2000) and commence
operations of such Partnership. Thereafter, Units of the Partnership will be
sold at Monthly Closings at a price equal to 100% of the Net Asset Value per
Unit (as described in the Partnerships' Prospectus). If it appears that
subscriptions will be received in excess of the Units available for sale, the
General Partner may register additional Units for sale.
The Partnership's cash is on deposit with Dean Witter, an affiliate of the
General Partner, in a futures interest trading account. At each Monthly Closing,
the General Partner will contribute, in $1,000 increments, to the Partnership,
the additional amount in cash that is necessary for it at all times to own, for
its account, Units of General Partnership Interest at least equal to the greater
of $25,000 or 1% of aggregate capital contributions. The General Partner and
each Limited Partner will share in the profits and losses of the Partnership in
proportion to the amount of Partnership interest owned by each.
Both the General Partner and Dean Witter are wholly-owned subsidiaries of Morgan
Stanley Dean Witter & Co.
The Partnership will terminate on December 31, 2035 or at an earlier date if
certain conditions occur as defined in the Partnership's Limited Partnership
Agreement.
2. ORGANIZATION AND OFFERING EXPENSES
The Partnership is not liable for any organizational and offering expenses in
connection with the issuance and distribution of the Units. Dean Witter has
agreed to pay the organizational expenses of the Partnership and the expenses of
offering the Units to the public.
The proceeds from the subscription of Units will be held in escrow and invested
in an interest-bearing money market account. The pro-rata share of interest
earned on accepted or rejected subscription funds while such funds are held in
escrow will be credited to subscribers' customer accounts with Dean Witter.
3. OTHER AGREEMENTS
The proceeds from the the Initial and each Monthly Closing will be used to
establish a futures interests trading account with Dean Witter for each of the
Partnership's Trading Advisors, John W. Henry & Company, Inc.
("JWH-Registered Trademark-") and Sunrise Capital Partners, LLC.
The Partnership will pay a monthly management fee to JWH equal to 1/12 of 4% per
month (a 4% annual rate) and to Sunrise equal to 1/12 of 3% per month (a 3%
annual rate), of the Partnership's Net Assets (as defined in the Prospectus) as
of the first day of each month.
F-11
<PAGE>
The Partnership will also pay a monthly incentive fee to each Trading Advisor
equal to 15% of "Trading profits" as to that Trading Advisor's allocated net
assets as of the end of each calendar month. If the Trading Advisor has losses
with respect to Net Assets at the end of each calendar month, the Trading
Advisor must earn back such losses before the Trading Advisor is eligible for an
incentive fee.
Under the Customer Agreement with Dean Witter, the Partnership will pay Dean
Witter a flat-rate monthly brokerage fee of 1/12 of 4.60% of Net Assets as of
the first day of each month (a 4.60% annual rate).
Under the Customer Agreement with Carr Futures Inc., Dean Witter will pay or
reimburse the Partnership for all fees and costs of Carr Futures for executing
trades by the Partnership.
Dean Witter will credit the Partnership with interest income at month-end at the
rate earned by Dean Witter on its U.S. Treasury bills investments with customer
segregated funds as if 80% of the Partnership's average daily assets for the
month were invested at a prevailing rate on U.S. Treasury bills.
F-12
<PAGE>
INDEPENDENT AUDITORS' REPORT
To the Board of Directors of
Demeter Management Corporation
We have audited the accompanying statements of financial condition of Demeter
Management Corporation (the "Company"), a wholly-owned subsidiary of Morgan
Stanley Dean Witter & Co., as of November 30, 1999 and 1998. These financial
statements are the responsibility of the Company's management. Our
responsibility is to express an opinion on these financial statements based on
our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the statement of financial condition is free
of material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the statement of financial condition.
An audit also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall statement of
financial condition presentation. We believe that our audits of the statements
of financial condition provide a reasonable basis for our opinion.
In our opinion, such statements of financial condition present fairly, in all
material respects, the financial position of Demeter Management Corporation at
November 30, 1999 and 1998 in conformity with generally accepted accounting
principles.
/s/ Deloitte & Touche LLP
January 21, 2000
New York, New York
F-13
<PAGE>
DEMETER MANAGEMENT CORPORATION
(WHOLLY-OWNED SUBSIDIARY OF MORGAN STANLEY DEAN WITTER & CO.)
STATEMENTS OF FINANCIAL CONDITION
NOVEMBER 30, 1999 AND 1998
<TABLE>
<CAPTION>
NOVEMBER 30,
---------------------------
1999 1998
------------ ------------
$ $
<S> <C> <C>
ASSETS
Investments in affiliated partnerships 17,825,316 16,959,248
Income taxes receivable 803,778 708,505
Receivable from affiliated partnerships 20,428 25,716
------------ ------------
Total Assets 18,649,522 17,693,469
============ ============
LIABILITIES AND STOCKHOLDER'S EQUITY
LIABILITIES
Payable to Morgan Stanley Dean Witter & Co. 13,033,208 11,648,971
Accrued expenses 29,293 62,198
------------ ------------
Total Liabilities 13,062,501 11,711,169
------------ ------------
STOCKHOLDER'S EQUITY
Common stock, no par value:
Authorized 1,000 shares; issued and outstanding 100
shares at stated value of $500 per share 50,000 50,000
Additional paid-in capital 123,170,000 111,170,000
Retained earnings 5,437,021 5,832,300
------------ ------------
128,657,021 117,052,300
Less: Notes receivable from Morgan Stanley Dean
Witter & Co. (123,070,000) (111,070,000)
------------ ------------
Total Stockholder's Equity 5,587,021 5,982,300
------------ ------------
Total Liabilities and Stockholder's Equity 18,649,522 17,693,469
============ ============
</TABLE>
The accompanying notes are an integral part of these statements of financial
condition.
F-14
<PAGE>
DEMETER MANAGEMENT CORPORATION
(WHOLLY-OWNED SUBSIDIARY OF MORGAN STANLEY DEAN WITTER & CO.)
NOTES TO STATEMENTS OF FINANCIAL CONDITION
FOR THE YEARS ENDED NOVEMBER 30, 1999 AND 1998
1. INTRODUCTION AND BASIS OF PRESENTATION
Demeter Management Corporation ("Demeter") is a wholly-owned subsidiary of
Morgan Stanley Dean Witter & Co. Effective February 19, 1998 Morgan Stanley,
Dean Witter, Discover & Co. changed its corporate name to Morgan Stanley Dean
Witter & Co.
Demeter manages the following commodity pools as sole general partner: Dean
Witter Cornerstone Fund II, Dean Witter Cornerstone Fund III, Dean Witter
Cornerstone Fund IV, Columbia Futures Fund, Dean Witter Diversified Futures Fund
Limited Partnership, Dean Witter Diversified Futures Fund II L.P., Dean Witter
Diversified Futures Fund III L.P., Dean Witter Multi-Market Portfolio L.P., Dean
Witter Principal Plus Fund L.P., Dean Witter Principal Plus Fund
Management L.P., Dean Witter Portfolio Strategy Fund L.P., Dean Witter Global
Perspective Portfolio L.P., Dean Witter World Currency Fund L.P., Dean Witter
Institutional Account II L.P., DWFCM International Access Fund L.P., Morgan
Stanley Dean Witter Spectrum Global Balanced L.P., Morgan Stanley Dean Witter
Spectrum Strategic L.P., Morgan Stanley Dean Witter Spectrum Technical L.P.,
Morgan Stanley Dean Witter Spectrum Select L.P., Morgan Stanley Tangible Asset
Fund L.P. (to be renamed Morgan Stanley Dean Witter Spectrum Commodity L.P.),
Morgan Stanley Dean Witter/Chesapeake L.P., DWR Institutional Balanced Portfolio
Account III L.P., Morgan Stanley Dean Witter/JWH Futures Fund L.P., Morgan
Stanley Dean Witter/Market Street Futures Fund L.P., Morgan Stanley Dean Witter
Charter Graham L.P., Morgan Stanley Dean Witter Charter Millburn L.P., and
Morgan Stanley Dean Witter Charter Welton L.P.
Each of the commodity pools is a limited partnership organized to engage in the
speculative trading of commodity futures contracts, forward contracts on foreign
currencies and other commodity interests.
The financial statements are prepared in accordance with generally accepted
accounting principles, which require management to make estimates and
assumptions that affect the reported amounts in the financial statements and
related disclosures. Management believes that the estimates utilized in the
preparation of the financial statements are prudent and reasonable. Actual
results could differ from these estimates.
On July 31, 1997, Demeter entered into a limited partnership agreement as
general partner in Morgan Stanley Tangible Asset Fund. On November 4, 1997,
Morgan Stanley Tangible Asset Fund registered with the SEC 5,000,000 units and
began trading on January 2, 1998. Units were made available to investors in a
public offering that ended March 12, 1998 ("Offering Period"). Subsequently,
Morgan Stanley Tangible Asset Fund, Demeter, the trading advisor and Dean Witter
Reynolds agreed to extend the Offering Period until no later than October 16,
1998 ("Extended Offering Period"), and offered to the public unsold units
remaining at the end of the Offering Period.
In January of 1998, Demeter entered into a limited partnership agreement as
general partner in Morgan Stanley Dean Witter/Market Street Futures Fund, which
offers units to investors in a continuing private offering. The fund began
trading on October 1, 1998.
On April 20, 1998, Dean Witter Spectrum Balanced L.P. changed its name to Dean
Witter Spectrum Global Balanced L.P. and subsequently on April 30, 1999, changed
it to Morgan Stanley Dean Witter Spectrum Global Balanced L.P.
On April 20, 1998, Dean Witter Select Futures Fund L.P. changed its name to Dean
Witter Spectrum Select L.P. Effective May 1, 1998 Spectrum Select became part of
the Spectrum family of funds and consequently revised its fee structure,
instituted an exchange provision with other funds in the Spectrum family and is
offered to investors in a continuing public offering. On April 30, 1999,
Spectrum Select changed its name to Morgan Stanley Dean Witter Spectrum Select
L.P.
On April 30, 1998, Demeter ceased trading activities in Dean Witter
Institutional Account II and subsequently distributed its net assets.
On May 11, 1998 Demeter registered with the SEC 5,000,000 additional units of
Dean Witter Spectrum Technical L.P. and 1,500,000 units of Spectrum Select, both
of which are being offered to investors in a continuing public offering with
previously registered units of Dean Witter Spectrum Strategic L.P. and Dean
Witter Spectrum Global Balanced L.P. On April 30, 1999, Spectrum Technical
changed its name to Morgan Stanley Dean Witter Spectrum Technical L.P.
F-15
<PAGE>
DEMETER MANAGEMENT CORPORATION
(WHOLLY-OWNED SUBSIDIARY OF MORGAN STANLEY DEAN WITTER & CO.)
NOTES TO STATEMENTS OF FINANCIAL CONDITION (CONTINUED)
On July 15, 1998, Demeter entered into a limited partnership agreement as
general partner in the Morgan Stanley Dean Witter Charter Series. The three
partnerships that comprise the Charter Series are Morgan Stanley Dean Witter
Charter Graham L.P., Morgan Stanley Dean Witter Charter Millburn L.P. and Morgan
Stanley Dean Witter Charter Welton L.P. On July 29, 1998, the Charter Series
individually registered with the SEC 3,000,000 units of Charter Graham,
3,000,000 units of Charter Millburn and 3,000,000 units of Charter Welton to be
offered to investors for a limited time in a public offering. Charter Graham,
Charter Millburn, and Charter Welton each commenced trading on March 1, 1999.
On September 30, 1998, Demeter ceased trading activities in Dean Witter
Institutional Balanced Portfolio Account III, and subsequently distributed its
net assets.
On February 3, 1999, DWR Chesapeake L.P. changed its name to Morgan Stanley Dean
Witter/Chesapeake L.P.
On February 3, 1999, DWR/JWH Futures Fund L.P. changed its name to Morgan
Stanley Dean Witter/JWH Futures Fund L.P.
On April 30, 1999, Dean Witter Spectrum Strategic L.P. changed its name to
Morgan Stanley Dean Witter Spectrum Strategic L.P.
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
INCOME TAXES The results of operations of Demeter are included in the
consolidated federal income tax return of Morgan Stanley Dean Witter & Co.,
computed on a separate company basis and due to Morgan Stanley Dean
Witter & Co.
3. INVESTMENTS IN AFFILIATED PARTNERSHIPS
The limited partnership agreement of each commodity pool requires Demeter to
maintain a general partnership interest in each partnership, generally in an
amount equal to, but not less than 1 percent of the aggregate capital
contributed to the partnership by all partners.
The total assets, liabilities and partners' capital of all the funds managed by
Demeter at August 31, 1999, November 30, 1999 and 1998 were as follows:
<TABLE>
<CAPTION>
NOVEMBER 30,
-----------------------------
1999 1998
------------- -------------
<S> <C> <C>
$ $
Total assets................................................ 1,355,594,817 1,316,093,947
Total liabilities........................................... 28,406,267 21,644,069
Total partners' capital..................................... 1,327,188,550 1,294,449,878
</TABLE>
Demeter's investments in the above limited partnerships are carried at market
value with changes in such market value reflected currently in operations.
4. PAYABLE TO MORGAN STANLEY DEAN WITTER & CO.
The payable to Morgan Stanley Dean Witter & Co. is primarily for amounts due for
the purchase of partnership investments, income tax payments made by Morgan
Stanley Dean Witter & Co. on behalf of Demeter and the cumulative results of
operations.
F-16
<PAGE>
DEMETER MANAGEMENT CORPORATION
(WHOLLY-OWNED SUBSIDIARY OF MORGAN STANLEY DEAN WITTER & CO.)
NOTES TO STATEMENTS OF FINANCIAL CONDITION (CONCLUDED)
5. NET WORTH REQUIREMENT
At November 30, 1999 and 1998, Demeter held non-interest bearing notes from
Morgan Stanley Dean Witter & Co. that were payable on demand. These notes were
received in connection with additional capital contributions aggregating
$123,070,000 at November 30, 1999 and $111,070,000 at November 30, 1998.
The limited partnership agreement of each commodity pool requires Demeter to
maintain its net worth at an amount not less than 10% of the capital
contributions by all partners in each pool in which Demeter is the general
partner (15% if the capital contributions to any partnership are less than
$2,500,000, or $250,000, whichever is less).
In calculating this requirement, Demeter's interests in each limited partnership
and any amounts receivable from or payable to such partnerships are excluded
from net worth. Notes receivable from Morgan Stanley Dean Witter & Co. are
included in net worth for purposes of this calculation.
6. LITIGATION
The class actions first filed in 1996 in California and in New York State courts
were each dismissed in 1999. On September 6, 10, and 20, 1996, and on March 13,
1997, similar purported class actions were filed in the Superior Court of the
State of California, County of Los Angeles, on behalf of all purchasers of
interests in limited partnership commodity pools sold by Dean Witter. Named
defendants include Dean Witter, Demeter, Dean Witter Futures and Currency
Management Inc., Morgan Stanley Dean Witter & Co. (all such parties referred to
hereafter as the "Morgan Stanley Dean Witter Parties"), certain limited
partnership commodity pools of which Demeter is the general partner, and certain
trading advisors to those pools. On June 16, 1997, the plaintiffs in the above
actions filed a consolidated amended complaint alleging, among other things,
that the defendants committed fraud, deceit, negligent misrepresentation,
various violations of the California Corporations Code, intentional and
negligent breach of fiduciary duty, fraudulent and unfair business practices,
unjust enrichment, and conversion in the sale and operation of the various
limited partnership commodity pools. The court entered an order denying class
certification on August 24, 1999. On September 24, 1999, the court entered an
order dismissing the case without prejudice on consent. Similar purported class
actions were also filed on September 18 and 20, 1996 in the Supreme Court of the
State of New York, New York County, and on November 14, 1996 in the Superior
Court of the State of Delaware, New Castle County, against the Morgan Stanley
Dean Witter Parties and certain trading advisors on behalf of all purchasers of
interests in various limited partnership commodity pools sold by Dean Witter. A
consolidated and amended complaint in the action pending in the Supreme Court of
the State of New York was filed on August 13, 1997, alleging that the defendants
committed fraud, breach of fiduciary duty, and negligent misrepresentation in
the sale and operation of the various limited partnership commodity pools. The
New York Supreme Court dismissed the New York action in November 1998 but
granted plaintiffs leave to file an amended complaint, which they did in early
December 1998. The defendants filed a motion to dismiss the amended complaint
with prejudice on February 1, 1999. By decision dated December 21, 1999, the New
York Supreme Court dismissed the case with prejudice.
In addition on December 16, 1997, upon motion of the plaintiffs, the action
pending in the Superior Court of the State of Delaware was voluntarily dismissed
without prejudice.
F-17
<PAGE>
EXHIBIT A
TABLE OF CONTENTS TO FORM OF LIMITED PARTNERSHIP AGREEMENT
<TABLE>
<CAPTION>
PAGE
--------
<C> <S> <C> <C>
1. Formation; Name................................................... A-1
2. Office............................................................ A-1
3. Business.......................................................... A-2
4. Term; Dissolution; Fiscal Year.................................... A-2
(a) Term........................................................ A-2
(b) Dissolution................................................. A-3
(c) Fiscal Year................................................. A-3
5. Net Worth of General Partner...................................... A-3
6. Capital Contributions and Offering of Units of Limited Partnership
Interest.......................................................... A-4
7. Allocation of Profits and Losses; Accounting; Other Matters....... A-5
(a) Capital Accounts............................................ A-5
(b) Monthly Allocations......................................... A-5
(c) Allocation of Profit and Loss for Federal Income Tax
Purposes................................................... A-5
(d) Definitions; Accounting..................................... A-7
(e) Expenses and Limitations Thereof............................ A-7
(f) Limited Liability of Limited Partners....................... A-8
(g) Return of Limited Partner's Capital Contribution............ A-8
(h) Distributions............................................... A-8
(i) Interest on Assets.......................................... A-8
8. Management and Trading Policies................................... A-8
(a) Management of the Partnership............................... A-8
(b) The General Partner......................................... A-9
(c) General Trading Policies.................................... A-10
(d) Changes to Trading Policies................................. A-10
(e) Miscellaneous............................................... A-11
9. Audits; Reports to Limited Partners............................... A-12
10. Transfer; Redemption of Units; Exchange Privilege................. A-13
(a) Transfer.................................................... A-13
(b) Redemption.................................................. A-14
(c) Exchange Privilege.......................................... A-15
11. Special Power of Attorney......................................... A-16
12. Withdrawal of Partners............................................ A-16
13. No Personal Liability for Return of Capital....................... A-17
14. Standard of Liability; Indemnification............................ A-17
(a) Standard of Liability....................................... A-17
(b) Indemnification by the Partnership.......................... A-17
(c) Affiliate................................................... A-18
(d) Indemnification by Partners................................. A-18
15. Amendments; Meetings.............................................. A-18
(a) Amendments with Consent of the General Partner.............. A-18
(b) Meetings.................................................... A-18
(c) Amendments and Actions without Consent of the General
Partner.................................................... A-19
(d) Action Without Meeting...................................... A-19
(e) Amendments to Certificate of Limited Partnership............ A-19
16. Index of Defined Terms............................................ A-19
17. Governing Law..................................................... A-20
18. Miscellaneous..................................................... A-20
(a) Priority among Limited Partners............................. A-20
(b) Notices..................................................... A-20
(c) Binding Effect.............................................. A-20
(d) Captions.................................................... A-21
Annex A--Request for Redemption: Morgan Stanley Dean Witter
Managed Futures Funds...................................... A-23
</TABLE>
A-i
<PAGE>
EXHIBIT A
FORM OF AMENDED AND RESTATED LIMITED PARTNERSHIP AGREEMENT FOR MORGAN STANLEY
DEAN WITTER SPECTRUM COMMODITY L.P. (FORMERLY, MORGAN STANLEY TANGIBLE ASSET
FUND L.P.) AND LIMITED PARTNERSHIP AGREEMENT FOR MORGAN STANLEY DEAN WITTER
SPECTRUM CURRENCY L.P.
BOLDFACED CAPTIONS AND BRACKETED TEXT REFLECT DIFFERENCES IN LIMITED
PARTNERSHIP AGREEMENTS.
SPECTRUM COMMODITY ONLY:
This Agreement of Limited Partnership, made as of July 31, 1997, as amended
and restated as of March 6, 2000 (as so amended, this "Agreement"), by and among
Demeter Management Corporation, a Delaware corporation (the "General Partner"),
and the other parties who shall execute this Agreement, whether in counterpart,
by separate instrument, or otherwise, as limited partners (collectively "Limited
Partners"; the General Partner and Limited Partners may be collectively referred
to herein as "Partners"). The definitions of capitalized terms used in this
Agreement and not defined where used may be found by reference to the index of
defined terms in Section 16.
SPECTRUM CURRENCY ONLY:
This Agreement of Limited Partnership, made as of March 6, 2000 (this
"Agreement"), by and among Demeter Management Corporation, a Delaware
corporation (the "General Partner") , and the other parties who shall execute
this Agreement, whether in counterpart, by separate instrument, or otherwise, as
limited partners (collectively "Limited Partners; the General Partner and
Limited Partners may be collectively referred to herein as "Partners") The
definitions of capitalized terms used in this Agreement and not defined where
used may be found by reference to the index of defined terms in Section 16.
WITNESSETH:
WHEREAS, the parties hereto desire to form a limited partnership for the
purpose of engaging in the speculative trading of future interests.
NOW, THEREFORE, the parties hereto hereby agree as follows:
1. FORMATION; NAME.
The parties hereto do hereby form a limited partnership under the Delaware
Revised Uniform Limited Partnership Act, as amended and in effect on the date
hereof (the "Act"). The name of the limited partnership is Morgan Stanley Dean
Witter Spectrum [Commodity][Currency] L.P. (the "Partnership"). The General
Partner shall execute and file a Certificate of Limited Partnership of the
Partnership (the "Certificate of Limited Partnership") in accordance with the
Act, and shall execute, file, record, and publish as appropriate such
amendments, assumed name certificates, and other documents as are or become
necessary or advisable in connection with the operation of the Partnership, as
determined by the General Partner, and shall take all steps which the General
Partner may deem necessary or advisable to allow the Partnership to conduct
business as a limited partnership where the Partnership conducts business in any
jurisdiction, and to otherwise provide that Limited Partners will have limited
liability with respect to the activities of the Partnership in all such
jurisdictions, and to comply with the law of any jurisdiction. Each Limited
Partner hereby undertakes to furnish to the General Partner a power of attorney
and such additional information as the General Partner may request to complete
such documents and to execute and cooperate in the filing, recording, or
publishing of such documents as the General Partner determines appropriate.
2. OFFICE.
The principal office of the Partnership shall be Two World Trade Center,
62nd Floor, New York, New York 10048, or such other place as the General Partner
may designate from time to time.
The address of the principal office of the Partnership in the State of
Delaware is c/o The Corporation Trust Company, Corporation Trust Center,
1209 Orange Street, Wilmington, New Castle County, Delaware 19801, and the name
and address of the registered agent for service of process on the Partnership in
the
A-1
<PAGE>
State of Delaware is The Corporation Trust Company, Corporation Trust Center,
1209 Orange Street, Wilmington, New Castle County, Delaware 19801, or such other
agent as the General Partner shall designate from time to time.
3. BUSINESS.
The Partnership's business and general purpose is to trade, buy, sell,
spread, or otherwise acquire, hold, or dispose of commodities (including, but
not limited to, foreign currencies, mortgage-backed securities, money market
instruments, financial instruments, and any other securities or items which are
now, or may hereafter be, the subject of futures contract trading), domestic and
foreign commodity futures contracts, commodity forward contracts, foreign
exchange commitments, options on physical commodities and on futures contracts,
spot (cash) commodities and currencies, and any rights pertaining thereto
(hereinafter referred to collectively as "Futures Interests") and securities
(such as United States Treasury securities) approved by the Commodity Futures
Trading Commission (the "CFTC") for investment of customer funds and other
securities on a limited basis, and to engage in all activities incident thereto.
The objective of the Partnership's business is appreciation of its assets
through speculative trading. The Partnership may pursue this objective in any
lawful manner consistent with the Partnership's trading policies. The
Partnership may engage in the foregoing activities either directly or through
any lawful transaction or any lawful activity into which a limited partnership
may enter or in which a limited partnership may engage under the laws of the
State of Delaware; provided that such transactions or activities do not subject
the Limited Partners to any liability in excess of the limited liability
provided for herein and contemplated by the Act.
4. TERM; DISSOLUTION; FISCAL YEAR.
SPECTRUM CURRENCY ONLY:
(a) TERM. The term of the Partnership shall commence upon the filing of
the Certificate of Limited Partnership in the Office of the Secretary of State
of the State of Delaware and shall end upon the first to occur of the following:
(i) December 31, 2035; (ii) receipt by the General Partner of a notice setting
forth an election to terminate and dissolve the Partnership at a specified time
by Limited Partners owning more than 50% of the outstanding Units (as defined in
Section 6 below), which notice shall be sent by registered mail to the General
Partner not less than 90 days prior to the effective date of such termination
and dissolution; (iii) the withdrawal, insolvency, bankruptcy, dissolution,
liquidation or termination of the General Partner, unless the business of the
Partnership shall be continued by any remaining or successor general partner(s)
in accordance with the provisions hereof; (iv) the occurrence of any event which
shall make it unlawful for the existence of the Partnership to be continued;
(v) a decline in the Net Asset Value (as defined in Section 7(d)(2)) of a Unit
as of the close of business (as determined by the General Partner) on any day to
less than $2.50; (vi) a decline in the Partnership's Net Assets (as defined in
Section 7(d)(1)) as of the close of business (as determined by the General
Partner) on any day to or below $250,000; (vii) a determination by the General
Partner upon 60 days notice to the Limited Partners to terminate the
Partnership; or (viii) a determination by the General Partner to terminate the
Partnership following a Special Redemption Date as described in Section 9.
SPECTRUM COMMODITY ONLY:
(a) TERM. The term of the Partnership shall commence upon the filing of
the Certificate of Limited Partnership in the Office of the Secretary of State
of the State of Delaware and shall end upon the first to occur of the following:
(i) December 31, 2027; (ii) the insolvency, bankruptcy, dissolution,
liquidation, or termination of any general partner, unless the business of the
Partnership shall be continued by any remaining or successor general partner(s)
in accordance with the provisions hereof; (iii) the occurrence of any event
which shall make it unlawful for the existence of the Partnership to be
continued; (iv) an election to terminate and dissolve the Partnership at a
specified time by Limited Partners owning more than 50% of the Units then
outstanding, notice of which is sent by registered mail to the General Partner
not less than 90 days prior to the effective date of such termination and
dissolution; (v) withdrawal by the General Partner (unless a new general
partner(s) is elected by the Limited Partners as provided in Section 15(c));
(vi) a decline in the Net Asset Value (as determined by the General Partner) of
a Unit as of the close of business on any day to less than $2.50; (vii) a
decline in the Partnership's Net Assets (as determined by the General Partner)
as of the close of business on any day to $250,000 or less; (viii) a
A-2
<PAGE>
determination by the General Partner that the Partnership's Net Assets in
relation to the operating expenses of the Partnership make it unreasonable or
imprudent to continue the business of the Partnership; or (ix) a determination
by the General Partner to terminate the Partnership following a Special
Redemption Date.
(b) DISSOLUTION. Upon the occurrence of an event causing the termination
of the Partnership, the Partnership shall terminate and be dissolved.
Dissolution, payment of creditors, and distribution of the Partnership's Net
Assets shall be effected as soon as practicable in accordance with the Act,
except that the General Partner and each Limited Partner (and any assignee)
shall share in the Net Assets of the Partnership pro rata in accordance with
such Partner's respective capital account, less any amount owing by such Partner
(or assignee) to the Partnership. The General Partner shall, at its option, be
entitled to supervise the liquidation of the Partnership.
Nothing contained in this Agreement shall impair, restrict, or limit the
rights and powers of the Partners under the law of the State of Delaware and any
other jurisdiction in which the Partnership shall be conducting business to
reform and reconstitute themselves as a limited partnership following
dissolution of the Partnership, either under provisions identical to those set
forth herein or any others which they shall deem appropriate.
(c) FISCAL YEAR. The fiscal year of the Partnership shall begin on
January 1 of each year and end on the following December 31.
5. NET WORTH OF GENERAL PARTNER.
The General Partner agrees that at all times, as long as it remains General
Partner of the Partnership, it shall maintain its net worth at an amount not
less than 10% of the total contributions to the Partnership by all Partners and
to any other limited partnership for which it acts as a general partner by all
partners; PROVIDED, HOWEVER, that if the total contributions to the Partnership
by all such partnership's partners, or to any limited partnership for which it
acts as a general partner by all partners, are less than $2,500,000, then with
respect to the Partnership and any such limited partnership, the General Partner
shall maintain its net worth at an amount of at least 15% of the total
contributions to the Partnership by all Partners and of the total contributions
to any such limited partnership for which it acts as a general partner by all
such partnership's partners or $250,000, whichever is the lesser; and, PROVIDED,
FURTHER, that in no event shall the General Partner's net worth be less than
$50,000. For the purposes of this Section 5, "net worth" shall be calculated in
accordance with generally accepted accounting principles, except as otherwise
specified in this Section 5, with all current assets based on their then current
market values. The interests owned by the General Partner in the Partnership and
any other partnerships for which it acts as a general partner and any notes and
accounts receivable from and payable to any limited partnership in which it has
an interest shall not be included as an asset in calculating its net worth, but
any notes receivable from an affiliate (as such term is defined in
Regulation S-X of the rules and regulations of the Securities and Exchange
Commission (the "SEC")) of the General Partner or letters of credit may be
included.
The General Partner agrees that it shall not be a general partner of any
limited partnership other than the Partnership unless, at all times when it is a
general partner of any such additional limited partnership, its net worth is at
least equal to the net worth required by the preceding paragraph of this
Section 5.
The requirements of the preceding two paragraphs of this Section 5 may be
modified by the General Partner at its option, without notice to or the consent
of the Limited Partners, PROVIDED THAT: (a) such modification does not adversely
affect the interests of the Limited Partners, and (b) the General Partner
obtains a written opinion of counsel for the Partnership that such proposed
modification: (i) will not adversely affect the classification of the
Partnership as a partnership for federal income tax purposes, (ii) will not
adversely affect the status of the Limited Partners as limited partners under
the Act, and (iii) will not violate any applicable state securities or Blue Sky
law or any rules, regulations, guidelines, or statements of policy promulgated
or applied thereunder; PROVIDED, HOWEVER, that the General Partner's net worth
may not be reduced below the lesser of (A) the net worth required by
Section II.B of the Guidelines for Registration of Commodity Pool Programs, as
adopted in revised form by the North American Securities Administrators
Association, Inc. in September, 1993 (the "NASAA Guidelines"), and (B) the net
worth required by such Guidelines as in effect on the date of such proposed
modification.
A-3
<PAGE>
6. CAPITAL CONTRIBUTIONS AND OFFERING OF UNITS OF LIMITED PARTNERSHIP INTEREST.
The General Partner shall contribute to the Partnership, in $1,000
increments, such amount in cash as is necessary to make the General Partner's
capital contribution at least equal to the greater of: (a) 1% of aggregate
capital contributions to the Partnership by all Partners (including the General
Partner's contribution) and (b) $25,000. Such contribution by the General
Partner need not exceed the amount described above and shall be evidenced by
Units of General Partnership Interest ("Unit(s) of General Partnership
Interest"). The General Partner shall maintain its interest in the capital of
the Partnership at no less than the amount stated above. The General Partner,
without notice to or consent of the Limited Partners, may withdraw any portion
of its interest in the Partnership that is in excess of its required interest
described above. Interests in the Partnership, other than the General
Partnership Interest of the General Partner, shall be Units of Limited
Partnership Interest ("Units" or, individually, a "Unit"). The net asset value
of a Unit of General Partnership Interest shall at all times be equivalent to
the Net Asset Value of a Unit of Limited Partnership Interest.
The General Partner, for and on behalf of the Partnership, shall issue and
sell Units to persons desiring to become Limited Partners, PROVIDED that such
persons shall be determined by the General Partner to be qualified investors and
their subscriptions for Units shall be accepted by the General Partner, which
acceptance the General Partner may withhold in whole or in part in its sole
discretion. The minimum subscription for Units per subscriber shall be such
amount as the General Partner shall determine from time to time in its sole
discretion.
The Partnership, directly and/or through Dean Witter Reynolds Inc. ("DWR")
or such other selling agent or agents (each, a "Selling Agent") as may be
approved by the General Partner, may at any time and from time to time in the
sole discretion of the General Partner offer for sale Units and fractions of
Units (to the third decimal place) in public and/or private offerings, at prices
per Unit, in such minimum amounts, for such periods of time, and on such terms
and conditions as the General Partner shall determine in its sole discretion.
Units offered during any offering shall be issued and sold by the Partnership as
of the close of business (as determined by the General Partner) on the last
business day of a fiscal quarter or month and a closing for subscriptions
received during such offering shall be held as of such date; PROVIDED, HOWEVER,
that the General Partner may hold closings at such other times and for such
other periods as it shall determine in its sole discretion to effectuate such
offerings. At each such closing, the Partnership shall issue and sell Units to
each subscriber whose subscription shall be accepted by the General Partner at a
price per Unit to be determined by the General Partner in its sole discretion;
PROVIDED, HOWEVER, that the offering price per Unit during any offering of Units
shall not at any time be less than the Net Asset Value of a Unit as of the close
of business on the date of the applicable closing at which such Unit shall be
issued and sold, unless the newly offered Units' participation in the
Partnership's profits and losses is proportionately reduced. During any
offering, Units may be subscribed for by the General Partner, DWR,
Morgan Stanley Dean Witter & Co. ("MSDW"), any trading advisor to the
Partnership (each, a "Trading Advisor"), any commodity broker for the
Partnership (each, a "Commodity Broker"), and such persons' respective
shareholders, directors, officers, partners, employees, principals, and
Affiliates. Subscriptions for Units by such persons shall not preclude them from
receiving compensation from the Partnership for services rendered by them in
their respective capacities as other than Limited Partners. No subscriber for
Units during any offering of Units shall become a Limited partner until the
General Partner shall: (a) accept such subscriber's subscription at a closing
relating to such offering; (b) execute this Agreement on behalf of such
subscriber pursuant to the power of attorney in the subscription agreement
executed by the subscriber in connection with such offering; and (c) make an
entry on the books and records of the Partnership reflecting that such
subscriber has been admitted as a Limited Partner. Accepted subscribers shall be
deemed Limited Partners at such time as their admission shall be reflected on
the books and records of the Partnership. The aggregate of all capital
contributions to the Partnership shall be available to the Partnership to carry
on its business and no interest shall be paid by the Partnership on any such
contribution.
In connection with any offering of Units by the Partnership, the General
Partner, on behalf of the Partnership, shall: (a) cause to be filed one or more
Disclosure Documents and such amendments and supplements thereto as the General
Partner shall deem advisable or as may be required by applicable law with the
CFTC and the National Futures Association ("NFA"), Forms D or other
applications, notices or forms with the SEC and state securities and Blue Sky
administrators, and Registration Statements, Prospectuses (as used hereinafter,
the term "Prospectus" shall mean the most recent version of the
A-4
<PAGE>
Prospectus issued by the Partnership, or the most recent version of the
Disclosure Document or other offering memorandum prepared, in connection with
the particular offering of Units), and such amendments and supplements thereto
as the General Partner shall deem advisable or as may be required by applicable
law, with the CFTC, the NFA, the SEC, and the National Association of Securities
Dealers, Inc.; (b) qualify by registration or exemption from registration the
Units for sale under the Blue Sky and securities laws of such states of the
United States and such other jurisdictions as the General Partner in its sole
discretion shall deem advisable or as may be required by applicable law;
(c) make such arrangements for the sale of Units as it shall deem advisable,
including engaging DWR or any other firm as Selling Agent and entering into a
selling agreement with DWR or such other Selling Agent; and (d) take such action
with respect to and in order to effectuate the matters described in clauses
(a) through (c) as it shall deem advisable or necessary.
The Partnership shall not pay the costs of any offering or any selling
commissions relating thereto. No Limited Partner shall have any preemptive,
preferential or other rights with respect to the issuance or sale of any
additional Units, except as described in the applicable Prospectus. No Limited
Partner shall have the right to consent to the admission of any additional
Limited Partner. There is no maximum aggregate amount of contributions which may
be received by the Partnership.
All Units subscribed for shall be issued subject to the collection of good
funds. If, at any time, good funds representing payment for Units are not made
available to the Partnership because a subscriber has provided bad funds in the
form of a bad check or draft or otherwise to DWR or another Selling Agent which,
in turn, has deposited the subscription amount with the escrow agent, the
Partnership shall cancel the Units issued to such subscriber represented by such
bad funds, and the subscriber's name shall be removed as a Limited Partner from
the books and records of the Partnership. Any losses or profits sustained by the
Partnership as a result thereof in connection with its Futures Interests trading
allocable to such cancelled Units shall be deemed a decrease or increase in Net
Assets and allocated among the remaining Partners as described in Section 7.
Each Limited Partner agrees to reimburse the Partnership for any expense or loss
incurred in connection with the issuance and cancellation of any such Units
issued to such Limited Partner.
7. ALLOCATION OF PROFITS AND LOSSES; ACCOUNTING; OTHER MATTERS.
(a) CAPITAL ACCOUNTS. A capital account shall be established for each
Partner. The initial balance of each Partner's capital account shall be the
amount of a Partner's initial capital contribution to the Partnership.
(b) MONTHLY ALLOCATIONS. As of the close of business (as determined by the
General Partner) on the last day of each calendar month ("Determination Date")
during each fiscal year of the Partnership, the following determinations and
allocations shall be made:
(1) The Net Assets of the Partnership (as defined in Section 7(d)(1)),
before accrual of the monthly management fees and incentive fees payable to
any Trading Advisor, shall be determined.
(2) The accrued monthly management fees shall then be charged against
Net Assets.
(3) The accrued monthly incentive fees, if any, shall then be charged
against Net Assets.
(4) Any increase or decrease in Net Assets (after the adjustments in
subparagraphs (2) and (3) above), over those of the immediately preceding
Determination Date (or, in the case of the first Determination Date, the
first closing of the sale of Units to the public), shall then be credited or
charged to the capital account of each Partner in the ratio that the balance
of each account bears to the balance of all accounts.
(5) The amount of any distribution to a Partner, any amount paid to a
Partner on redemption of Units, any amount deemed received by a Partner on a
Series Exchange of Units pursuant to Section 10(c) hereof, and any amount
paid to the General Partner upon withdrawal of its interest in the
Partnership shall be charged to that Partner's capital account.
(c) ALLOCATION OF PROFIT AND LOSS FOR FEDERAL INCOME TAX PURPOSES. As of
the end of each fiscal year of the Partnership, the Partnership's realized
profit or loss shall be allocated among the Partners pursuant to the following
subparagraphs for federal income tax purposes. Such allocations of profit and
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<PAGE>
loss will be pro rata from net capital gain or loss and net operating income or
loss realized by the Partnership. For United States federal income tax purposes,
a distinction will be made between net short-term gain or loss and net long-term
gain or loss.
(1) Items of ordinary income (such as interest or credits in lieu of
interest) and expense (such as the management fees, incentive fees,
brokerage fees and extraordinary expenses) shall be allocated pro rata among
the Partners based on their respective capital accounts (exclusive of these
items of ordinary income or expense) as of the end of each month in which
the items of ordinary income or expense accrued.
(2) Net realized capital gain or loss from the Partnership's trading
activities shall be allocated as follows:
(aa) For the purpose of allocating the Partnership's net realized
capital gain or loss among the Partners, there shall be established an
allocation account with respect to each outstanding Unit. The initial
balance of each allocation account shall be the amount paid by the
Partner to the Partnership for the Unit. Allocation accounts shall be
adjusted as of the end of each fiscal year and as of the date a Partner
completely redeems his Units as follows:
(i) Each allocation account shall be increased by the amount of
income allocated to the holder of the Unit pursuant to
subparagraph (c)(1) above and subparagraph (c)(2)(cc) below.
(ii) Each allocation account shall be decreased by the amount of
expense or loss allocated to the holder of the Unit pursuant to
subparagraph (c)(1) above and subparagraph (c)(2)(ee) below and by the
amount of any distribution the holder of the Unit has received with
respect to the Unit (other than on redemption of the Unit).
(iii) When a Unit is redeemed or exchanged in a Series Exchange,
the allocation account with respect to such Unit shall be eliminated.
(bb) Net realized capital gain shall be allocated first to each
Partner who has partially redeemed his Units or exchanged less than all
his Units in a Series Exchange during the fiscal year up to the excess,
if any, of the amount received upon redemption of the Units or the amount
deemed received on the Series Exchange of the Units over the allocation
account attributable to the redeemed Units or the Units exchanged in the
Series Exchange.
(cc) Net realized capital gain remaining after the allocation
thereof pursuant to subparagraph (c)(2)(bb) above shall be allocated next
among all Partners whose capital accounts are in excess of their Units'
allocation accounts (after the adjustments in subparagraph (c)(2)(bb)
above) in the ratio that each such Partner's excess bears to all such
Partners' excesses. In the event that gain to be allocated pursuant to
this subparagraph (c)(2)(cc) is greater than the excess of all such
Partners' capital accounts over all such allocation accounts, the excess
will be allocated among all Partners in the ratio that each Partner's
capital account bears to all Partners' capital accounts.
(dd) Net realized capital loss shall be allocated first to each
Partner who has partially redeemed his Units or exchanged less than all
his Units in a Series Exchange during the fiscal year up to the excess,
if any, of the allocation account attributable to the redeemed Units or
the Units exchanged in the Series Exchange over the amount received upon
redemption of the Units or the amount deemed received on the Series
Exchange of the Units.
(ee) Net realized capital loss remaining after the allocation
thereof pursuant to subparagraph (c)(2)(dd) above shall be allocated next
among all Partners whose Units' allocation accounts are in excess of
their capital accounts (after the adjustments in subparagraph (c)(2)(dd)
above) in the ratio that each such Partner's excess bears to all such
Partners' excesses. In the event that loss to be allocated pursuant to
this subparagraph (c)(2)(ee) is greater than the excess of all such
allocation accounts over all such Partners' capital accounts, the excess
loss will be allocated among all Partners in the ratio that each
Partner's capital account bears to all Partners' capital accounts.
(3) The tax allocations prescribed by this Section 7(c) shall be made to
each holder of a Unit whether or not the holder is a substituted Limited
Partner. In the event that a Unit has been
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transferred or assigned pursuant to Section 10(a), the allocations
prescribed by this Section 7(c) shall be made with respect to such Unit
without regard to the transfer or assignment, except that in the year of
transfer or assignment the allocations prescribed by this Section
7(c) shall be divided between the transferor or assignor and the transferee
or assignee based on the number of months each held the transferred or
assigned Unit. For purposes of this Section 7(c), tax allocations shall be
made to the General Partner's Units of General Partnership Interest on a
Unit-equivalent basis.
(4) The allocation of profit and loss for federal income tax purposes
set forth herein is intended to allocate taxable profits and loss among
Partners generally in the ratio and to the extent that net profit and net
loss are allocated to such Partners under Section 7(b) hereof so as to
eliminate, to the extent possible, any disparity between a Partner's capital
account and his allocation account with respect to each Unit then
outstanding, consistent with the principles set forth in
Section 704(c)(2) of the Internal Revenue Code of 1986, as amended (the
"Code").
(d) DEFINITIONS; ACCOUNTING.
(1) NET ASSETS. The Partnership's "Net Assets" shall mean the total
assets of the Partnership (including, but not limited to, all cash and cash
equivalents (valued at cost), accrued interest and amortization of original
issue discount, and the market value of all open Futures Interests positions
and other assets of the Partnership) less the total liabilities of the
Partnership (including, but not limited to, all brokerage, management and
incentive fees, and extraordinary expenses) determined in accordance with
generally accepted accounting principles consistently applied under the
accrual basis of accounting. Unless generally accepted accounting principles
require otherwise, the market value of a Futures Interest traded on a United
States exchange shall mean the settlement price on the exchange on which the
particular Futures Interest was traded by the Partnership on the day with
respect to which Net Assets are being determined; PROVIDED, HOWEVER, that if
a Futures Interest could not have been liquidated on such day due to the
operation of daily limits or other rules of the exchange upon which that
Futures Interest shall be traded or otherwise, the settlement price on the
first subsequent day on which the Futures Interest could be liquidated shall
be the market value of such Futures Interest for such day. The market value
of a forward contract or a Futures Interest traded on a foreign exchange or
market shall mean its market value as determined by the General Partner on a
basis consistently applied for each different variety of forward contract or
Futures Interest.
(2) NET ASSET VALUE. The "Net Asset Value" of a Unit shall mean the
Net Assets allocated to capital accounts represented by Units of Limited
Partnership Interest divided by the aggregate number of Units of Limited
Partnership Interest.
(e) EXPENSES AND LIMITATIONS THEREOF. DWR shall pay all of the
organizational, initial and continuing offering expenses of the Partnership
(including, but not limited to, legal, accounting, and auditing fees, printing
costs, filing fees, escrow fees, marketing costs and expenses, and other related
expenses), and shall not be reimbursed therefor.
Subject to the limits set forth below, and except to the extent that DWR or
an affiliate has agreed to pay any such fees, costs or expenses as provided in
the Prospectus, the Partnership shall pay its operational expenses. The General
Partner shall not be reimbursed by the Partnership for any costs incurred by it
relating to office space, equipment, and staff necessary for Partnership
operations and administration of redemptions and Series Exchanges of Units. The
Partnership will be obligated to pay any extraordinary expenses (determined in
accordance with generally accepted accounting principles) it may incur.
The Partnership's assets held by any Commodity Broker, as provided in
Section 7(i), may be used as margin solely for the Partnership's trading. The
Partnership shall bear all commodity brokerage fees and commissions and, except
as otherwise set forth herein or described in the Prospectus, shall be obligated
to pay all liabilities incurred by it, including, without limitation, all fees
and expenses incurred in connection with its trading activities (including, but
not limited to, floor brokerage fees, exchange fees, clearinghouse fees, NFA
fees, "give up" or transfer fees, costs associated with the taking of delivery
of Futures Interests, fees for the execution of forward contract transactions,
fees for the execution of cash transactions relating to the exchange of futures
for physical transactions, and the use of any Commodity Broker's institutional
and overnight execution facilities (collectively, "Transaction Fees and
Costs")), and management and incentive fees payable to any Trading Advisor.
Appropriate reserves may be created,
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accrued, and charged against Net Assets for contingent liabilities, if any, as
of the date any such contingent liability becomes known to the General Partner.
Such reserves shall reduce the Net Asset Value of interests in the Partnership
for all purposes, including redemptions and Series Exchanges.
The following special limits shall apply to the Partnership's fees and
expenses, in accordance with Section IV.C of the NASAA Guidelines: (a) the
aggregate of (i) the management fees payable by the Partnership to the Trading
Advisor(s), and (ii) the Partnership's customary and routine administrative
expenses (other than commodity brokerage commissions or fees, Transaction Fees
and Costs, incentive fees, legal and auditing fees and expenses, and
extraordinary expenses), shall not exceed 1/2 of 1% of the Partnership's Net
Assets per month, or 6% of the Partnership's Net Assets annually; (b) the
monthly incentive fees payable by the Partnership shall not exceed 15% of the
Partnership's "Trading Profits" (as defined in the Prospectus) attributable to
such Trading Advisor for the applicable calculation period, PROVIDED that such
incentive fees may be increased by 2% for each 1% by which the aggregate fees
and expenses described in clause (a) of this sentence are below the 6% of Net
Assets annual limit thereon (I.E., if such fees and expenses are 4% of Net
Assets, the maximum incentive fee payable may be increased to 19%); (c) any
"roundturn" brokerage commissions (excluding Transaction Fees and Costs) payable
by the Partnership to any Commodity Broker shall not exceed 80% of such
Commodity Broker's published non-member rates for speculative accounts; and
(d) the aggregate of (i) the brokerage commissions or fees payable by the
Partnership to any Commodity Broker, (ii) any Transaction Fees and Costs
separately payable by the Partnership, and (iii) any net excess interest and
compensating balance benefits to any Commodity Broker (after crediting the
Partnership with interest), shall not exceed 14% annually of the Partnership's
average monthly Net Assets as at the last day of each month during each calendar
year. The General Partner or an Affiliate thereof shall pay and shall not be
reimbursed for any fees and expenses in excess of any such limits.
(f) LIMITED LIABILITY OF LIMITED PARTNERS. Each Unit, when purchased by a
Limited Partner in accordance with the terms of this Agreement, shall be fully
paid and nonassessable. No Limited Partner shall be liable for the Partnership's
obligations in excess of such Partner's unredeemed capital contribution,
undistributed profits, if any, and any distributions and amounts received upon
redemption of Units or deemed received on a Series Exchange of Units, together
with interest thereon. The Partnership shall not make a claim against a Limited
Partner with respect to amounts distributed to such Partner or amounts received
by such Partner upon redemption of Units or deemed received upon a Series
Exchange of Units unless the Net Assets of the Partnership (which shall not
include any right of contribution from the General Partner except to the extent
previously made by it pursuant to this Agreement) shall be insufficient to
discharge the liabilities of the Partnership which shall have arisen prior to
the payment of such amounts.
(g) RETURN OF LIMITED PARTNER'S CAPITAL CONTRIBUTION. Except to the extent
that a Limited Partner shall have the right to withdraw capital through
redemption or Series Exchange of Units in accordance with Section 10(b) or (c),
no Limited Partner shall have any right to demand the return of his capital
contribution or any profits added thereto, except upon termination and
dissolution of the Partnership. In no event shall a Limited Partner be entitled
to demand or receive from the Partnership property other than cash.
(h) DISTRIBUTIONS. The General Partner shall have sole discretion in
determining what distributions (other than on redemption or Series Exchange of
Units), if any, the Partnership shall make to its Partners. If made, all
distributions shall be pro rata in accordance with the respective capital
accounts of the Partners and may be made by credit to a Limited Partner's
account with DWR or by check if such account is closed.
(i) INTEREST ON ASSETS. The Partnership shall deposit all of its assets
with such Commodity Broker(s) as the Partnership shall utilize from time to
time, and such assets shall be used by the Partnership to engage in Futures
Interests trading. Unless provided otherwise in the Prospectus, such assets will
be invested in securities approved by the CFTC for investment of customer funds
or held in non-interest-bearing accounts, and such Commodity Broker(s) will
credit the Partnership at month-end with interest income as set forth in the
Prospectus or as otherwise set forth in a notice to Limited Partners.
8. MANAGEMENT AND TRADING POLICIES.
(a) MANAGEMENT OF THE PARTNERSHIP. Except as may be otherwise specifically
provided herein, the General Partner, to the exclusion of all Limited Partners,
shall conduct and manage the business of the
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Partnership, including, without limitation, the investment of the funds of the
Partnership. No Limited Partner shall have the power to represent, act for, sign
for, or bind the General Partner or the Partnership. Except as provided herein,
no Partner shall be entitled to any salary, draw, or other compensation from the
Partnership. Each Limited Partner hereby undertakes to furnish to the General
Partner such additional information as may be determined by the General Partner
to be required or appropriate for the Partnership to open and maintain an
account or accounts with the Partnership's Commodity Broker(s) for the purpose
of trading in Futures Interests.
The General Partner shall be under a fiduciary duty to conduct the affairs
of the Partnership in the best interests of the Partnership. The Limited
Partners will under no circumstances be permitted to contract away, or be deemed
to have contracted away, the fiduciary obligations owed them by the General
Partner under statutory or common law. The General Partner shall have fiduciary
responsibility for the safekeeping of all of the funds and assets of the
Partnership, whether or not in its immediate possession or control, and the
General Partner shall not employ, or permit another to employ, such funds or
assets in any manner except for the benefit of the Partnership.
(b) THE GENERAL PARTNER. The General Partner, on behalf of the
Partnership, shall retain one or more Trading Advisors to make all trading
decisions for the Partnership, and shall delegate complete trading discretion to
such Trading Advisors; PROVIDED, HOWEVER, that the General Partner may override
any trading instructions: (i) which the General Partner, in its sole discretion,
determines to be in violation of any trading policy of the Partnership, as set
forth in subsection (c) below; (ii) to the extent the General Partner believes
doing so is necessary for the protection of the Partnership; (iii) to terminate
the Futures Interests trading of the Partnership; (iv) to comply with applicable
laws or regulations; or (v) as and to the extent necessary, upon the failure of
a Trading Advisor to comply with a request to make the necessary amount of funds
available to the Partnership, to fund distributions, redemptions, or
reapportionments among Trading Advisors or to pay the expenses of the
Partnership; and PROVIDED, FURTHER, that the General Partner may make trading
decisions at any time at which a Trading Advisor shall become incapacitated or
some other emergency shall arise as a result of which such Trading Advisor shall
be unable or unwilling to act and a successor Trading Advisor has not yet been
retained.
The Partnership shall not enter into any agreement with the General Partner,
DWR, or their respective Affiliates (other than a selling agreement as
contemplated by Section 6) which has a term of more than one year and which does
not provide that it shall be terminable by the Partnership without penalty upon
60 days' prior written notice by the General Partner; PROVIDED, HOWEVER, that
any such agreement may provide for automatic renewal for additional one-year
terms unless either the Partnership or the other party to such agreement, upon
written notice given not less than 60 days prior to the original termination
date or any extended termination date, notifies the other party of its intention
not to renew.
Subject to the foregoing paragraph, the General Partner is hereby
authorized, on behalf of the Partnership, to enter into the form of management
agreement described in the Prospectus (each, a "Management Agreement") with each
Trading Advisor described in the Prospectus, and to cause the Partnership to pay
to each such Trading Advisor the management and incentive fees provided for in
the applicable Management Agreement, as described in the Prospectus.
The General Partner is further authorized: (a) to modify (including changing
the form and amount of compensation and other arrangements and terms) or
terminate any Management Agreement in its sole discretion in accordance with the
terms of such Management Agreement and to employ from time to time other Trading
Advisors pursuant to management agreements having such terms and conditions and
providing for such form and amount of compensation as the General Partner in its
sole discretion shall deem to be in the best interests of the Partnership, which
terms may include provision for the payment of an incentive fee to a new or
replacement Trading Advisor or Advisors which shall be based on any trading
profits which shall be earned by such Trading Advisor(s), irrespective of
whether such profits shall exceed trading losses incurred by any previous or
existing Trading Advisor or Advisors or by the Partnership as a whole; (b) to
enter into the Customer Agreements described in the Prospectus (each, a
"Customer Agreement") with the Commodity Brokers described in the Prospectus,
and to cause the Partnership to pay to such Commodity Brokers brokerage fees or
commissions and Transaction Fees and Costs at the rates provided for in the
Customer Agreements and as described in the Prospectus; and (c) to modify
(including changing the form and amount of compensation and other arrangements
and terms) and terminate the Customer Agreements in its sole discretion in
accordance with the terms of such
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Agreements and to employ from time to time other Commodity Brokers pursuant to
customer agreements having such terms and conditions and providing for such form
and amount of compensation as the General Partner in its sole discretion shall
deem to be in the best interests of the Partnership, PROVIDED, HOWEVER, that the
General Partner shall review at least annually the brokerage arrangements with
the Partnership to ensure that the brokerage fees or commissions paid to any
Commodity Broker are fair, reasonable, and competitive, and represent the best
price and services available, taking into consideration: (i) the size of the
Partnership; (ii) the Futures Interests trading activity; (iii) the services
provided by the Commodity Broker, the General Partner or any Affiliate thereof
to the Partnership; (iv) the cost incurred by the Commodity Broker, the General
Partner or any Affiliate thereof in organizing and operating the Partnership and
offering Units; (v) the overall costs to the Partnership; (vi) any excess
interest and compensating balance benefits to the Commodity Broker from assets
held thereby; and (vii) if the General Partner does not receive any direct
compensation from the Partnership for its services as General Partner, the risks
incurred by the General Partner as such.
The General Partner may subdivide or combine Units in its discretion,
provided that no such subdivision or combination shall affect the Net Asset
Value of any Limited Partner's interest in the Partnership.
(c) GENERAL TRADING POLICIES. The General Partner shall require any
Trading Advisor retained by the Partnership to follow the trading policies set
forth below. The following trading policies are applicable to the Partnership as
a whole and do not apply to the trading of any individual Trading Advisor.
TRADING POLICIES FOR BOTH PARTNERSHIPS:
- The Partnership will not employ the trading technique commonly
known as "pyramiding," in which the speculator uses unrealized profits on
existing positions in a given Futures Interest due to favorable price
movement as margin specifically to buy or sell additional positions in the
same or a related Futures Interest. Taking into account the Partnership's
open trade equity on existing positions in determining generally whether to
acquire additional Futures Interest positions on behalf of the Partnership
will not be considered to constitute "pyramiding."
- The Partnership will not under any circumstances lend money to
affiliated entities or otherwise. The Partnership will not utilize
borrowings except if the Partnership purchases or takes delivery of
commodities. If the Partnership borrows money from the General Partner or
any Affiliate thereof, the lending entity in such case (the "Lender") may
not receive interest in excess of its interest costs, nor may the Lender
receive interest in excess of the amounts which would be charged the
Partnership (without reference to the General Partner's financial abilities
or guarantees) by unrelated banks on comparable loans for the same purpose,
nor may the Lender or any Affiliate thereof receive any points or other
financing charges or fees regardless of the amount. Use of lines of credit
in connection with its forward trading does not, however, constitute
borrowing for purposes of this trading limitation.
- The Partnership will not permit "churning" of the Partnership's
assets.
TRADING POLICY FOR SPECTRUM CURRENCY ONLY:
- The Partnership will trade currencies and other commodities in the
interbank and forward contract markets only with banks, brokers, dealers,
and other financial institutions which the General Partner, in conjunction
with DWR, has determined to be creditworthy. In determining the
creditworthiness of a counterparty to a forward contract, the General
Partner and DWR will consult with the Corporate Credit Department of DWR.
TRADING POLICY FOR SPECTRUM COMMODITY ONLY:
- The Partnership will not purchase, sell, or trade securities
(except securities approved by the CFTC for investment of customer funds).
(d) CHANGES TO TRADING POLICIES. The General Partner shall not make any
material change in the trading policies in Section 8(c) without obtaining the
prior written approval of Limited Partners owning
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more than 50% of the Units then outstanding. The General Partner will notify the
Limited Partners within seven business days after any material change in the
Partnership's Trading Policies so approved by the Limited Partners.
(e) MISCELLANEOUS. The General Partner may take such other actions as it
deems necessary or desirable to manage the business of the Partnership,
including, but not limited to, the following: opening bank accounts and paying
or authorizing the payment of distributions to the Partners and the expenses of
the Partnership, such as brokerage fees and commissions, management and
incentive fees, ordinary and extraordinary expenses, and Transaction Fees and
Costs.
The General Partner shall prepare or cause to be prepared and shall file on
or before the due date (or any extension thereof) any federal, state, or local
tax returns which shall be required to be filed by the Partnership. The General
Partner shall cause the Partnership to pay any taxes payable by the Partnership;
PROVIDED, HOWEVER, that the General Partner shall not be required to cause the
Partnership to pay any tax so long as the General Partner or the Partnership
shall be in good faith and by appropriate legal proceedings contesting the
validity, applicability, or amount thereof and such contest shall not materially
endanger any right or interest of the Partnership.
The General Partner shall be authorized to perform all duties imposed by
Sections 6221 through 6233 of the Code on the General Partner as "tax matters
partner" of the Partnership, including, but not limited to, the following: (a)
the power to conduct all audits and other administrative proceedings with
respect to Partnership tax items; (b) the power to extend the statute of
limitations for all Limited Partners with respect to Partnership tax items;
(c) the power to file a petition with an appropriate federal court for review of
a final Partnership administrative adjustment; and (d) the power to enter into a
settlement with the Internal Revenue Service on behalf of, and binding upon,
those Limited Partners having less than a 1% interest in the Partnership, unless
a Limited Partner shall have notified the Internal Revenue Service and the
General Partner that the General Partner may not act on such Partner's behalf.
If the Partnership is required to withhold United States taxes on income
with respect to Units held by Limited Partners who are nonresident alien
individuals, foreign corporations, foreign partnerships, foreign trusts, or
foreign estates, the General Partner may pay such tax out of its own funds and
then be reimbursed out of the proceeds of any distribution or redemption with
respect to such Units.
The General Partner shall keep at the principal office of the Partnership
such books and records relating to the business of the Partnership as it deems
necessary or advisable, as are required by the Commodity Exchange Act, as
amended (the "CEAct"), and the CFTC's rules and regulations thereunder, or as
shall be required by other regulatory bodies, exchanges, boards, and authorities
having jurisdiction. Such books and records shall be retained by the Partnership
for not less than five years.
The Partnership's books and records shall be available to Limited Partners
or their authorized attorneys or agents for inspection and copying during normal
business hours of the Partnership and, upon request, the General Partner shall
send copies of same to any Limited Partner upon payment by him of reasonable
reproduction and distribution costs. Any subscription documentation executed by
a Limited Partner in connection with his purchase of Units, Series Exchange or
Non-Series Exchange, as applicable, shall be retained by the Partnership for not
less than six years.
Except as described herein or in the Prospectus, no person may receive,
directly or indirectly, any advisory, management, or incentive fee for
investment advice who shares or participates in per trade commodity brokerage
commissions paid by the Partnership. No Commodity Broker for the Partnership may
pay, directly or indirectly, rebates or "give-ups" to the General Partner or any
Trading Advisor, and such prohibitions may not be circumvented by any reciprocal
business arrangements. Assets of the Partnership shall not be commingled with
assets of any other person. Margin deposits and deposits of assets with a
Commodity Broker shall not constitute commingling.
The General Partner shall devote such time and resources to the
Partnership's business and affairs as it, in its sole discretion, shall deem
necessary or advisable to effectively manage the Partnership. Subject to
Section 5, the General Partner may engage in other business activities and shall
not be required to refrain from any other activity or disgorge any profits from
any such activity, whether as general partner of additional partnerships formed
for investment in Futures Interests or otherwise. The General Partner may engage
and compensate, on behalf and from funds of the Partnership, such persons,
firms, or corporations,
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including any Affiliate of the General Partner, as the General Partner in its
sole judgment shall deem advisable for the conduct and operation of the business
of the Partnership; PROVIDED, HOWEVER, that, except as described herein and in
the Prospectus, the General Partner shall not engage any such Affiliate to
perform services for the Partnership without having made a good faith
determination that: (i) the Affiliate which it proposes to engage to perform
such services is qualified to do so (considering the prior experience of the
Affiliate or the individuals employed thereby); (ii) the terms and conditions of
the agreement pursuant to which such Affiliate is to perform services for the
Partnership are no less favorable to the Partnership than could be obtained from
equally-qualified unaffiliated third parties, or are otherwise determined by the
General Partner to be fair and reasonable to the Partnership and the Limited
Partners; and (iii) the maximum period covered by the agreement pursuant to
which such Affiliate is to perform services for the Partnership shall not exceed
one year, and such agreement shall be terminable without penalty upon 60 days'
prior written notice by the Partnership. Nothing contained in the preceding
sentence shall prohibit the General Partner from receiving reimbursement from
the Partnership for expenses advanced on behalf of the Partnership (other than
organizational and offering expenses).
No person dealing with the General Partner shall be required to determine
its authority to make any undertaking on behalf of the Partnership or to
determine any fact or circumstance bearing upon the existence of its authority.
9. AUDITS; REPORTS TO LIMITED PARTNERS.
The Partnership's books shall be audited annually by an independent
certified public accounting firm selected by the General Partner in its sole
discretion. The Partnership shall use its best efforts to cause each Partner to
receive: (a) within 90 days after the close of each fiscal year an annual report
containing audited financial statements (including a statement of income and a
statement of financial condition) of the Partnership for the fiscal year then
ended, prepared in accordance with generally accepted accounting principles and
accompanied by a report of the accounting firm which audited such statements,
and such other information as the CFTC and NFA may from time to time require
(such annual reports will provide a detailed statement of any transactions with
the General Partner or its Affiliates and of fees, commissions and any
compensation paid or accrued to the General Partner or its Affiliates for the
fiscal year completed, showing the amount paid or accrued to each recipient and
the services performed); (b) within 75 days after the close of each fiscal year
(but in no event later than March 15 of each year) such tax information relating
to the Partnership as is necessary for such Partner to complete his federal
income tax return; (c) within 30 days after the close of each calendar month,
such financial and other information with respect to the Partnership as the CFTC
and NFA from time to time shall require in monthly reports, together with
information concerning any material change in the brokerage commissions and fees
payable by the Partnership to any Commodity Broker; and (d) at such times as
shall be necessary or advisable in the General Partner's sole discretion, such
other information as the CFTC and NFA from time to time shall require under the
CEAct to be given to participants in commodity pools.
In addition, if any of the following events occurs, notice of such event,
including a description of the redemption and voting rights of Limited Partners,
as set forth in Sections 10(b) and 15, shall be mailed to each Limited Partner
within seven business days after the occurrence of such event: (a) a decrease in
the Net Asset Value of a Unit as of the close of business on any business day to
50% or less of the Net Asset Value for such Unit as of the end of the
immediately preceding month; (b) any material amendment to this Agreement;
(c) any change in Trading Advisors or any material change in the Management
Agreement with a Trading Advisor; (d) any change in Commodity Brokers or any
material change in the compensation arrangements with a Commodity Broker;
(e) any change in general partners or any material change in the compensation
arrangements with a general partner; (f) any change in the Partnership's fiscal
year; (g) any material change in the Partnership's trading policies; or
(h) cessation of Futures Interests trading by the Partnership. In the case of a
notice given in accordance with clause (a) of the immediately preceding
sentence: (i) such notice shall also advise Limited Partners that a "Special
Redemption Date," on a date specified in such notice (but in no event earlier
than 15, nor later than 45, days after the mailing of such notice), will take
place as of which Limited Partners may redeem their Units in the same manner as
provided in Section 10(b) for regular Redemption Dates (a Special Redemption
Date may take place on a regular Redemption Date); and (ii) following the close
of business on the date of the 50% decrease giving rise to such notice, the
Partnership shall liquidate all existing positions as promptly as reasonably
practicable and shall suspend all Futures Interests trading through the Special
Redemption Date.
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Thereafter, the General Partner shall determine whether to reinstitute Futures
Interests trading or to terminate the Partnership. As used herein, "material
change in the Partnership's trading policies" shall mean any material change in
those trading policies specified in Section 8(c).
The Net Asset Value of a Unit shall be determined daily by the General
Partner, and the most recent Net Asset Value calculation shall be promptly
supplied by the General Partner in writing to any Limited Partner after the
General Partner shall have received a written request from such Partner.
In addition, no increase (subject to the limits in the fourth paragraph of
Section 7(e)) in any of the management, incentive, or brokerage fees payable by
the Partnership, or any caps (other than those described in the fourth paragraph
of Section 7(e)) on management fees, incentive fees, brokerage commissions or
fees, Transaction Fees and Costs, ordinary administrative expenses, or net
excess interest or compensating balance benefits, all as described in the
Prospectus, may take effect until the first business day following a Redemption
Date, PROVIDED that: (i) notice of such increase is mailed to each Limited
Partner at least five business days prior to the last date on which a Request
for Redemption must be received by the General Partner with respect to the
applicable Redemption Date; (ii) such notice shall describe the redemption and
voting rights of Limited Partners, as set forth in Sections 10(b) and 15; and
(iii) Limited Partners redeeming Units at the first Redemption Date following
such notice shall not be subject to the redemption charges described in
Section 10(b).
10. TRANSFER; REDEMPTION OF UNITS; EXCHANGE PRIVILEGE.
(a) TRANSFER. A Limited Partner may transfer or assign his Units only as
provided in this Section 10(a). No transferee or assignee shall become a
substituted Limited Partner unless the General Partner first consents to such
transfer or assignment in writing, which consent may be withheld in its sole
discretion. Any transfer or assignment of Units which is permitted hereunder
shall be effective as of the end of the month in which such transfer or
assignment is made; PROVIDED, HOWEVER, that the Partnership need not recognize
any transfer or assignment until it has received at least 30 days' prior written
notice thereof from the Limited Partner, which notice shall set forth the
address and social security or taxpayer identification number of the transferee
or assignee and the number of Units to be transferred or assigned, and which
notice shall be signed by the Limited Partner. No transfer or assignment of
Units will be effective or recognized by the Partnership if the transferee or
assignee, or the transferor or assignor (if fewer than all Units held by the
transferor or assignor are being transferred or assigned), would, by reason of
such transfer or assignment, acquire Units which do not meet the minimum initial
subscription requirements, as described in the Prospectus; PROVIDED, HOWEVER,
that the foregoing restriction shall not apply to transfers or assignment of
Units (i) by the way of gift or inheritance, (ii) to any members of the Limited
Partner's family, (iii) resulting from divorce, annulment, separation or similar
proceedings, or (iv) to any person who would be deemed an Affiliate of the
Limited Partner (for purposes of this clause (iv), the term "Affiliate" also
includes any partnership, corporation, association, or other legal entity for
which such Limited Partner acts as an officer, director or partner). No transfer
or assignment shall be permitted unless the General Partner is satisfied that
(i) such transfer or assignment would not be in violation of the Act or
applicable federal, state, or foreign securities laws, and (ii) notwithstanding
such transfer or assignment, the Partnership shall continue to be classified as
a partnership rather than as an association taxable as a corporation under the
Code. No transfer or assignment of Units shall be effective or recognized by the
Partnership if such transfer or assignment would result in the termination of
the Partnership for federal income tax purposes, and any attempted transfer or
assignment in violation hereof shall be ineffective to transfer or assign any
such Units. Any transferee or assignee of Units who has not been admitted to the
Partnership as a substituted Limited Partner shall not have any of the rights of
a Limited Partner, except that such person shall receive that share of capital
and profits and shall have that right of redemption to which his transferor or
assignor would otherwise have been entitled and shall remain subject to the
other terms of this Agreement binding upon Limited Partners. No Limited Partner
shall have any right to approve of any person becoming a substituted Limited
Partner. The Limited Partner shall bear all costs (including any attorneys' and
accountants' fees) related to such transfer or assignment of his Units.
In the event that the General Partner consents to the admission of a
substituted Limited Partner pursuant to this Section 10(a), the General Partner
is hereby authorized to take such actions as may be necessary to reflect such
substitution of a Limited Partner.
A-13
<PAGE>
(b) REDEMPTION. Except as set forth below and in accordance with the terms
hereof, a Limited Partner (or any assignee thereof) may withdraw all or part of
his unredeemed capital contribution and undistributed profits, if any, by
requiring the Partnership to redeem all or part of his Units at the Net Asset
Value thereof, reduced as hereinafter described (any such withdrawal being
herein referred to as a "Redemption"). The minimum amount of any redemption is
50 Units, unless a Limited Partner is redeeming his entire interest in the
Partnership.
Units may be redeemed at the option of a Limited Partner as of, but not
before, the sixth month-end following the closing at which the Limited Partner
first becomes a Limited Partner of the Partnership or a limited partner of any
other partnership offering Units pursuant to the Prospectus or pursuant to
another prospectus relating to a partnership identified therein as being of the
Spectrum Series (all such partnerships shall be defined collectively as the
"Spectrum Series Partnerships" or individually as a "Spectrum Series
Partnership"). Thereafter, Units may be redeemed as of the end of any month.
However, any Unit redeemed at or prior to the end of the twelfth or
twenty-fourth full month following the closing at which such Unit was issued
will be assessed a redemption charge equal to 2% or 1%, respectively, of the Net
Asset Value of a Unit on the date of such redemption. The foregoing charges will
be paid to DWR. A Limited Partner who purchased Units pursuant to a
Non-Series Exchange (as defined in the Prospectus) will not be subject to the
foregoing redemption charges with respect to such Units. The number of Units
(determined on a per closing basis), expressed as a percentage of Units
purchased, which is not subject to a redemption charge is determined by dividing
(a) the dollar amount used in a Non-Series Exchange to purchase Units by
(b) the total investment in the Partnership. Limited Partners who redeem units
of limited partnership interest in a Spectrum Series Partnership and have either
paid a redemption charge with respect to such units of limited partnership, or
have held such units of limited partnership for at least two years and
subsequently purchase Units, will not be subject to redemption charges on the
new Units under the following conditions: (a) the subscriber must subscribe for
new Units prior to the one-year anniversary of the effective date of the
redemption of the units of limited partnership, (b) the subscriber will not be
subject to redemption charges with respect to the amount of the subscription for
the new Units up to the amount of the proceeds of the redemption (net of any
redemption charges), and (c) the subscriber must hold the newly acquired Units
for six months from the date of purchase before such Units may be redeemed or
exchanged pursuant to a Series Exchange. Such subscribers remain subject to the
minimum purchase and suitability requirements. In addition, redemption charges
may not be imposed for certain large purchasers of units of limited partnership
interest in the Spectrum Series Partnerships, as provided in the Prospectus. A
Limited Partner who redeems Units pursuant to a Series Exchange will not be
subject to redemption charges with respect to the redeemed Units. Units acquired
pursuant to a Series Exchange will be deemed as having the same purchase date as
the Units exchanged for purposes of determining the applicability of any
redemption charges. Furthermore, a Limited Partner redeeming Units at the first
Redemption Date following notice of an increase in certain fees in accordance
with the fourth paragraph of Section 9 will not be subject to the foregoing
redemption charges. Redemptions of Units will be deemed to be in the order in
which they are purchased (assuming purchases at more than one closing), with the
Units not subject to a redemption charge being deemed to be the first Units
purchased at a closing.
Redemption of a Limited Partner's Units shall be effective as of the last
day of the first month ending after an irrevocable Request for Redemption in
proper form shall have been received by the General Partner ("Redemption Date");
PROVIDED, that all liabilities, contingent or otherwise, of the Partnership
(except any liability to Partners on account of their capital contributions)
shall have been paid or there shall remain property of the Partnership
sufficient to pay them. As used herein, "Request for Redemption" shall mean a
letter in the form specified by the General Partner and received by the General
Partner by 5:00 p.m. (New York City time) at least five business days prior to
the date on which such Redemption is to be effective. A form of Request for
Redemption is annexed to this Agreement. Additional forms of Request for
Redemption may be obtained by written request to the General Partner.
Upon Redemption, a Limited Partner (or any assignee thereof) shall receive
from the Partnership for each Unit redeemed an amount equal to the Net Asset
Value thereof as of the Redemption Date, less any redemption charges and any
amount owing by such Partner (and his assignee, if any) to the Partnership
pursuant to Section 14(d). If a Redemption is requested by an assignee, all
amounts owed to the Partnership under Section 14(d) by the Partner to whom such
Unit was sold, as well as all amounts owed by all assignees of such Unit, shall
be deducted from the Net Asset Value of such Unit upon Redemption.
A-14
<PAGE>
The General Partner shall endeavor to pay Redemptions within 10 business days
after the Redemption Date, except that under special circumstances (including,
but not limited to, the inability on the part of the Partnership to liquidate
Futures Interests positions or the default or delay in payments which shall be
due the Partnership from commodity brokers, banks, or other persons), the
Partnership may delay payment to Partners requesting Redemption of Units of the
proportionate part of the Net Asset Value of the Units represented by the sums
which are the subject of such default or delay. Redemptions will be made by
credit to the Limited Partner's customer account with DWR or by check mailed to
the Limited Partner if such account is closed. The General Partner may, in its
absolute discretion, waive any restrictions or charges applicable to
redemptions.
The foregoing terms and conditions in this Section 10(b), other than those
in the second paragraph hereof prohibiting redemptions before the sixth
month-end following the closing at which a person first becomes a Limited
Partner, shall also apply to redemptions effected on "Special Redemption Dates"
held in accordance with Section 9.
The General Partner shall be authorized to execute, file, record, and
publish, on behalf of the Partnership and each Partner, such amendments to this
Agreement and such other documents as shall be necessary or desirable to reflect
any Redemption pursuant to this Section 10(b).
(c) EXCHANGE PRIVILEGE. Except as set forth below, a Limited Partner (or
any assignee thereof) may redeem his Units effective as of the last business day
of any month and authorize the General Partner to use the net proceeds of such
redemption to purchase units of limited partnership interest of another Spectrum
Series Partnership (such a transfer between Spectrum Series Partnerships being
herein referred to as a "Series Exchange"). Series Exchanges shall only be
permitted by a Limited Partner as of, but not before the sixth month-end
following the closing at which a Limited Partner first became a limited partner
of a Spectrum Series Partnership. The minimum amount of any Series Exchange is
50 Units, unless a Limited Partner is liquidating his entire interest in the
Partnership.
A Series Exchange shall be effective as of the last business day of the
month ending after an Exchange Agreement and Power of Attorney in proper form
has been received by the General Partner ("Exchange Date"), provided, that the
Partnership has assets sufficient to discharge its liabilities and to redeem
Units on the Exchange Date. As used herein, "Exchange Agreement and Power of
Attorney" shall mean the form annexed to the Prospectus as Exhibit B, sent by a
Limited Partner (or any assignee thereof) to a DWR branch office and received by
the General Partner at least 5 business days prior to the Exchange Date.
Additional forms of the Exchange Agreement and Power of Attorney may be obtained
by written request to the General Partner or from a local DWR branch office.
Upon requesting a Series Exchange, a Limited Partner shall have authorized the
General Partner to redeem the number of Units specified therein and to utilize
the net proceeds of such redemption to purchase an amount of units of limited
partnership interest of one or more other Spectrum Series Partnerships as
specified in the Exchange Agreement and Power of Attorney. The General Partner
shall cause the net proceeds of the redemption to be delivered to the Spectrum
Series Partnership(s) issuing and selling units of limited partnership interest
to the redeeming Limited Partner, and shall cause to be mailed to such Limited
Partner, within 20 business days after such Exchange Date, a written
confirmation thereof.
At the next closing on the sale of Units following each Exchange Date, the
Partnership shall issue and sell Units with a total Net Asset Value equal to the
net proceeds of redemptions from limited partners of other Spectrum Series
Partnerships requesting Units on a Series Exchange, PROVIDED, that the General
Partner, in its capacity as the general partner of each of the Spectrum Series
Partnerships, has (i) timely received a properly executed Exchange Agreement and
Power of Attorney verifying that such units of limited partnership interest
subject to such Series Exchange are owned by the person requesting such Series
Exchange and acknowledging that the limited partner remains eligible to purchase
Units, and (ii) caused the net proceeds from units of limited partnership
interest being redeemed to be transferred to the Partnership in payment of such
Units. Each Unit to be purchased with the net proceeds of a redemption of Units
of limited partnership interest from a Spectrum Series Partnership shall be
issued and sold by the Partnership at a price per Unit equal to 100% of the Net
Asset Value of a Unit as of the close of business on the relevant Exchange Date.
Each Limited Partner understands that its ability to effect a
Series Exchange is conditioned upon units of limited partnership interest of
Spectrum Series Partnerships being registered and qualified for sale pursuant to
a current Prospectus immediately prior to each Exchange Date. The General
Partner shall not
A-15
<PAGE>
have any obligation to have units of limited partnership interest registered.
There can be no assurance that any or a sufficient number of units of limited
partnership interest will be available for sale on the Exchange Date. If units
of limited partnership interest are not registered or qualified for sale under
either federal or applicable state securities laws, the General Partner will not
be able to effect a Series Exchange for the Limited Partner. Furthermore,
certain states may impose significant burdens on, or alter the requirements for,
qualifying units of limited partnership interest for sale and in such cases, the
General Partner may elect not to continue to qualify units of limited
partnership interest for sale in such state or states, and a resident thereof
would not be eligible for a Series Exchange. In the event that not all Exchange
Agreements and Powers of Attorney can be processed because an insufficient
number of units of limited partnership interest are available for sale on an
Exchange Date, the General Partner is hereby authorized to allocate units of
limited partnership interest in any manner which it deems is reasonable under
the circumstances and may allocate a substantial portion of such units of
limited partnership interest to new subscribers for Units.
The General Partner, on behalf of the Partnership and each Partner, is
authorized to execute, file, record, and publish such amendments to this
Agreement and such other documents as shall be necessary to reflect any
Series Exchange pursuant to this Section 10(c).
11. SPECIAL POWER OF ATTORNEY.
Each Limited Partner, by the execution of this Agreement, does irrevocably
constitute and appoint the General Partner, with full power of substitution, as
his true and lawful agent and attorney-in-fact, in his name, place, and stead,
(a) to execute, acknowledge, swear to, deliver, file, and record in his behalf
in the appropriate public offices and publish: (i) this Agreement and the
Certificate of Limited Partnership and amendments thereto; (ii) all instruments
that the General Partner deems necessary or appropriate to reflect any
amendment, change, or modification of this Agreement or the Certificate of
Limited Partnership made in accordance with the terms of this Agreement;
(iii) certificates of assumed name; and (iv) all instruments that the General
Partner deems necessary or appropriate to qualify or maintain the qualification
of the Partnership to do business as a foreign limited partnership in other
jurisdictions; and (b) to admit additional Limited Partners and, to the extent
that it is necessary under the laws of any jurisdiction, to execute, deliver,
and file amended certificates or agreements of limited partnership or other
instruments to reflect such admission. The Power of Attorney granted herein
shall be irrevocable and deemed to be a power coupled with an interest and shall
survive the incapacity, death, dissolution, liquidation, or termination of a
Limited Partner. Each Limited Partner hereby agrees to be bound by any
representation made by the General Partner and by any successor thereto acting
in good faith pursuant to such Power of Attorney. Each Limited Partner agrees to
execute a special Power of Attorney on a document separate from this Agreement.
In the event of any conflict between this Agreement and any instruments filed by
such attorney-in-fact pursuant to the Power of Attorney granted in this Section
11, this Agreement shall control.
12. WITHDRAWAL OF PARTNERS.
The Partnership shall terminate and be dissolved upon the withdrawal,
insolvency, bankruptcy, dissolution, liquidation, or termination of the General
Partner (unless a new general partner(s) is elected pursuant to
Section 15(c) and such remaining general partner(s) shall have elected to
continue the business of the Partnership, which any remaining general partner(s)
shall have the right to do). The General Partner shall not withdraw or assign
all of its interest at any time without giving the Limited Partners 120 days'
prior written notice of its intention to withdraw or assign, and, if the Limited
Partners thereupon elect a new general partner or partners pursuant to
Section 15(c) which elect to continue the business of the Partnership, the
withdrawing General Partner shall pay all reasonable expenses incurred by the
Partnership in connection with such withdrawal. The General Partner shall be
paid the Net Asset Value of its interests in the Partnership as of the date of
such withdrawal.
The death, incompetency, withdrawal, insolvency, bankruptcy, termination,
liquidation, or dissolution of a Limited Partner shall not terminate or dissolve
the Partnership, and such Limited Partner, his estate, custodian, or personal
representative shall have no right to withdraw or value such Limited Partner's
interest in the Partnership except as provided in Section 10. Each Limited
Partner (and any assignee of such Partner's interest) expressly agrees that in
the event of his death, he waives on behalf of himself and his estate and he
directs the legal representative of his estate and any person interested therein
to waive
A-16
<PAGE>
the furnishing of any inventory, accounting, or appraisal of the assets of the
Partnership and any right to an audit or examination of the books of the
Partnership (except to the extent permissible under the sixth paragraph of
Section 8(e)).
13. NO PERSONAL LIABILITY FOR RETURN OF CAPITAL.
Subject to Section 14, neither the General Partner, DWR, nor any Affiliate
thereof shall be personally liable for the return or repayment of all or any
portion of the capital or profits of any Partner (or assignee), it being
expressly agreed that any such return of capital or profits made pursuant to
this Agreement shall be made solely from the assets (which shall not include any
right of contribution from the General Partner) of the Partnership.
14. STANDARD OF LIABILITY; INDEMNIFICATION.
(a) STANDARD OF LIABILITY. The General Partner and its Affiliates shall
not be liable to the Partnership, the Limited Partners, or its or their
successors or assigns, for any act, omission, conduct or activity undertaken by
or on behalf of the Partnership which the General Partner determines, in good
faith, to be in the best interests of the Partnership, unless such act,
omission, conduct, or activity constituted misconduct or negligence.
(b) INDEMNIFICATION BY THE PARTNERSHIP. The Partnership shall indemnify,
defend, and hold harmless the General Partner and its Affiliates from and
against any loss, liability, damage, cost, or expense (including attorneys' and
accountants' fees and expenses incurred in defense of any demands, claims, or
lawsuits) actually and reasonably incurred arising from any act, omission,
activity, or conduct undertaken by or on behalf of the Partnership, including,
without limitation, any demands, claims, or lawsuits initiated by a Limited
Partner (or assignee thereof), PROVIDED that (1) the General Partner has
determined, in good faith, that the act, omission, activity, or conduct giving
rise to the claim for indemnification was in the best interests of the
Partnership, and (2) the act, omission, activity, or conduct that was the basis
for such loss, liability, damage, cost, or expense was not the result of
misconduct or negligence. Notwithstanding anything to the contrary contained in
the foregoing, neither the General Partner nor any of its Affiliates nor any
person acting as a broker-dealer shall be indemnified by the Partnership for any
losses, liabilities, or expenses arising from or out of an alleged violation of
federal or state securities laws unless (1) there has been a successful
adjudication on the merits of each count involving alleged securities law
violations as to the particular indemnitee, or (2) such claims have been
dismissed with prejudice on the merits by a court of competent jurisdiction as
to the particular indemnitee, or (3) a court of competent jurisdiction approves
a settlement of the claims against the particular indemnitee and finds that
indemnification of the settlement and related costs should be made, PROVIDED,
with regard to such court approval, the indemnitee must apprise the court of the
position of the SEC, and the positions of the respective securities
administrators of Massachusetts, Missouri, Tennessee, and/or those other states
and jurisdictions in which the plaintiffs claim that they were offered or sold
Units, with respect to indemnification for securities laws violations before
seeking court approval for indemnification. Furthermore, in any action or
proceeding brought by a Limited Partner in the right of the Partnership to which
the General Partner or any Affiliate thereof is a party defendant, any such
person shall be indemnified only to the extent and subject to the conditions
specified in the Act and this Section 14(b). The Partnership shall make advances
to the General Partner or its Affiliates hereunder only if: (1) the demand,
claim, lawsuit, or legal action relates to the performance of duties or services
by such persons to the Partnership; (2) such demand, claim, lawsuit, or legal
action is not initiated by a Limited Partner; and (3) such advances are repaid,
with interest at the legal rate under Delaware law, if the person receiving such
advance is ultimately found not to be entitled to indemnification hereunder.
Nothing contained in this Section 14(b) shall increase the liability of any
Limited Partner to the Partnership beyond the amount of his unredeemed capital
contribution, undistributed profits, if any, and any amounts received on
distributions and redemptions and deemed received on Series Exchanges, together
with interest thereon. All rights to indemnification and payment of attorneys'
and accountants' fees and expenses shall not be affected by the termination of
the Partnership or the withdrawal, insolvency, or dissolution of the General
Partner.
The Partnership shall not incur the cost of that portion of liability
insurance which insures the General Partner and its Affiliates for any liability
as to which the General Partner and its Affiliates are prohibited from being
indemnified.
A-17
<PAGE>
(c) AFFILIATE. As used in this Agreement, the term "Affiliate" of a person
shall mean: (i) any natural person, partnership, corporation, association, or
other legal entity directly or indirectly owning, controlling, or holding with
power to vote 10% or more of the outstanding voting securities of such person;
(ii) any partnership, corporation, association, or other legal entity 10% or
more of whose outstanding voting securities are directly or indirectly owned,
controlled, or held with power to vote by such person; (iii) any natural person,
partnership, corporation, association, or other legal entity directly or
indirectly controlling, controlled by, or under common control with, such
person; or (iv) any officer, director or partner of such person. Notwithstanding
the foregoing, solely for purposes of determining eligibility for
indemnification under Section 14(b), the term "Affiliate" shall include only
those persons performing services for the Partnership.
(d) INDEMNIFICATION BY PARTNERS. In the event that the Partnership is made
a party to any claim, demand, dispute, or litigation or otherwise incurs any
loss, liability, damage, cost, or expense as a result of, or in connection with,
any Partner's (or assignee's) obligations or liabilities unrelated to the
Partnership's business, such Partner (or assignees cumulatively) shall
indemnify, defend, hold harmless and reimburse the Partnership for such loss,
liability, damage, cost and expense to which the Partnership shall become
subject (including attorneys' and accountants' fees and expenses).
15. AMENDMENTS; MEETINGS.
(a) AMENDMENTS WITH CONSENT OF THE GENERAL PARTNER. If, at any time during
the term of the Partnership, the General Partner shall deem it necessary or
desirable to amend this Agreement, such amendment shall be effective only if
embodied in an instrument approved by the General Partner and by Limited
Partners owning more than 50% of the Units then outstanding, and if made in
accordance with, and to the extent permissible under, the Act. Any amendment to
this Agreement or actions taken pursuant to this Section 15 that shall have been
approved by the percentage of outstanding Units prescribed above shall be deemed
to have been approved by all Limited Partners. Notwithstanding the foregoing,
the General Partner shall be authorized to amend this Agreement without the
consent of any Limited Partner in order to: (i) change the name of the
Partnership or cause the Partnership to transact business under another name;
(ii) clarify any inaccuracy or any ambiguity, or reconcile any inconsistent
provisions herein; (iii) make any amendment to this Agreement that is not
adverse to the Limited Partners; (iv) effect the intent of the allocations
proposed herein to the maximum extent possible in the event of a change in the
Code or the interpretations thereof affecting such allocations; (v) attempt to
ensure that the Partnership is not taxed as an association taxable as a
corporation for federal income tax purposes; (vi) qualify or maintain the
qualification of the Partnership as a limited partnership in any jurisdiction;
(vii) delete or add any provision of or to this Agreement required to be deleted
or added by the staff of the SEC, the CFTC, any other federal agency, any state
"Blue Sky" official, or other governmental official, or in order to opt to be
governed by any amendment or successor to the Act, or to comply with applicable
law; (viii) make any modification to this Agreement to reflect the admission of
additional or substitute general partners and to reflect any modification to the
Net Worth requirements applicable to the General Partner and any other general
partner, as contemplated by Section 5 hereof; (ix) make any amendment that is
appropriate or necessary, in the opinion of the General Partner, to prevent the
Partnership or the General Partner or its directors, officers or controlling
persons from in any manner being subject to the provisions of the Investment
Company Act of 1940 (the "1940 Act"), the Investment Advisers Act of 1940, as
amended (the "Advisers Act"), or "plan asset" regulations adopted under the
Employee Retirement Income Security Act of 1974, as amended; and (x) to make any
amendment that is appropriate or necessary, in the opinion of the General
Partner, to qualify the Partnership under the 1940 Act, and any persons under
the 1940 Act and the Advisers Act, if the General Partner reasonably believes
that doing so is necessary. Any such supplemental or amendatory agreement shall
be adhered to and have the same force and effect from and after its effective
date as if the same had originally been embodied in, and formed a part of, this
Agreement; PROVIDED, HOWEVER, that no such supplemental or amendatory agreement
shall, without the consent of all Partners affected thereby, change or alter the
provisions of this proviso, reduce the capital account of any Partner, or modify
the percentage of profits, losses or distributions to which any Partner is
entitled.
(b) MEETINGS. Any Limited Partner or his authorized attorney or agent,
upon written request to the General Partner, delivered either in person or by
certified mail, and upon payment of reasonable duplicating and postage costs,
shall be entitled to obtain from the General Partner by mail a list of the names
and addresses of record of all Limited Partners and the number of Units owned by
each.
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<PAGE>
Upon receipt of a written request, signed by Limited Partners owning at
least 10% of the Units then owned by Limited Partners, that a meeting of the
Partnership be called to vote upon any matter upon which all Limited Partners
may vote pursuant to this Agreement, the General Partner, by written notice to
each Limited Partner of record sent by certified mail or delivered in person
within 15 days after such receipt, shall call a meeting of the Partnership. Such
meeting shall be held at least 30 but not more than 60 days after the mailing of
such notice, and such notice shall specify the date, a reasonable place and
time, and the purpose of such meeting.
(c) AMENDMENTS AND ACTIONS WITHOUT CONSENT OF THE GENERAL PARTNER. At any
meeting of the Limited Partners, upon the affirmative vote (which may be in
person or by proxy) of Limited Partners owning more than 50% of the Units then
owned by Limited Partners, the following actions may be taken without the
consent of the General Partner: (i) this Agreement may be amended in accordance
with, and only to the extent permissible under, the Act; PROVIDED, HOWEVER, that
no such amendment shall, without the consent of all Partners affected thereby,
change or alter the provisions of this proviso, reduce the capital account of
any Partner, or modify the percentage of profits, losses, or distributions to
which any Partner is entitled; (ii) the Partnership may be dissolved; (iii) the
General Partner may be removed and replaced; (iv) a new general partner or
general partners may be elected if the General Partner terminates or liquidates
or elects to withdraw from the Partnership pursuant to Section 12, or becomes
insolvent, bankrupt, or is dissolved; (v) any contracts with the General Partner
or any of its Affiliates may be terminated without penalty on not less than 60
days' prior written notice; and (vi) the sale of all or substantially all of the
assets of the Partnership may be approved; PROVIDED, HOWEVER, that no such
action shall adversely affect the status of the Limited Partners as limited
partners under the Act or the classification of the Partnership as a partnership
under the federal income tax laws; and PROVIDED FURTHER, that Units owned by the
General Partner and any Affiliate thereof shall not be voted on the matters
described in clauses (iii) and (v) above. Any action which shall have been
approved by the percentage of outstanding Units prescribed above shall be deemed
to have been approved by all Limited Partners.
(d) ACTION WITHOUT MEETING. Notwithstanding contrary provisions of this
Section 15 covering notices to, meetings of, and voting by Limited Partners, any
action required or permitted to be taken by Limited Partners at a meeting or
otherwise may be taken by Limited Partners without a meeting, without prior
notice, and without a vote if a consent in writing setting forth the action so
taken shall be signed by Limited Partners owning Units having not fewer than the
minimum number of votes that would be necessary to authorize or take such action
at a meeting of Limited Partners at which all outstanding Units shall have been
present and voted. Notice of the taking of action by Limited Partners without a
meeting by less than unanimous written consent of the Limited Partners shall be
given to those Limited Partners who shall not have consented in writing within
seven business days after the occurrence thereof.
(e) AMENDMENTS TO CERTIFICATE OF LIMITED PARTNERSHIP. If an amendment to
this Agreement shall be made pursuant to this Section 15, the General Partner
shall be authorized to execute, acknowledge, swear to, deliver, file, record,
and publish, on behalf of the Partnership and each Partner, such amendments to
the Certificate of Limited Partnership as shall be necessary or desirable to
reflect such amendment.
16. INDEX OF DEFINED TERMS.
<TABLE>
<CAPTION>
DEFINED TERM SECTION
- ------------ -------
<S> <C>
1940 Act.................................................... 15(a)
Act......................................................... 1
Advisers Act................................................ 15(a)
Affiliate................................................... 14(c)
Agreement................................................... Preamble
CEAct....................................................... 8(e)
Certificate of Limited Partnership.......................... 1
CFTC........................................................ 3
Code........................................................ 7(c)(4)
Commodity Broker............................................ 6
Customer Agreement.......................................... 8(b)
Determination Date.......................................... 7(b)
DWR......................................................... 6
Exchange Agreement and Power of Attorney.................... 10(c)
</TABLE>
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<PAGE>
<TABLE>
<CAPTION>
DEFINED TERM SECTION
- ------------ -------
<S> <C>
Exchange Date............................................... 10(c)
Futures Interests........................................... 3
General Partner............................................. Preamble
Limited Partners............................................ Preamble
Management Agreement........................................ 8(b)
MSDW........................................................ 6
NASAA Guidelines............................................ 5
Net Asset Value............................................. 7(d)(2)
Net Assets.................................................. 7(d)(1)
NFA......................................................... 6
Non-Series Exchange......................................... 10(b)
Partners.................................................... Preamble
Partnership................................................. 1
Prospectus.................................................. 6
Pyramiding.................................................. 8(c)(5)
Redemption.................................................. 10(b)
Redemption Date............................................. 10(b)
Request for Redemption...................................... 10(b)
SEC......................................................... 5
Selling Agent............................................... 6
Series Exchange............................................. 10(c)
Special Redemption Date..................................... 9
Spectrum Series Partnership(s).............................. 10(b)
Trading Advisor............................................. 6
Trading Profits............................................. 7(e)
Transaction Fees and Costs.................................. 7(e)
Unit(s) of General Partnership Interest..................... 6
Unit(s)..................................................... 6
</TABLE>
17. GOVERNING LAW.
THE VALIDITY AND CONSTRUCTION OF THIS AGREEMENT SHALL BE GOVERNED BY, AND
CONSTRUED IN ACCORDANCE WITH, THE LAW OF THE STATE OF DELAWARE, INCLUDING,
SPECIFICALLY, THE ACT (WITHOUT REGARD TO ITS CHOICE OF LAW PRINCIPLES);
PROVIDED, HOWEVER, THAT CAUSES OF ACTION FOR VIOLATIONS OF FEDERAL OR STATE
SECURITIES LAWS SHALL NOT BE GOVERNED BY THIS SECTION 17.
18. MISCELLANEOUS.
(a) PRIORITY AMONG LIMITED PARTNERS. Except as otherwise specifically set
forth in this Agreement, no Limited Partner shall be entitled to any priority or
preference over any other Limited Partner in regard to the affairs of the
Partnership.
(b) NOTICES. All notices and requests to the General Partner under this
Agreement (other than Requests for Redemption, and notices of assignment or
transfer, of Units) shall be in writing and shall be effective upon personal
delivery or, if sent by registered or certified mail, postage prepaid, addressed
to the General Partner at Two World Trade Center, 62nd Floor, New York, New York
10048 (or such other address as the General Partner shall have notified the
Limited Partners), upon the deposit of such notice in the United States mail.
Requests for Redemption, and notices of assignment or transfer of Units shall be
effective upon timely receipt by the General Partner. Except as otherwise
provided herein, all reports and notices hereunder shall be in writing and shall
be sent by first-class mail to the last known address of the Limited Partner.
(c) BINDING EFFECT. This Agreement shall inure to the benefit of, and be
binding upon, all of the parties, their successors, assigns as permitted herein,
custodians, estates, heirs, and personal representatives. For purposes of
determining the rights of any Partner or assignee hereunder, the Partnership and
the General Partner may rely upon the Partnership's records as to who are
Partners and assignees, and all Partners and assignees agree that their rights
shall be determined and that they shall be bound thereby, including all rights
which they may have under Section 15.
A-20
<PAGE>
(d) CAPTIONS. Captions in no way define, limit, extend, or describe the
scope of this Agreement nor the effect of any of its provisions.
IN WITNESS WHEREOF, the parties hereto have executed this Agreement as of
the day and year first above written.
<TABLE>
<S> <C>
Additional Limited Partners: General Partner:
By: Demeter Management Demeter Management Corporation
Corporation, General
Partner, as Authorized
Agent and Attorney-in-Fact
By: ---------------------------------------- By: ----------------------------------------
Name: Name:
Title: Title:
</TABLE>
A-21
<PAGE>
(This page has been left blank intentionally.)
A-22
<PAGE>
ANNEX A TO LIMITED PARTNERSHIP AGREEMENT
MFAD USE ONLY:_______________ CLOSING DATE:_______________
REQUEST FOR REDEMPTION: MORGAN STANLEY DEAN WITTER MANAGED FUTURES FUNDS
THIS IRREVOCABLE REQUEST FOR REDEMPTION SHOULD BE DELIVERED TO A LIMITED
PARTNER'S LOCAL DEAN WITTER BRANCH OFFICE AND MUST BE RECEIVED BY THE GENERAL
PARTNER (DEMETER MANAGEMENT CORPORATION, TWO WORLD TRADE CENTER, 62ND FLOOR, NEW
YORK, N.Y., 10048) AT LEAST 5 BUSINESS DAYS PRIOR TO THE LAST DAY OF THE MONTH
IN WHICH THE REDEMPTION IS TO BE EFFECTIVE. THIS FORM CANNOT BE FAXED.
________________________, 20____ _____________________________________________
[DATE] [PRINT OR TYPE DEAN WITTER ACCOUNT NUMBER]
I hereby request redemption (effective as of the next applicable date as of
which redemption is permitted as set forth in the Limited Partnership Agreement
of the Partnership for which redemption is requested, subject to all terms and
conditions set forth therein) of my capital account in an amount equal to the
respective Net Asset Value, as defined in the Limited Partnership Agreement, of
the following Unit(s) of Limited Partnership Interest ("UNITS"), less any
amounts specified in the Limited Partnership Agreement.
COMPLETE ONLY ONE SECTION -- A, B, C, OR D -- PER FORM
SECTION A
SPECTRUM SERIES SHALL ONLY REDEEM UNITS IN A MINIMUM AMOUNT OF 50 UNITS, UNLESS
A LIMITED PARTNER IS REDEEMING HIS/HER ENTIRE INTEREST (ALL) IN SUCH
PARTNERSHIP.
<TABLE>
<S> <C> <C> <C>
[DWSF] Spectrum Select Entire Interest Units
[DWST] Spectrum Technical Entire Interest Units
[DWSS] Spectrum Strategic Entire Interest Units
[DWSB] Spectrum Global Balanced Entire Interest Units
[DWSX] Spectrum Currency Entire Interest Units
[DWSC] Spectrum Commodity Entire Interest Units
</TABLE>
SECTION B
CORNERSTONE FUNDS SHALL ONLY REDEEM $1,000 INCREMENTS OR WHOLE UNITS UNLESS
A LIMITED PARTNER IS REDEEMING HIS/HER ENTIRE INTEREST (ALL) IN SUCH
PARTNERSHIP.
<TABLE>
<S> <C> <C> <C>
[CFCFB] Cornerstone Fund II Entire Interest Units $ ,000
[CFCFC] Cornerstone Fund III Entire Interest Units $ ,000
[CFCFD] Cornerstone Fund IV Entire Interest Units $ ,000
</TABLE>
SECTION C
CHARTER SERIES SHALL ONLY REDEEM UNITS IN A MINIMUM AMOUNT OF 100 UNITS, UNLESS
A LIMITED PARTNER IS
REDEEMING HIS/HER ENTIRE INTEREST (ALL) IN SUCH PARTNERSHIP.
<TABLE>
<S> <C> <C>
[MSCG] Charter Graham Entire Interest Units
[MSCM] Charter Millburn Entire Interest Units
[MSCW] Charter Welton Entire Interest Units
</TABLE>
SECTION D
OTHER MANAGED FUTURES FUNDS SHALL ONLY REDEEM $1,000 INCREMENTS OR WHOLE UNITS
UNLESS A LIMITED PARTNER IS REDEEMING HIS/HER ENTIRE INTEREST (ALL) IN SUCH
PARTNERSHIP.
MARK ONE FUND ONLY (USE ONE FORM PER FUND):
<TABLE>
<S> <C> <C>
[CFF] Columbia Futures Fund [IAF] International Access Fund Entire Interest
[DFF] Diversified Futures Fund [PGF] Multi-Market Portfolio
[DFF2] Diversified Futures Fund II [PPF] Principal Plus Fund Units
[DFF3] Diversified Futures Fund III [PSF] Portfolio Strategy Fund
[GPP] Global Perspective Portfolio [WCF] World Currency Fund $ ,000
</TABLE>
A-23
<PAGE>
ACCOUNT INFORMATION AND SIGNATURES
I understand that I may only redeem Units at such times as are specified in the
Limited Partnership Agreement and that, under certain circumstances described
therein, I may be subject to a redemption charge.
I (either in my individual capacity or as an authorized representative of an
entity, if applicable) hereby represent and warrant that I am the true, lawful
and beneficial owner of Units (or fractions thereof) to which this Request for
Redemption relates, with full power and authority to request redemption. The
Units (or fractions thereof) which are the subject of this request are not
subject to any pledge or otherwise encumbered in any fashion. My signature has
been represented by a member of a registered national securities exchange.
SIGNATURES MUST BE IDENTICAL TO NAME(S) IN WHICH UNITS ARE REGISTERED
TYPE OR PRINT ALL INFORMATION BELOW
- --------------------------------------------------------------------------------
1. ACCOUNT INFORMATION
- --------------------------------------------------------------------------------
..................................... ....................................
(Name of Limited Partner) (Dean Witter Account Number)
Address: .......................................................................
(Street)
...............................................................................
City State (Province) (Zip Code or Postal Code)
- --------------------------------------------------------------------------------
2.A. SIGNATURE(S) OF INDIVIDUAL PARTNER(S) OR ASSIGNEE(S) INCLUDING IRAS
- --------------------------------------------------------------------------------
X .................................... ....................................
(Signature) (Date)
X .................................... ....................................
(Signature) (Date)
- --------------------------------------------------------------------------------
2.B. SIGNATURE OF ENTITY PARTNER OR ASSIGNEE
- --------------------------------------------------------------------------------
.................................. By: X ..................................
(Name of Entity) (Authorized officer, partner, trustee, or
custodian. If a corporation,
include certified copy of
authorized resolution.)
- --------------------------------------------------------------------------------
3. BRANCH MANAGER AND ACCOUNT EXECUTIVE USE ONLY
- --------------------------------------------------------------------------------
We, the undersigned Account Executive and Branch Manager, represent that the
above signature(s) is/are true and correct.
X .................................... X ...................................
(Account Executive MUST sign) (Branch Manager MUST sign)
........................................
(Branch Telephone Number) Please enter a SELL order upon receipt of a
completed Request for Redemption.
A-24
<PAGE>
EXHIBIT B
SUBSCRIPTION AND EXCHANGE AGREEMENT AND POWER OF ATTORNEY
MORGAN STANLEY DEAN WITTER SPECTRUM SERIES
UNITS OF LIMITED PARTNERSHIP INTEREST SUBSCRIPTION AND EXCHANGE INSTRUCTIONS
If you wish to purchase Units of one or more of the Morgan Stanley Dean
Witter Spectrum Series Partnerships, please follow the instructions below.
Instructions relating to "Cash Subscribers" should be followed only if you are
purchasing Units for cash. Instructions relating to "Exchange Subscribers"
should be followed only if you are redeeming units in another commodity pool
which the General Partner serves as the general partner and commodity pool
operator in a Non-Series Exchange, or if you are redeeming Units in a Morgan
Stanley Dean Witter Spectrum Series Partnership pursuant to a Series Exchange.
SUBSCRIPTION INSTRUCTIONS
YOU SHOULD CAREFULLY READ AND REVIEW THE MORGAN STANLEY DEAN WITTER SPECTRUM
SERIES PROSPECTUS, DATED MARCH 6, 2000, RELATING TO SPECTRUM SELECT, SPECTRUM
TECHNICAL, SPECTRUM STRATEGIC, AND SPECTRUM GLOBAL BALANCED, AND THE MORGAN
STANLEY DEAN WITTER SPECTRUM SERIES PROSPECTUS, DATED MARCH 6, 2000, RELATING TO
SPECTRUM CURRENCY AND SPECTRUM COMMODITY, AS APPLICABLE TO THE PARTNERSHIP IN
WHICH YOU ARE INVESTING (EACH, A "PROSPECTUS") AND THIS SUBSCRIPTION AND
EXCHANGE AGREEMENT AND POWER OF ATTORNEY ("AGREEMENT"). IN READING A PROSPECTUS,
PAY PARTICULAR ATTENTION TO THE MATTERS DISCUSSED UNDER "RISK FACTORS,"
"CONFLICTS OF INTEREST" AND "DESCRIPTION OF CHARGES." BY SIGNING THE AGREEMENT,
YOU WILL BE DEEMED TO MAKE EACH APPLICABLE REPRESENTATION AND WARRANTY, AND
SATISFY ANY APPLICABLE SPECIAL STATE SUITABILITY REQUIREMENT, SET FORTH IN THIS
AGREEMENT ON PAGES B-2-B-4, SO PLEASE MAKE SURE THAT YOU SATISFY ALL APPLICABLE
PROVISIONS IN THOSE SECTIONS BEFORE SIGNING THIS AGREEMENT.
CASH SUBSCRIBERS MUST FILL IN ALL OF THE BOXES AND BLANKS ONLY ON PAGES B-7
AND B-8, AND EXCHANGE SUBSCRIBERS MUST FILL IN ALL OF THE BOXES AND BLANKS ONLY
ON PAGES B-9 AND B-10, USING BLACK INK, AS FOLLOWS:
<TABLE>
<S> <C>
Item 1 FOR CASH SUBSCRIBERS --Enter your Dean Witter Reynolds Inc. ("DWR") Account
(pages B-7--B-8) and Exchange Number.
Subscribers (pages B-9-B-10)
--Enter your Social Security Number or Taxpayer ID Number.
If you are subscribing on behalf of an entity (such as a
trust, partnership or corporation), check the
appropriate box to indicate the type of entity. If the
Units are to be owned by joint tenants, either person's
Social Security Number may be used.
--If you are subject to taxation in the United States,
review the representation relating to backup withholding
tax, and enter your taxable year, if other than calendar
year, under "United States Taxable Investors Only" on
page B-7 (for Cash Subscribers) or page B-9 (for
Exchange Subscribers). If you are a non-United States
person, review the representation relating to your
classification as a non-resident alien for United States
federal income tax purposes under "Non-United States
Investors Only" on page B-7 (for Cash Subscribers) or
page B-9 (for Exchange Subscribers). YOU MUST SIGN BELOW
THE APPLICABLE TAX REPRESENTATION IN ITEM 1 ON PAGE
B-7 OR B-9.
--Enter the exact name in which your Units are to be held
based on ownership type, and enter residency and other
information.
--Check box if you are a non-resident alien that is a dealer
in commodities or is otherwise engaged in a trade or
business within the U.S.
--If there is a co-subscriber, trustee or custodian,
complete applicable information.
Item 1 FOR CASH SUBSCRIBERS (PAGE B-7) --Enter the dollar amount of the subscription for each
Partnership whose Units you wish to purchase.
Item 1 FOR EXCHANGE --Enter the symbol(s) of the limited partnership(s) from
SUBSCRIBERS (PAGE B-9) which you are redeeming units; specify the quantity to
be redeemed (entire interest or number of whole units).
Item 2 FOR CASH SUBSCRIBERS (PAGE B-8) --You must execute the Agreement Signature Page on page B-8
AND EXCHANGE SUBSCRIBERS (for Cash Subscribers) or page B-10 (for Exchange
(PAGE B-10) Subscribers).
Item 3 FOR CASH SUBSCRIBERS (PAGE B-8) --An MSDW Financial Advisor and Branch Manager must complete
AND EXCHANGE SUBSCRIBERS the required information.
(PAGE B-10)
</TABLE>
MSDW FINANCIAL ADVISOR: This Agreement must be mailed to Demeter Management
Corporation at Two World Trade Center, 62nd Floor, New York, New York
10048-0026.
B-1
<PAGE>
MORGAN STANLEY DEAN WITTER SPECTRUM SERIES
---------------------
SUBSCRIPTION AND EXCHANGE AGREEMENT AND POWER OF ATTORNEY
If you are subscribing for Units of Limited Partnership Interest ("Units")
in the Morgan Stanley Dean Witter Spectrum Series, consisting of six commodity
pool limited partnerships, Morgan Stanley Dean Witter Spectrum Select L.P.,
Morgan Stanley Dean Witter Spectrum Technical L.P., Morgan Stanley Dean Witter
Spectrum Strategic L.P., Morgan Stanley Dean Witter Spectrum Global
Balanced L.P., Morgan Stanley Dean Witter Spectrum Currency L.P., and Morgan
Stanley Dean Witter Spectrum Commodity L.P. (each, a "Partnership," and
collectively, the "Partnerships"), you should carefully read and review the
Prospectus or Prospectuses as applicable to the Partnership(s) in which you are
investing. Capitalized terms used below and not defined in this Subscription and
Exchange Agreement and Power of Attorney ("Agreement") are defined (and
described in detail) in the Prospectus or Prospectuses.
FOR CASH SUBSCRIBERS: By executing the Cash Subscription Signature Page of
this Agreement, you will irrevocably subscribe for Units of one or more of the
Partnerships at the price per Unit described in the applicable Prospectus or
Prospectuses.
FOR EXCHANGE SUBSCRIBERS: By executing the Exchange Subscription Signature
Page of this Agreement, you will irrevocably redeem the units of limited
partnership interest of each limited partnership indicated on the signature
page of this Agreement and, with the proceeds of that redemption, irrevocably
subscribe for Units of one or more of the Partnerships at the price per Unit
described in the applicable Prospectus or Prospectuses.
NOTWITHSTANDING THE FOREGOING, YOU MAY REVOKE THIS AGREEMENT, AND RECEIVE A
FULL REFUND OF THE SUBSCRIPTION AMOUNT YOU PAID, PLUS ANY ACCRUED INTEREST
THEREON (OR REVOKE THE REDEMPTION OF UNITS IN THE OTHER LIMITED PARTNERSHIP IN
THE CASE OF AN EXCHANGE), WITHIN FIVE BUSINESS DAYS AFTER EXECUTION OF THIS
AGREEMENT OR NO LATER THAN 3:00 P.M., NEW YORK CITY TIME, ON THE DATE OF THE
APPLICABLE MONTHLY CLOSING, WHICHEVER COMES FIRST, BY DELIVERING WRITTEN NOTICE
TO YOUR MSDW FINANCIAL ADVISOR. If this Agreement is accepted, you agree to:
(i) contribute your subscription to each Partnership designated on the Signature
Page of this Agreement; and (ii) be bound by the terms of each such
Partnership's Amended and Restated Limited Partnership Agreement, included as
Exhibit A to the applicable Prospectus or Prospectuses (the "Limited Partnership
Agreement"). BY EXECUTING THE SIGNATURE PAGE OF THIS AGREEMENT, YOU SHALL BE
DEEMED TO HAVE EXECUTED THIS AGREEMENT AND THE LIMITED PARTNERSHIP AGREEMENT
(INCLUDING THE POWERS OF ATTORNEY IN BOTH AGREEMENTS).
- --------------------------------------------------------------------------------
PAYMENT INSTRUCTIONS
- --------------------------------------------------------------------------------
FOR CASH SUBSCRIBERS: You must pay your subscription amount by charging
your Customer Account with DWR (the "Customer Account"). In the event that you
do not have a Customer Account or do not have sufficient funds in your existing
Customer Account, you must make appropriate arrangements with your
MSDW financial advisor. If you don't have a financial advisor, contact your
local MSDW branch office. Payment must NOT be mailed to the General Partner at
its offices in New York City. Any such payment will not be accepted by the
General Partner and will be returned to you for proper placement with the
MSDW branch office where your Customer Account is maintained. By executing the
Signature Page of this Agreement, you authorize and direct the General Partner
and DWR to transfer the appropriate amount from your Customer Account to the
Escrow Account.
FOR EXCHANGE SUBSCRIBERS: You must pay your subscription amount by applying
the proceeds from the redemption of your limited partnership units in one of the
Partnerships or another commodity pool which the General Partner serves as the
general partner and commodity pool operator. You may only redeem units at such
times as are specified in the limited partnership agreement for that commodity
pool, and under certain circumstances described in that agreement you may be
subject to a redemption charge.
- --------------------------------------------------------------------------------
REPRESENTATIONS AND WARRANTIES
- --------------------------------------------------------------------------------
By executing the Signature Page of this Agreement, you (for yourself and any
co-subscriber, and, if you are signing on behalf of an entity, on behalf of and
with respect to that entity and its shareholders, partners, beneficiaries or
members), represent and warrant to the General Partner and each Partnership
whose Units you are purchasing, as follows (AS USED BELOW, THE TERMS "YOU" AND
"YOUR" REFER TO YOU AND YOUR CO-SUBSCRIBER, IF ANY, OR IF YOU ARE SIGNING ON
BEHALF OF AN ENTITY, THAT ENTITY):
(1) You have received a copy of each Prospectus, including each Limited
Partnership Agreement.
(2) You are of legal age to execute this Agreement and are legally
competent to do so.
(3) You satisfy the applicable financial suitability and minimum
investment requirements, as set forth below under the caption "State
Suitability Requirements" (or in a special Supplement to the applicable
Prospectus or
B-2
<PAGE>
Prospectuses) for residents of the State in which you reside. You agree to
provide any additional documentation requested by the General Partner, as
may be required by the securities administrators of certain states, to
confirm that you meet the applicable minimum financial suitability standards
to invest in the Partnerships.
(4) The address set forth on the Signature Page is your true and correct
residence and you have no present intention of becoming a resident of any
other state or country. All the information that you have provided on the
Signature Page is correct and complete as of the date of this Agreement,
and, if there should be any material change in such information prior to
your admission as a Limited Partner, you will immediately furnish such
revised or corrected information to the General Partner.
(5) If you are representing an employee benefit plan, to the best of
your knowledge, neither the General Partner, DWR, any Additional Seller, any
Trading Advisor, nor any of their respective affiliates: (a) has investment
discretion with respect to the investment of your plan assets; (b) has
authority or responsibility to give or regularly gives investment advice
with respect to such plan assets for a fee and pursuant to an agreement or
understanding that such advice (i) will serve as a primary basis for
investment decisions with respect to such plan assets and (ii) will be based
on the particular investment needs of the plan; or (c) is an employer
maintaining or contributing to that plan. For purposes of this
representation (5), an "employee benefit plan" includes plans and accounts
of various types (including their related trusts) which provide for the
accumulation of a portion of an individual's earnings or compensation, as
well as investment income earned thereon, free from federal income tax until
such time as funds are distributed from the plan, and include corporate
"pension" and profit-sharing plans, "simplified employee pension plans,"
"Keogh" plans for self-employed individuals, and individual retirement
accounts ("IRAs").
(6) Unless representation (7) or (8) below is applicable, your
subscription is made with your funds for your own account and not as
trustee, custodian or nominee for another.
(7) If you are subscribing as custodian for a minor, either (a) the
subscription is a gift you have made to that minor and is not made with that
minor's funds, in which case the representations as to net worth and annual
income below apply only to you, as the custodian; or (b) if the subscription
is not a gift, the representations as to net worth and annual income below
apply only to that minor.
(8) If you are subscribing as a trustee or custodian of an employee
benefit plan or of an IRA at the direction of the beneficiary of that plan
or IRA, the representations herein apply only to the beneficiary of that
plan or IRA.
(9) If you are subscribing in a representative capacity, you have full
power and authority to purchase Units and enter into and be bound by this
Agreement on behalf of the entity for which you are purchasing the Units,
and that entity has full right and power to purchase the Units and enter
into and be bound by this Agreement and become a Limited Partner pursuant to
each applicable Limited Partnership Agreement.
(10) You either: (a) are not required to be registered with the
Commodity Futures Trading Commission ("CFTC") or to be a member of the
National Futures Association ("NFA"); or (b), if so required, you are duly
registered with the CFTC and are a member in good standing of the NFA. It is
an NFA requirement that the General Partner attempt to verify that any
person or entity that seeks to purchase Units be duly registered with the
CFTC and a member of the NFA, if required. You agree to supply the General
Partner with such information as the General Partner may reasonably request
in order to attempt such verification. Certain entities that acquire Units
may, as a result, themselves become "commodity pools" within the intent of
applicable CFTC and NFA rules, and their sponsors, accordingly, may be
required to register as "commodity pool operators."
ADDITIONAL REPRESENTATION AND WARRANTY FOR EXCHANGE SUBSCRIBERS:
(11) You are the true, lawful, and beneficial owner of the units of
limited partnership interest (or fractions thereof) to be redeemed pursuant
to this Agreement, with full power and authority to request redemption and a
subsequent purchase of Units. The units of limited partnership interest (or
fractions thereof) which you are redeeming are not subject to any pledge or
are otherwise encumbered in any fashion.
By making the representations and warranties set forth above, you should be
aware that you have not waived any rights of action which you may have under
applicable federal or state securities laws. Federal and state securities laws
provide that any such waiver would be unenforceable. You should be aware,
however, that the representations and warranties set forth above may be asserted
in the defense of a Partnership, the General Partner, DWR, MS & Co., any
Additional Seller, any Trading Advisor, CFI, MSIL, or others in any subsequent
litigation or other proceeding.
B-3
<PAGE>
- --------------------------------------------------------------------------------
STATE SUITABILITY REQUIREMENTS
- --------------------------------------------------------------------------------
Except as indicated below, you must have a net worth (exclusive of home,
furnishings, and automobiles) of at least $75,000 or, failing that standard,
have both a net worth (same exclusions) of at least $30,000 and an annual gross
income of at least $30,000. If you are subscribing with your spouse as joint
owners, you may count your joint net worth and joint income in satisfying these
requirements, as well as the special requirements described below. You must also
make a minimum aggregate investment of $5,000 or $2,000 in the case of IRAs or,
in the case of a Non-Series Exchange, the lesser of (i) $5,000 ($2,000 in the
case of an IRA); (ii) the proceeds from the redemption of five units (two units
in the case of an IRA) from commodity pools other than any of the Morgan Stanley
Dean Witter Charter Series of partnerships (each, a "Charter Partnership");
(iii) the proceeds from the redemption of 500 units (200 units in the case of an
IRA) from any Charter Partnership; or (iv) the proceeds from the redemption of
your entire interest in any other commodity pool which the General Partner
serves as general partner and commodity pool operator. However, the states
listed below (or, in certain cases, in special Supplements to the applicable
Prospectus or Prospectuses attached thereto) have more restrictive suitability
or minimum investment requirements for their residents. Please read the
following list to make sure that you meet the minimum suitability and/or
investment requirements for the state in which you reside. (As used below, "NW"
means net worth exclusive of home, furnishings, and automobiles; "AI" means
annual gross income; and "TI" means annual taxable income for federal income tax
purposes.)
<TABLE>
<S> <C>
ALABAMA: (a) $150,000 NW, or (b) $45,000 NW and $45,000 AI.
ALASKA: Only if you are purchasing Units of Spectrum Currency or
Spectrum Commodity, (a) $225,000 NW, or (b) $60,000 NW and
$60,000 AI.
ARIZONA: (a) $150,000 NW, or (b) $45,000 NW and $45,000 AI.
ARKANSAS: (a) $150,000 NW, or (b) $45,000 NW and $45,000 AI.
CALIFORNIA: $100,000 NW and $50,000 AI.
INDIANA: (a) $150,000 NW, or (b) $45,000 NW and $45,000 AI.
IOWA: (1) The minimum initial investment for IRAs is $3,000; and
(2) you have at least (a) $225,000 NW, or (b) $60,000 NW and
$60,000 TI.
KANSAS: (a) $150,000 NW, or (b) $45,000 NW and $45,000 AI.
KENTUCKY: (a) $150,000 NW, or (b) $45,000 NW and $45,000 AI.
MAINE: (a) $200,000 NW, or (b) $50,000 NW and $50,000 AI.
MASSACHUSETTS: (a) $225,000 NW, or (b) $60,000 NW and $60,000 AI.
MICHIGAN: (a) $225,000 NW and investment may not exceed 10% of your
NW, or (b) $60,000 NW and $60,000 AI and investment may not
exceed 10% of your NW.
MISSISSIPPI: (a) $150,000 NW, or (b) $45,000 NW and $45,000 AI.
MISSOURI: (a) $225,000 NW, or (b) $60,000 NW and $60,000 AI.
NEBRASKA: (a) $150,000 NW, or (b) $45,000 NW and $45,000 AI.
NEW HAMPSHIRE: (a) $150,000 NW, or (b) $45,000 NW and $45,000 AI.
NEW MEXICO: (a) $150,000 NW, or (b) $45,000 NW and $45,000 AI.
NORTH CAROLINA: (a) $225,000 NW, or (b) $60,000 NW and $60,000 AI.
OHIO: (1) (a) $150,000 NW, or (b) $45,000 NW and $45,000 AI; and
(2) if you are purchasing Units of Spectrum Currency or
Spectrum Commodity, the investment may not exceed 10% of
your NW.
OKLAHOMA: (a) $150,000 NW, or (b) $45,000 NW and $45,000 AI.
OREGON: (a) $150,000 NW, or (b) $45,000 NW and $45,000 AI.
PENNSYLVANIA: (1) (a) $175,000 NW, or (b) $100,000 NW and $50,000 TI; and
(2) if you have less than $1,000,000 NW, the investment may
not exceed 10% of your NW.
SOUTH DAKOTA: (a) $150,000 NW, or (b) $45,000 NW and $45,000 AI.
TENNESSEE: (a) $225,000 NW, or (b) $60,000 NW and $60,000 AI.
TEXAS: (a) $225,000 NW, or (b) $60,000 NW and $60,000 TI.
VERMONT: (a) $150,000 NW, or (b) $45,000 NW and $45,000 AI.
WASHINGTON: (a) $150,000 NW, or (b) $45,000 NW and $45,000 AI.
</TABLE>
- --------------------------------------------------------------------------------
ACCEPTANCE OF THE LIMITED PARTNERSHIP AGREEMENTS
- --------------------------------------------------------------------------------
You agree that as of the date that your name is entered on the books of a
Partnership, you shall become a Limited Partner of that Partnership. You also
agree to each and every term of the Limited Partnership Agreement of that
Partnership as if you signed that Agreement. You further agree that you will not
be issued a certificate evidencing the Units that you are purchasing, but that
you will receive a confirmation of purchase in DWR's customary form.
B-4
<PAGE>
- --------------------------------------------------------------------------------
POWER OF ATTORNEY AND GOVERNING LAW
- --------------------------------------------------------------------------------
You hereby irrevocably constitute and appoint Demeter Management
Corporation, the General Partner of each Partnership, as your true and lawful
Attorney-in-Fact, with full power of substitution, in your name, place, and
stead: (1) to do all things necessary to admit you as a Limited Partner of each
Partnership requested below, and such other Partnership(s) of the Dean Witter
Spectrum Series as you may request from time to time; (2) to admit others as
additional or substituted Limited Partners to such Partnership(s) so long as
such admission is in accordance with the terms of the applicable Limited
Partnership Agreement or any amendment thereto; (3) to file, prosecute, defend,
settle, or compromise any and all actions at law or suits in equity for or on
behalf of each Partnership in connection with any claim, demand, or liability
asserted or threatened by or against any Partnership; and (4) to execute,
acknowledge, swear to, deliver, file, and record on your behalf and as necessary
in the appropriate public offices, and publish: (a) each Limited Partnership
Agreement and each Certificate of Limited Partnership and all amendments thereto
permitted by the terms thereof; (b) all instruments that the General Partner
deems necessary or appropriate to reflect any amendment, change, or modification
of any Limited Partnership Agreement or any Certificate of Limited Partnership
made in accordance with the terms of such Limited Partnership Agreement;
(c) certificates of assumed name; and (d) all instruments that the General
Partner deems necessary or appropriate to qualify or maintain the qualification
of each Partnership to do business as a foreign limited partnership in other
jurisdictions. You agree to be bound by any representation made by the General
Partner or any successor thereto acting in good faith pursuant to this Power of
Attorney.
The Power of Attorney granted hereby shall be deemed to be coupled with an
interest and shall be irrevocable and survive your death, incapacity,
dissolution, liquidation, or termination.
THIS SUBSCRIPTION AND EXCHANGE AGREEMENT AND POWER OF ATTORNEY SHALL BE
GOVERNED BY AND INTERPRETED IN ACCORDANCE WITH THE LAWS OF THE STATE OF NEW
YORK, PROVIDED, HOWEVER, THAT THIS PROVISION SHALL NOT BE DEEMED A WAIVER OF ANY
RIGHTS OF ACTION YOU MAY HAVE UNDER APPLICABLE FEDERAL OR STATE SECURITIES LAW.
- --------------------------------------------------------------------------------
RECEIPT OF DOCUMENTATION
- --------------------------------------------------------------------------------
The regulations of the CFTC require that you be given a copy of each
Prospectus (which include the most current annual report for each Partnership,
other than Spectrum Currency), as well as certain additional documentation
consisting of: (a) a supplement to the Prospectus, which must be given to you if
the Prospectus is dated more than nine months prior to the date that you first
received the Prospectus, and (b) the most current monthly account statement
(report) for the Partnerships. You hereby acknowledge receipt of each Prospectus
and the additional documentation referred to above, if any.
B-5
<PAGE>
(This page has been left blank intentionally.)
B-6
<PAGE>
-
---
MORGAN STANLEY DEAN WITTER SPECTRUM SERIES
UNITS OF LIMITED PARTNERSHIP INTEREST
CASH SUBSCRIPTION SIGNATURE PAGE
A
PLEASE PRINT OR TYPE (EXCEPT SIGNATURES). USE BLACK INK ONLY.
PAGES B-7 AND B-8, THE CASH SUBSCRIPTION SIGNATURE PAGES, SHOULD BE
DELIVERED TO YOUR LOCAL MSDW BRANCH OFFICE AND MUST BE RECEIVED BY THE GENERAL
PARTNER AT TWO WORLD TRADE CENTER, 62ND FLOOR, NEW YORK, NEW YORK 10048-0026, AT
LEAST FIVE BUSINESS DAYS PRIOR TO THE APPLICABLE CLOSING.
By execution and delivery of this Cash Subscription Signature Page and by
payment of the purchase price for Units of Limited Partnership Interest
("Units") of one or more Partnerships in the Morgan Stanley Dean Witter Spectrum
Series (the "Partnerships"), you hereby subscribe for Units in the
Partnership(s) specified below at a price equal to 100% of the Net Asset Value
per Unit of the applicable Partnership(s) as of the close of business on the
date of the applicable Monthly Closing ($10 per Unit of Spectrum Currency at its
Initial Closing).
BY SUCH EXECUTION AND PAYMENT, YOU ACKNOWLEDGE RECEIPT OF THE PROSPECTUS
RELATING TO SPECTRUM SELECT, SPECTRUM TECHNICAL, SPECTRUM STRATEGIC, AND
SPECTRUM GLOBAL BALANCED DATED MARCH 6, 2000, AND THE PROSPECTUS RELATING TO
SPECTRUM CURRENCY AND SPECTRUM COMMODITY DATED MARCH 6, 2000, INCLUDING THE
LIMITED PARTNERSHIP AGREEMENTS AND THIS SUBSCRIPTION AND EXCHANGE AGREEMENT AND
POWER OF ATTORNEY, THE TERMS OF WHICH GOVERN THE INVESTMENT IN THE UNITS BEING
SUBSCRIBED FOR BY YOU, AND THE CURRENT MONTHLY REPORT FOR THE PARTNERSHIPS.
<TABLE>
<S> <C> <C> <C>
- ----------------------------------------------------------------------------------------------------------------------
ITEM 1 -- SUBSCRIBER (YOU MUST SIGN THE TAX REPRESENTATION BELOW)
- ----------------------------------------------------------------------------------------------------------------------
SPECTRUM FUND SYMBOL AMOUNT OF SUBSCRIPTION
/ // // /-/ // // // // // / MORGAN STANLEY DEAN WITTER SPECTRUM
DWR ACCOUNT NO. D W S F SELECT L.P. $
MORGAN STANLEY DEAN WITTER SPECTRUM
D W S T TECHNICAL L.P. $
/ // // /-/ // /-/ // // // / MORGAN STANLEY DEAN WITTER SPECTRUM
D W S S STRATEGIC L.P. $
SOCIAL SECURITY NUMBER MORGAN STANLEY DEAN WITTER SPECTRUM
OR D W S B GLOBAL BALANCED L.P. $
/ // /-/ // // // // // // / MORGAN STANLEY DEAN WITTER SPECTRUM
TAXPAYER ID NUMBER D W S X CURRENCY L.P. $
MORGAN STANLEY DEAN WITTER SPECTRUM
D W S C COMMODITY L.P. $
</TABLE>
CHECK THE BOX BELOW WHICH DESCRIBES THE CAPACITY IN WHICH YOU ARE INVESTING:
<TABLE>
<S> <C> <C>
/ / Individual Ownership / / Trust other than Grantor or / / IRA (the MSDW Branch Manager must
/ / Joint Tenants with Rights of Revocable Trust sign below for IRA accounts)
Survivorship / / Estate / / Employee Benefit Plan (Participant-
/ / Tenants in Common / / UGMA/UTMA (Minor) Directed)
/ / Community Property / / Partnership / / Defined Benefit Plan (Other)
/ / Grantor or other Revocable Trust / / Corporation / / Other (specify) ------------------
</TABLE>
YOU (OR BRANCH MANAGER IN THE CASE OF AN IRA) MUST SIGN BELOW:
<TABLE>
<CAPTION>
UNITED STATES TAXABLE INVESTORS ONLY: NON-UNITED STATES INVESTORS ONLY:
- ------------------------------------- ---------------------------------
<S> <C> <C> <C>
/ / Check box if you are subject to backup withholding under the Under penalties of perjury, by signature
provisions of Section 3406(a)(1)(C) of the Internal Revenue Code. OR below, you certify that you are NOT
If your taxable year is other than the calendar year, indicate the date on (a) a citizen or resident of the United
which your taxable year ends: / // /-/ // / MM-DD States; or
Under penalties of perjury, by signing below, I certify that the Social (b) a United States corporation,
Security Number (or Taxpayer ID Number) above to be the true, correct and partnership, estate or trust.
complete Social Security Number (or Taxpayer ID Number) and that all the
information above is true, correct and complete.
</TABLE>
X _______________________________ __________________________
(Your Signature (Indicate your title, if applicable) [or Date
Branch Manager in the case of IRAs])
If you are an Entity: Name of Entity: ...................................
Name of Person Signing for Entity: ..........................
Title: ......................................................
Full Name of Account ..........................................................
(Your Name or Name of Trust or Custodial Account--do
not use initials)
<TABLE>
<S> <C> <C> <C>
You are a resident of .................... and a citizen of ....................
(name of country) (name of country)
</TABLE>
Street Address ................................................................
(MUST be residence address--P.O. Box alone not acceptable)
City ......... State ......... Zip Code ......... Tel. No. ( ........ ) ........
/ / Check here if you are a non-resident alien individual, foreign corporation,
foreign partnership, foreign trust or foreign estate that is a dealer in
commodities or otherwise engaged in a trade or business within the U.S.A. to
which income, gain or loss from a Partnership would be treated as effectively
connected. (You must complete Form W-8, which may be obtained from an MSDW
Financial Advisor.)
B-7
----
-
<PAGE>
-
----
COMPLETE, IF APPLICABLE (MUST BE COMPLETED IF THERE IS A CO-SUBSCRIBER, TRUSTEE
OR CUSTODIAN):
Name .................. Telephone Number ( ................. ) .................
The person or entity above is a/an: (check one)
/ / Co-Subscriber / / Trustee or Custodian / / Authorized Person, if an
Institutional Trustee
Street Address (P.O. Box alone not acceptable) .................................
<TABLE>
<S> <C>
City ................................................... State .................... Zip Code ...................
Co-Subscriber, Trustee or Custodian is a resident of ... and a citizen of .......................................
Minor (if not a gift) is a resident of ................. and a citizen of .......................................
</TABLE>
- --------------------------------------------------------------------------------
ITEM 2 -- SIGNATURE(S) -- YOU MUST SIGN UNDER TAX REPRESENTATION ON PRECEDING
PAGE AND BELOW
- --------------------------------------------------------------------------------
(INDIVIDUAL OR JOINT SUBSCRIPTION, INCLUDING PARTICIPANT-DIRECTED EMPLOYEE
BENEFIT PLAN OR IRA SUBSCRIPTION)
If you are subscribing for a joint or community property account, the
statements, representations, and warranties set forth in this Subscription and
Exchange Agreement and Power of Attorney shall be deemed to have been made by
each owner of the account.
* If the Units will be owned by joint owners, tenants in common, or as
community property, signatures of all owners are required.
* In the case of a participant-directed employee benefit plan or IRA, the
beneficiary must sign immediately below and the trustee or custodian must
sign below under "Entity Subscription."
<TABLE>
<S> <C>
X ________________________________ _____________ X ________________________________ _____________
(Signature of Subscriber) Date (Signature of Co-Subscriber) Date
</TABLE>
(ENTITY SUBSCRIPTION)
ACCEPTANCE OF SUBSCRIPTION ON BEHALF OF EMPLOYEE BENEFIT PLANS (INCLUDING IRAS)
IS IN NO RESPECT A REPRESENTATION BY THE GENERAL PARTNER OR DWR THAT THIS
INVESTMENT MEETS ALL RELEVANT LEGAL REQUIREMENTS WITH RESPECT TO INVESTMENTS BY
ANY PARTICULAR PLAN, OR THAT THIS INVESTMENT IS APPROPRIATE FOR ANY PARTICULAR
PLAN.
The undersigned officer, partner, trustee, manager or other representative
hereby certifies and warrants that: (a) s/he has full power and authority from
or on behalf of the entity named below and its shareholders, partners,
beneficiaries, or members to complete, execute, and deliver this Subscription
and Exchange Agreement and Power of Attorney on their behalf and to make the
statements, representations, and warranties made herein on their behalf; and (b)
the investment in each Partnership specified is authorized under applicable law
and the governing documents of the entity, has been affirmatively authorized by
the governing board or body, if any, of the entity, and is legally permissible.
<TABLE>
<S> <C> <C>
.......................................................... X ....................................... ............
(Name of Entity) (Signature) Date
Print Name ................................................ Title ..................................................
</TABLE>
- --------------------------------------------------------------------------------
ITEM 3 -- BRANCH MANAGER AND FINANCIAL ADVISOR USE ONLY (COMPLETE IN FULL AND IN
INK)
- --------------------------------------------------------------------------------
THE UNDERSIGNED FINANCIAL ADVISOR HEREBY CERTIFIES THAT:
(1) the above signature(s) is/are true and correct;
(2) s/he has informed the Subscriber about the liquidity and marketability of
the Units as set forth in each Prospectus.
(3) based on information obtained from the Subscriber concerning the
Subscriber's investment objectives, other investments, financial situation,
needs and any other relevant information, that s/he reasonably believes
that:
(a) such Subscriber is or will be in a financial position appropriate to
enable such Subscriber to realize the benefits of each Partnership
specified, as described in each Prospectus;
(b) such Subscriber has a net worth sufficient to sustain the risk inherent
in each Partnership specified (including loss of investment and lack of
liquidity); and
(c) each Partnership specified is otherwise a suitable investment for such
Subscriber; and
(4) the Subscriber received each Prospectus at least five business days prior to
the applicable Closing.
THE FINANCIAL ADVISOR MUST SIGN BELOW IN ORDER TO SUBSTANTIATE COMPLIANCE WITH
NASD CONDUCT RULE 2810.
X ______________________________________________________________________________
Financial Advisor's Signature
...............................................................................
Type or Print Full Name of Financial Advisor
Telephone Number ( ............................. ) ............................
THE UNDERSIGNED BRANCH MANAGER HEREBY CERTIFIES THAT:
(1) the above signature(s) is/are true and correct.
(2) the above client(s) is/are suitable.
X _____________________________________________________________________________,
Branch Manager's Signature
...............................................................................
Type or Print Full Name of Branch Manager
B-8
----
-
<PAGE>
-
---
MORGAN STANLEY DEAN WITTER SPECTRUM SERIES
EXCHANGE SUBSCRIPTION SIGNATURE PAGE
B
PLEASE PRINT OR TYPE (EXCEPT SIGNATURES). USE BLACK INK ONLY.
PAGES B-9 AND B-10, THE EXCHANGE SUBSCRIPTION SIGNATURE PAGES, SHOULD BE
DELIVERED TO YOUR LOCAL MSDW BRANCH OFFICE AND MUST BE RECEIVED BY THE GENERAL
PARTNER AT TWO WORLD TRADE CENTER, 62ND FLOOR, NEW YORK, NEW YORK 10048-0026, AT
LEAST FIVE BUSINESS DAYS PRIOR TO THE APPLICABLE CLOSING.
By execution and delivery of this Signature Page, you hereby redeem the
units of limited partnership interest of the limited partnership(s) named in
Item 1 below and, by application of the proceeds of such redemption to the
payment of the purchase price for Units of Limited Partnership Interest
("Units") in one or more Partnerships in the Morgan Stanley Dean Witter Spectrum
Series (the "Partnerships"), you hereby subscribe for Units in the
Partnership(s) specified below at a price equal to 100% of the Net Asset Value
per Unit of the applicable Partnership(s) as of the close of business on the
date of the applicable Monthly Closing ($10 per Unit of Spectrum Currency at its
Initial Closing). Redemption of units of any partnership for an exchange must be
in whole units, unless you are redeeming your entire interest in such
partnership.
BY SUCH EXECUTION AND PAYMENT, YOU ACKNOWLEDGE RECEIPT OF THE PROSPECTUS
RELATING TO SPECTRUM SELECT, SPECTRUM TECHNICAL, SPECTRUM STRATEGIC, AND
SPECTRUM GLOBAL BALANCED, DATED MARCH 6, 2000, AND THE PROSPECTUS RELATING TO
SPECTRUM CURRENCY AND SPECTRUM COMMODITY, DATED MARCH 6, 2000, INCLUDING THE
LIMITED PARTNERSHIP AGREEMENTS AND THIS SUBSCRIPTION AND EXCHANGE AGREEMENT AND
POWER OF ATTORNEY, THE TERMS OF WHICH GOVERN THE INVESTMENT IN THE UNITS BEING
SUBSCRIBED FOR BY YOU, AND THE CURRENT MONTHLY REPORT FOR THE PARTNERSHIPS.
<TABLE>
<S> <C> <C> <C> <C> <C> <C> <C>
- --------------------------------------------------------------------------------------------------------------------------
ITEM 1 -- SUBSCRIBER (YOU MUST SIGN THE TAX REPRESENTATION BELOW )
- --------------------------------------------------------------------------------------------------------------------------
DWR ACCOUNT NO. / // // /-/ // // // // // / / // // /-/ // /-/ // // // / or / // /-/ // // // // // // /
SOCIAL SECURITY NUMBER TAXPAYER ID NUMBER
SYMBOL(S) FOR FUND(S) FROM SPECIFY QUANTITY OF UNITS TO BE REDEEMED SPECTRUM SERIES
WHICH UNITS TO BE REDEEMED (CHECK BOX IF ENTIRE INTEREST; INSERT NUMBER IF WHOLE UNITS) FUND SYMBOL
/ // // // // / / / Entire Interest OR Whole Units TO / // // // // /
/ // // // // / / / Entire Interest OR Whole Units TO / // // // // /
/ // // // // / / / Entire Interest OR Whole Units TO / // // // // /
/ // // // // / / / Entire Interest OR Whole Units TO / // // // // /
/ // // // // / / / Entire Interest OR Whole Units TO / // // // // /
/ // // // // / / / Entire Interest OR Whole Units TO / // // // // /
You hereby authorize Demeter Management Corporation to redeem the quantity of units of limited partnership interest set
forth opposite the symbol for each partnership identified on the left above at the "Net Asset Value" thereof, as defined
in the limited partnership agreement of each such partnership, less any redemption charges, and to utilize the net
proceeds of that redemption to purchase Units in the applicable Spectrum Series Partnership as indicated on the right
above. Redemptions for an exchange may only be made in whole units of limited partnership interest, with a minimum
redemption of the lesser of (i) 5 units (2 units in the case of an IRA) from any partnership other than the Spectrum
Series Partnerships or any Morgan Stanley Dean Witter Charter Series partnership (each, a "Charter Partnership"); (ii) 50
Units from any Spectrum Series Partnership; (iii) 500 units (200 units in the case of an IRA) from a Charter Partnership;
or (iv) the Subscriber's entire interest in any partnership.
</TABLE>
<TABLE>
<S> <C> <C>
CHECK THE BOX BELOW WHICH DESCRIBES THE CAPACITY IN WHICH YOU ARE INVESTING:
/ / Individual Ownership / / Trust other than Grantor or / / IRA (the MSDW Branch Manager must sign
/ / Joint Tenants with Rights of Revocable Trust below for IRA accounts)
Survivorship / / Estate / / Employee Benefit Plan (Participant-
/ / Tenants in Common / / UGMA/UTMA (Minor) Directed)
/ / Community Property / / Partnership / / Defined Benefit Plan (Other)
/ / Grantor or other Revocable Trust / / Corporation / / Other (specify)
YOU (OR BRANCH MANAGER IN THE CASE OF AN IRA) MUST SIGN BELOW:
</TABLE>
<TABLE>
<CAPTION>
UNITED STATES TAXABLE INVESTORS ONLY:
- -------------------------------------
<S> <C> <C>
/ / Check box if you are subject to backup withholding under the provisions of OR
Section 3406(a)(1)(C) of the Internal Revenue Code.
If your taxable year is other than the calendar year, indicate the date
on which your taxable year ends: / // /-/ // / MM-DD
Under penalties of perjury, by signing below, I certify that the Social Security Number
(or Taxpayer ID Number) above to be the true, correct and complete Social Security
Number (or Taxpayer ID Number) and that all the information above is true, correct and
complete.
<CAPTION>
UNITED ST NON-UNITED STATES INVESTORS ONLY:
- --------- ---------------------------------
<S> <C>
/ / Under penalties of perjury, by signature
below, you certify that you are NOT
If your t
on wh (a) a citizen or resident of the United
Under pen States; or
(or Taxpa (b) a United States corporation,
Number (o partnership, estate or trust.
complete.
</TABLE>
X ________________________ ______________________________
(Your Signature (Indicate your title, if applicable) Date
[or Branch Manager in the case of IRAs])
If you are an Entity: Name of Entity: ...................................
Name of Person Signing for Entity: ...........................
Title: .......................................................
B-9
----
-
<PAGE>
-
----
Full Name of Account ..........................................................
(Your Name or Name of Trust or Custodial Account--do not use
initials)
You are a resident of .................... and a citizen of ....................
(name of country) (name of country)
Street Address (P.O. Box alone not acceptable) ................................
City ......... State ......... Zip Code ........ Tel. No. ( ........ ) ........
/ / Check here if you are a non-resident alien individual, foreign corporation,
foreign partnership, foreign trust or foreign estate that is a dealer in
commodities or otherwise engaged in a trade or business within the U.S.A. to
which income, gain or loss from a Partnership would be treated as effectively
connected. (You must complete Form W-8, which may be obtained from an
MSDW Financial Advisor.)
COMPLETE, IF APPLICABLE (MUST BE COMPLETED IF THERE IS A CO-SUBSCRIBER, TRUSTEE
OR CUSTODIAN):
Name.......................Telephone Number ( ............. )...................
The person or entity above is a/an: (check one)
/ / Co-Subscriber / / Trustee or Custodian / / Authorized Person, if an
Institutional Trustee
Street Address (P.O. Box alone not acceptable) .................................
<TABLE>
<S> <C>
City ...................................................... State ..................... Zip Code .....................
Co-Subscriber, Trustee or Custodian is a resident of ...... and a citizen of ..........................................
Minor (if not a gift) is a resident of .................... and a citizen of ..........................................
</TABLE>
- --------------------------------------------------------------------------------
ITEM 2 -- SIGNATURE(S) -- YOU MUST SIGN UNDER TAX REPRESENTATION ON PRECEDING
PAGE AND BELOW
- --------------------------------------------------------------------------------
(INDIVIDUAL OR JOINT SUBSCRIPTION, INCLUDING PARTICIPANT-DIRECTED EMPLOYEE
BENEFIT PLAN OR IRA SUBSCRIPTION)
If you are subscribing for a joint or community property account, the
statements, representations, and warranties set forth in this Subscription and
Exchange Agreement and Power of Attorney shall be deemed to have been made by
each owner of the account.
* If the Units will be owned by joint owners, tenants in common, or as
community property, signatures of all owners are required.
* In the case of a participant-directed employee benefit plan or IRA, the
beneficiary must sign immediately below and the trustee or custodian must
sign below under "Entity Subscription."
<TABLE>
<S> <C>
X _________________________________ ______________ X _________________________________ ______________
(Signature of Subscriber) Date (Signature of Co-Subscriber) Date
</TABLE>
(ENTITY SUBSCRIPTION)
ACCEPTANCE OF SUBSCRIPTION ON BEHALF OF EMPLOYEE BENEFIT PLANS (INCLUDING IRAS)
IS IN NO RESPECT A REPRESENTATION BY THE GENERAL PARTNER OR DWR THAT THIS
INVESTMENT MEETS ALL RELEVANT LEGAL REQUIREMENTS WITH RESPECT TO INVESTMENTS BY
ANY PARTICULAR PLAN, OR THAT THIS INVESTMENT IS APPROPRIATE FOR ANY PARTICULAR
PLAN.
The undersigned officer, partner, trustee, manager, or other representative
hereby certifies and warrants that: (a) s/he has full power and authority from
or on behalf of the entity named below and its shareholders, partners,
beneficiaries, or members to (i) complete, execute, and deliver this
Subscription Agreement and Power of Attorney on their behalf; and (ii) to make
the statements, representations, and warranties made herein on their behalf; and
(b) the investment in each Partnership specified is authorized under applicable
law and the governing documents of the entity, and has been affirmatively
authorized by the governing board or body, if any, of the entity, and is legally
permissible.
<TABLE>
<S> <C> <C>
.......................................................... X ....................................... ............
(Type or Print Name of Entity) (Signature) Date
Name of Person Signing for Entity ......................... Title .................................................
</TABLE>
- --------------------------------------------------------------------------------
ITEM 3 -- FINANCIAL ADVISOR AND BRANCH MANAGER USE ONLY (COMPLETE IN FULL AND IN
INK)
- --------------------------------------------------------------------------------
THE UNDERSIGNED FINANCIAL ADVISOR HEREBY CERTIFIES THAT:
(1) the above signature(s) is/are true and correct.
(2) s/he has informed the Subscriber about the liquidity and marketability of
the Units as set forth in each Prospectus.
(3) based on information obtained from the Subscriber concerning the
Subscriber's investment objectives, other investments, financial situation,
needs and any other relevant information, that s/he reasonably believes
that:
(a) such Subscriber is or will be in a financial position appropriate to
enable such Subscriber to realize the benefits of each Partnership
specified, as described in each Prospectus;
(b) such Subscriber has a net worth sufficient to sustain the risk inherent
in each Partnership specified (including loss of investment and lack of
liquidity); and
(c) each Partnership specified is otherwise a suitable investment for such
Subscriber; and
(4) the Subscriber received each Prospectus at least five business days prior to
the applicable Closing.
THE FINANCIAL ADVISOR MUST SIGN BELOW IN ORDER TO SUBSTANTIATE COMPLIANCE WITH
NASD CONDUCT RULE 2810.
X ______________________________________________________________________________
Financial Advisor's Signature
...............................................................................
Type or Print Full Name of Financial Advisor
Telephone Number ( ............................. ) ............................
THE UNDERSIGNED BRANCH MANAGER HEREBY CERTIFIES THAT:
(1) the above signature(s) is/are the true and correct.
(2) the above client(s) is/are suitable.
X ______________________________________________________________________________
Branch Manager's Signature
...............................................................................
Type or Print Full Name of Branch Manager
B-10
----
-
<PAGE>
EXHIBIT C
MORGAN STANLEY DEAN WITTER SPECTRUM SERIES
SUBSCRIPTION AGREEMENT UPDATE FORM
PLEASE PRINT OR TYPE (EXCEPT SIGNATURES). USE BLACK INK ONLY.
DWR Account No. / / / / / / - / / / / / / / / / / / /
I am an investor in the following Morgan Stanley Dean Witter Spectrum Series
Partnership(s) (mark each applicable box with an "X"):
/ / Morgan Stanley Dean Witter Spectrum Select L.P.
/ / Morgan Stanley Dean Witter Spectrum Technical L.P.
/ / Morgan Stanley Dean Witter Spectrum Strategic L.P.
/ / Morgan Stanley Dean Witter Spectrum Global Balanced L.P.
/ / Morgan Stanley Dean Witter Spectrum Currency L.P.
/ / Morgan Stanley Dean Witter Spectrum Commodity L.P.
I acknowledge receipt of the Morgan Stanley Dean Witter Spectrum Series
Prospectus dated March 6, 2000 relating to Spectrum Select, Spectrum Technical,
Spectrum Strategic, and Spectrum Global Balanced, and the Morgan Stanley Dean
Witter Spectrum Series Prospectus dated March 6, 2000 relating to Spectrum
Currency and Spectrum Commodity (each, a "Prospectus"). I have signed this form,
which updates each Subscription and Exchange Agreement and Power of Attorney
(each, a "Subscription Agreement") I signed when I bought Units of the Morgan
Stanley Dean Witter Spectrum Series Partnership(s) checked above, so that I may
purchase additional Units of such Partnership(s) without the need to execute a
new Subscription Agreement. I understand that if I wish to purchase additional
Units by way of an Exchange, or if I wish to purchase Units of any Morgan
Stanley Dean Witter Spectrum Series Partnership in which I am not currently an
investor, I must first execute a new Subscription Agreement in the form annexed
to the applicable Prospectus as Exhibit B.
I hereby confirm that the representations, warranties and other information
regarding the Subscriber in the Subscription Agreement(s) I previously executed
are still accurate, and that any purchase of additional Units following the date
of this Subscription Agreement Update Form shall be deemed confirmation that
such representations, warranties and other information are still accurate at the
time of that additional purchase. I will notify my Morgan Stanley Dean Witter
Financial Advisor prior to the purchase of additional Units if there is any
material change in the Subscriber's representations, warranties, or other
information contained in the previously executed Subscription Agreement(s).
I understand that I will need to execute a new Subscription Agreement Update
Form when a new Prospectus or Prospectus Supplement is issued.
<TABLE>
<S> <C> <C> <C>
IF SUBSCRIBER IS AN ENTITY INDIVIDUAL SUBSCRIBERS
- ----------------------------------------------------- -----------------------------------------------------
Name of Entity (Print or Type) Name of Subscriber(s) (Print or Type)
By:
---------------------------------------------- -----------------------------------------------------
Name of Signatory
- ----------------------------------------------------- -----------------------------------------------------
Title Signature(s) of Subscriber(s)
- ----------------------------------------------------- -----------------------------------------------------
Signature Address
- ----------------------------------------------------- -----------------------------------------------------
Address City State Zip
- -----------------------------------------------------
City State Zip Date:
----------------------------------------------
Date:
----------------------------------------------
</TABLE>
(PLEASE RETURN THIS FORM TO YOUR MORGAN STANLEY DEAN WITTER FINANCIAL ADVISOR.
FINANCIAL ADVISORS MUST FORWARD THE EXECUTED COPY OF THIS FORM TO DEMETER
MANAGEMENT CORPORATION.)
C-1
<PAGE>
NO PERSON IS AUTHORIZED TO GIVE ANY INFORMATION OR TO MAKE ANY REPRESENTATION
NOT CONTAINED IN THIS PROSPECTUS IN CONNECTION WITH THE MATTERS DESCRIBED
HEREIN, AND, IF GIVEN OR MADE, SUCH INFORMATION OR REPRESENTATION MUST NOT BE
RELIED UPON AS HAVING BEEN AUTHORIZED. THIS PROSPECTUS DOES NOT CONSTITUTE AN
OFFER BY ANY PERSON WITHIN ANY JURISDICTION IN WHICH SUCH OFFER IS NOT
AUTHORIZED, OR IN WHICH THE PERSON MAKING SUCH OFFER IS NOT QUALIFIED TO DO SO,
OR TO ANY PERSON TO WHOM SUCH OFFER WOULD BE UNLAWFUL. THE DELIVERY OF THIS
PROSPECTUS AT ANY TIME DOES NOT IMPLY THAT INFORMATION CONTAINED HEREIN IS
CORRECT AS OF ANY TIME SUBSEQUENT TO THE DATE OF ITS ISSUE.
UNTIL 90 DAYS FROM THE DATE OF THIS PROSPECTUS, ALL DEALERS THAT EFFECT
TRANSACTIONS IN THESE SECURITIES, OR NOT PARTICIPATING IN THIS OFFERING, MAY BE
REQUIRED TO DELIVER A PROSPECTUS. THIS IS IN ADDITION TO THE DEALERS OBLIGATION
TO DELIVER A PROSPECTUS WHEN ACTING AS UNDERWRITERS AND WITH RESPECT TO THEIR
UNSOLD ALLOTMENTS OR SUBSCRIPTIONS.
