<PAGE>
AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON SEPTEMBER 21, 1998
REGISTRATION NO. 333-60115
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
------------------------
PRE-EFFECTIVE AMENDMENT NO. 1 TO
FORM S-1
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
------------------------
MORGAN STANLEY DEAN WITTER
CHARTER GRAHAM L.P.
(Exact name of registrant as specified in charter document)
<TABLE>
<S> <C> <C>
DELAWARE 6799 13-4018068
(State of Organization (Primary Standard Industrial (IRS Employer
of Issuer) Classification Code Number) Identification Number)
</TABLE>
------------------------
Two World Trade Center, 62nd Floor
New York, New York 10048
(212) 392-8899
(Address, including zip code and telephone number, including area code,
of registrant's principal executive offices)
Mark J. Hawley
DEMETER MANAGEMENT CORPORATION
Two World Trade Center, 62nd Floor
New York, New York 10048
(212) 392-8899
(Name, address, including zip code, and telephone number,
including area code, of agent for service)
------------------------
COPIES OF COMMUNICATIONS TO:
<TABLE>
<S> <C>
Edwin L. Lyon, Esq. Michael T. Gregg, Esq.
Cadwalader, Wickersham & Taft Dean Witter Reynolds Inc.
1333 New Hampshire Avenue, N.W. Two World Trade Center, 6th Floor
Washington, D.C. 20036 New York, New York 10048
(202) 862-2200 (212) 392-5530
</TABLE>
------------------------
APPROXIMATE DATE OF COMMENCEMENT OF PROPOSED SALE TO THE PUBLIC:
AS SOON AS PRACTICABLE AFTER THE EFFECTIVE DATE OF THIS REGISTRATION STATEMENT.
------------------------
If any of the securities being registered on this Form are to be offered on
a delayed or continuous basis pursuant to Rule 415 under the Securities Act of
1933 check the following box. /x/
If this Form is filed to register additional securities for an offering
pursuant to Rule 462(b) under the Securities Act, please check the following box
and list the Securities Act registration statement number of the earlier
effective registration statement for the same offering. / /
If this Form is a post-effective amendment filed pursuant to Rule 462(c)
under the Securities Act, check the following box and list the Securities Act
registration statement number of the earlier effective registration statement
for the same offering. / /
If delivery of the prospectus is expected to be made pursuant to Rule 434,
please check the following box. / /
------------------------
The registrant hereby amends this Registration Statement on such date or
dates as may be necessary to delay its effective date until the registrant shall
file a further amendment which specifically states that this Registration
Statement shall thereafter become effective in accordance with Section 8(a) of
the Securities Act of 1933 or until the Registration Statement shall become
effective on such date as the Commission, acting pursuant to said Section 8(a),
may determine.
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
<PAGE>
MORGAN STANLEY DEAN WITTER CHARTER GRAHAM L.P.
CROSS REFERENCE SHEET
<TABLE>
<CAPTION>
ITEM LOCATION IN
NO. REGISTRATION ITEM PROSPECTUS
- ---- ----------------------------------------------------- ------------------------------------------
<C> <S> <C>
1. Forepart of the Registration Statement and Outside
Front Cover Page of Prospectus..................... Facing Page; Front Cover Pages.
2. Inside Front and Outside Back Cover Pages of
Prospectus......................................... Inside Front Cover Page; Table of
Contents.
3. Summary Information, Risk Factors, and Ratio of
Earnings to Fixed Charges.......................... Summary of the Prospectus; Risk Factors;
Description of Charges; Investment
Programs, Use of Proceeds and Trading
Policies; The General Partner; The
Commodity Brokers.
4. Use of Proceeds...................................... Investment Programs, Use of Proceeds and
Trading Policies.
5. Determination of Offering Price...................... Plan of Distribution.
6. Dilution............................................. Not Applicable.
7. Selling Security Holders............................. Not Applicable.
8. Plan of Distribution................................. Plan of Distribution.
9. Description of Securities to be Registered........... The Limited Partnership Agreement.
10. Interests of Named Experts and Counsel............... Not Applicable.
11. Information with Respect to the Registrant
(a) Description of Business......................... Summary of the Prospectus; Risk Factors;
Investment Programs, Use of Proceeds and
Trading Policies; General Description of
Trading Approaches; The Trading
Advisors/Money Managers; The Futures,
Options and Forwards Markets; The
Limited Partnership Agreements.
(b) Description of Property.......................... Not Applicable.
(c) Legal Proceedings................................ Certain Litigation; The Trading Advisors/
Money Managers.
(d) Market Price of and Dividends on the Registrant's
Common Equity and Related Stockholder Matters.... Risk Factors.
(e) Financial Statements............................. Independent Auditors' Reports.
(f) Selected Financial Data.......................... Selected Financial Data.
(g) Supplementary Financial Information.............. Selected Financial Data.
(h) Management's Discussion and Analysis of Financial
Condition and Results of Operations.............. Not applicable.
(i) Changes in and Disagreements with Accountants on
Accounting and Financial Disclosure.............. Not Applicable.
(j) Directors and Executive Officers................. The General Partner.
(k) Executive Compensation........................... Summary of the Prospectus; Conflicts of
Interest; Fiduciary Responsibility;
Description of Charges; Risk Factors;
The Trading Advisors/Money Managers; The
General Partner; The Commodity Brokers.
(l) Security Ownership of Certain Beneficial Owners
and Management..................................... Capitalization; The General Partner;
Independent Auditors' Reports.
(m) Certain Relationships and Related Transactions... Summary of the Prospectus; Conflicts of
Interest; Fiduciary Responsibility;
Description of Charges; Risk Factors;
The Trading Advisors/Money Managers; The
General Partner; The Commodity Brokers.
12. Disclosure of Commission Position on Indemnification
for Securities Act Liabilities..................... Fiduciary Responsibility.
</TABLE>
<PAGE>
EXPLANATORY STATEMENT
The Prospectus contained in this Registration Statement relates not only to
3,000,000 Units of Limited Partnership Interest of Morgan Stanley Dean Witter
Charter Graham L.P. covered by this Registration Statement, but to (i) the
3,000,000 Units of Limited Partnership Interest of Morgan Stanley Dean Witter
Charter Millburn L.P. covered by Registration Statement No. 333-60103; and (ii)
the 3,000,000 Units of Limited Partnership Interest of Morgan Stanley Dean
Witter Charter Welton L.P., covered by Registration Statement No. 333-60097.
<PAGE>
INFORMATION CONTAINED HEREIN IS SUBJECT TO COMPLETION OR AMENDMENT. A
REGISTRATION STATEMENT RELATING TO THESE SECURITIES HAS BEEN FILED WITH THE
SECURITIES AND EXCHANGE COMMISSION. THESE SECURITIES MAY NOT BE SOLD NOR MAY
OFFERS TO BUY BE ACCEPTED PRIOR TO THE TIME THE REGISTRATION STATEMENT BECOMES
EFFECTIVE. THIS PROSPECTUS SHALL NOT CONSTITUTE AN OFFER TO SELL OR THE
SOLICITATION OF AN OFFER TO BUY NOR SHALL THERE BE ANY SALE OF THESE SECURITIES
IN ANY STATE IN WHICH SUCH OFFER, SOLICITATION OR SALE WOULD BE UNLAWFUL PRIOR
TO REGISTRATION OR QUALIFICATION UNDER THE SECURITIES LAWS OF ANY SUCH STATE.
SUBJECT TO COMPLETION: DATED SEPTEMBER 21, 1998
MORGAN STANLEY DEAN WITTER CHARTER SERIES
MINIMUM OF 400,000 UNITS OF MORGAN STANLEY DEAN WITTER CHARTER GRAHAM L.P.
MINIMUM OF 400,000 UNITS OF MORGAN STANLEY DEAN WITTER CHARTER MILLBURN L.P.
MINIMUM OF 400,000 UNITS OF MORGAN STANLEY DEAN WITTER CHARTER WELTON L.P.
------------------------
The Morgan Stanley Dean Witter Charter Series (the "Charter Series")
consists of three single-advisor commodity pool limited partnerships formed on
July 15, 1998 under the laws of the State of Delaware and engaged primarily in
the speculative trading of futures and forward contracts, options on futures
contracts and on physical commodities, and other commodity interests, including
foreign currencies, financial instruments, precious and industrial metals,
energy products, and agriculturals, as more fully described herein (hereinafter
referred to collectively as "futures interests"). The three partnerships that
comprise the Charter Series are Morgan Stanley Dean Witter Charter Graham L.P.
("Charter Graham"), Morgan Stanley Dean Witter Charter Millburn L.P. ("Charter
Millburn"), and Morgan Stanley Dean Witter Charter Welton L.P. ("Charter
Welton") (individually, a "Partnership," and collectively, the "Partnerships").
Demeter Management Corporation is the general partner of each Partnership (the
"General Partner"). Dean Witter Reynolds Inc. ("DWR") is the selling agent and
non-clearing commodity broker for the Partnerships. DWR has appointed Morgan
Stanley & Co. Incorporated ("MS & Co.") as an additional selling agent for the
Partnerships. In the future, the Charter Series may be expanded to include
additional limited partnerships.
The assets of each Partnership are separately maintained and managed, and
the units of limited partnership interest ("Units") of each Partnership are
separately offered. New subscribers generally are required to subscribe for a
minimum of $20,000 of Units in the Charter Series, and they may allocate their
investment among any one or more of the Partnerships. The minimum investment in
any one Partnership, however, is $5,000. The minimum subscription for
subscribers who already own Units in a given Partnership and desire to make
additional investments in such Partnership is $1,000. See "Investment
Requirements."
THESE ARE SPECULATIVE SECURITIES AND INVOLVE A HIGH DEGREE OF RISK. THESE
SECURITIES ARE SUITABLE FOR INVESTMENT ONLY BY A PERSON WHO CAN AFFORD TO LOSE
HIS ENTIRE INVESTMENT. SEE "SUMMARY OF THE PROSPECTUS--INVESTMENT REQUIREMENTS"
(PAGE 1), "RISK FACTORS" (PAGE 12), AND "CONFLICTS OF INTEREST" (PAGE 19).
An investment in the Partnerships involves significant risks, including the
following:
O Futures interests trading is speculative and volatile. Such volatility
could result in an investor losing all or a substantial part of his
investment.
O Each Partnership is subject to substantial charges by its Trading Advisor,
the General Partner, and DWR. Each Partnership must earn estimated annual
net trading profits (after taking into account estimated interest income
based upon current rates of 5%) of 4.2% of its average annual Net Assets
(as defined herein) in order to offset Partnership expenses, and 6.2% to
offset Partnership expenses and the 2% redemption charge if Units are
redeemed at the end of the first twelve months after they are purchased.
O No secondary market for Units exists. Units may be redeemed monthly only
after the end of the sixth month following the closing at which an
investor first became a Limited Partner in the Charter Series. A Unit
redeemed at or prior to the twenty-fourth month following the closing at
which such Unit was issued may be subject to redemption charges. Certain
market conditions may result in possible delays in, or inability to pay,
redemptions.
O Conflicts of interest exist that may adversely affect the Partnerships,
including the facts that DWR, MS & Co., and the General Partner are
affiliates, fees to DWR have not been negotiated in arm's-length
transactions, and DWR employees and additional sellers will receive a
portion of the brokerage fees paid by the Partnerships. See "Conflicts of
Interest."
O A Partnership will not be profitable unless its Trading Advisor is
successful with its trading program(s). Past performance is not
necessarily indicative of future results.
O While the General Partner does not intend to make any distributions,
profits earned by a Partnership in any year will result in taxable income
to investors.
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE SECURITIES
AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION PASSED UPON THE
ACCURACY OR ADEQUACY OF THIS PROSPECTUS. 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.
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------------------------
- --------------------------------------------------------------------------------------------------
INITIAL PRICE
TO
THE SELLING PROCEEDS TO THE
PUBLIC(1)(2) COMMISSIONS PARTNERSHIPS(1)(2)(3)
- --------------------------------------------------------------------------------------------------
- --------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Per Unit................................ $10.00 (1)(2)(3) $10.00
- --------------------------------------------------------------------------------------------------
Charter Graham
Total Minimum of 400,000 Units........ $4,000,000 (1)(2)(3) $4,000,000
Total Maximum of 3,000,000 Units...... $30,000,000 $30,000,000
- --------------------------------------------------------------------------------------------------
Charter Millburn
Total Minimum of 400,000 Units........ $4,000,000 (1)(2)(3) $4,000,000
Total Maximum of 3,000,000 Units...... $30,000,000 $30,000,000
- --------------------------------------------------------------------------------------------------
Charter Welton
Total Minimum of 400,000 Units........ $4,000,000 (1)(2)(3) $4,000,000
Total Maximum of 3,000,000 Units...... $30,000,000 $30,000,000
- --------------------------------------------------------------------------------------------------
Cover page continued and notes to the above table on Page i
</TABLE>
MORGAN STANLEY DEAN WITTER
DEAN WITTER REYNOLDS INC.
THE DATE OF THIS PROSPECTUS * , 1998.
<PAGE>
COVER PAGE CONTINUED:
The Partnerships are not mutual funds or any other type of investment
company within the meaning of the Investment Company Act of 1940, as amended,
and are not subject to regulation thereunder.
Units of each Partnership are being offered initially (the "Initial
Offering") at $10 per Unit, for issuance at an initial closing (the "Initial
Closing"), which is currently scheduled to be held on October 31, 1998, but in
no event later than March 12, 1999 (the period from the date of this Prospectus
through the Initial Closing is referred to as the "Initial Offering Period").
The Initial Closing may be held at any time during the Initial Offering Period.
Units that remain unsold following the Initial Closing will be available for
sale at monthly closings to be held as of the last day of each month (each, a
"Monthly Closing"; any Monthly Closing or the Initial Closing, a "Closing")
during the Partnerships' continuing offering of Units (the "Continuing
Offering"). Because each Partnership may register additional Units for sale,
there is no maximum aggregate amount of contributions that may be received by
any Partnership. During the Continuing Offering, Units of each Partnership will
be offered for sale at Monthly Closings at a purchase price equal to 100% of the
Net Asset Value per Unit of such Partnership as of the date of the Monthly
Closing, which Net Asset Value may be more or less than $10.00 per Unit. The Net
Asset Value per Unit for a Partnership is calculated by dividing that
Partnership's Net Assets by the aggregate number of Units of that Partnership
outstanding. An amount equal to 100% of the Net Asset Value of each Unit sold at
a Monthly Closing will be delivered to the Partnership which sold the Unit.
Since each Partnership's actual Net Asset Value per Unit as of a Monthly Closing
is determined subsequent to such Monthly Closing, it is not possible for a
Limited Partner to know the actual price paid for each Unit and the number of
Units purchased until after the Monthly Closing takes place.
Subject to certain limitations, the Partnerships will permit a Limited
Partner to redeem Units in a Partnership and, with the proceeds of such
redemption, purchase Units of one or more other Partnerships at a price equal to
the Net Asset Value thereof (a "Series Exchange"). See "Exchange Privilege."
------------------------
NOTES TO TABLE ON FRONT COVER PAGE:
(1) The minimum initial subscription for most subscribers is $20,000. The
$20,000 minimum subscription may be satisfied by purchasing Units of one or
more Partnerships, except that the minimum subscription for any one
Partnership is $5,000. The minimum subscription per Partnership for Limited
Partners that already own Units in a Partnership and desire to make
additional investments in such Partnership is $1,000.
No underwriting compensation or selling commissions will be paid out of the
proceeds of any Closing. However, except as provided below, employees of DWR
will receive from DWR (payable solely from its own funds) a gross sales
credit equal to 4% of the Net Asset Value per Unit as of the applicable
Closing for each Unit sold by them and issued at such Closing, and/or a
gross sales credit of up to 71% of the brokerage fees attributable to each
outstanding Unit sold by them and received by DWR from the Partnership each
month, which credit will continue until such Partnership terminates or such
Unit is redeemed (whichever comes first). In either case an employee of DWR
will qualify for the continuing compensation only if he is properly
registered with the Commodity Futures Trading Commission ("CFTC") and is a
member of the National Futures Association ("NFA"), and has passed the
Series 3 or Series 31 examination or was "grandfathered" as an associated
person. Such continuing compensation is to be paid in recognition of the
employee's continuing services to the Limited Partners. For a description of
the terms and conditions applicable to such gross sales credits and the
continuing services to be rendered by DWR employees, see "Plan of
Distribution." The Selling Agreement among DWR and the Partnerships provides
that such compensation may only be paid by DWR as long as such services are
provided. Such continuing compensation paid by DWR may be deemed to be
underwriting compensation. No person will receive the continuing
compensation described above who is not a DWR employee at the time of
receipt of payment.
DWR will not pay to its employees the 4% initial gross sales credit
described above with respect to Units purchased pursuant to a Series
Exchange or purchased by an eligible subscriber with the proceeds of a
redemption of all or a portion of such subscriber's interest in any other
commodity pool for which the General Partner serves as the general partner
and commodity pool operator (a "Non-Series Exchange"). In order to be
eligible to purchase Units pursuant to a Non-Series Exchange, an investor
must purchase Units with the proceeds of a redemption from another commodity
pool for which the General Partner serves as the general partner and
commodity pool operator on the date of the Monthly Closing as of which the
redemption from such other commodity pool becomes effective. Such employees
will, however, receive continuing
i
<PAGE>
gross sales credits with respect to brokerage fees received by DWR from a
Partnership. See "Plan of Distribution."
DWR has appointed MS & Co. as its agent to make offers and sales of Units.
DWR, with the approval of the General Partner, may also appoint additional
selling agents (MS & Co. and any such selling agent, an "Additional
Seller"), provided such Additional Seller is a member of the National
Association of Securities Dealers, Inc. ("NASD") or, under certain
conditions, a foreign person as described under "Plan of Distribution." DWR
may compensate any Additional Seller for each Unit sold by it by paying such
Additional Seller a selling commission, payable by DWR solely from its own
funds, not to exceed 4% of the Net Asset Value of such Unit. Additional
Sellers who are properly registered with the CFTC and are members of the NFA
also may receive from DWR, payable solely from DWR's own funds, continuing
compensation for providing to Limited Partners the continuing services
referred to above. Such continuing compensation may be up to 35% annually of
the brokerage fees attributable to outstanding Units sold by such Additional
Sellers and received by DWR as commodity broker for each Partnership (except
MS & Co., which will be compensated at the same rate as DWR employees).
Additional Sellers may pay all or a portion of such continuing compensation
to their employees who have sold Units and provide continuing services to
Limited Partners if such employees are properly registered with the CFTC and
are members of the NFA. Such continuing compensation may be deemed to be
underwriting compensation. See "Plan of Distribution."
No part of the compensation described above will be paid by a Partnership
and, accordingly, Net Assets will not be reduced as a result of such
compensation. DWR has agreed to indemnify any Additional Seller against
certain civil liabilities, including liabilities under the Securities Act of
1933, as amended. DWR will be indemnified by each Partnership against
certain civil liabilities.
(2) Subscriptions received during the Initial Offering Period and not
immediately rejected by the General Partner will be held in escrow by The
Chase Manhattan Bank, New York, New York (the "Escrow Agent"), until such
subscriptions are either accepted or rejected by the General Partner or the
Initial Offering Period is concluded. The funds will be invested solely in
the Escrow Agent's interest-bearing money market account. Interest will be
earned on subscription funds from the day of deposit of such funds with the
Escrow Agent to the day that such funds are either accepted or rejected by
the General Partner; such interest will be credited to the subscribers'
customer accounts with DWR. If 400,000 or more Units of a Partnership are
subscribed for at or prior to the end of the Initial Offering Period, the
Initial Closing for such Partnership shall be held, and the proceeds of the
offering of such Units will be contributed to that Partnership. If fewer
than 400,000 Units of a Partnership have been subscribed for at the
termination of the Initial Offering Period, the subscriptions for that
Partnership will be promptly credited to each subscriber's customer account
with DWR within five business days following the termination of the Initial
Offering Period, together with any interest earned on such subscriber's
escrowed funds. It is contemplated that only one Initial Closing shall be
held for the Partnerships, and it is not a condition of the Initial Closing
that all three Partnerships sell the minimum number of Units.
Subscriptions received during the Continuing Offering and not immediately
rejected by the General Partner will be held in escrow by the Escrow Agent,
and invested solely in the Escrow Agent's interest-bearing money market
account. Interest will be earned on subscription funds from the day of
deposit of such funds with the Escrow Agent to the day that such funds are
either accepted or rejected by the General Partner. Any subscription
received by DWR during the last five business days of a month and not
rejected may be held in escrow until the second Monthly Closing immediately
following receipt of such subscription. The General Partner will determine
whether to accept or reject a subscription generally within ten days of the
receipt of a complete and executed Subscription and Exchange Agreement and
Power of Attorney. See "Plan of Distribution."
(3) DWR will pay all of the costs incurred in connection with the organization
of the Partnerships and the Initial Offering of Units by the Partnerships,
estimated to be approximately $1,000,000 in the aggregate. Pursuant to the
Selling Agreement among DWR, the General Partner and the Partnerships, DWR
also will pay all of the costs incurred in connection with the Continuing
Offering. Such costs will include legal, accounting, and auditing fees,
printing costs, filing fees, escrow fees, marketing costs and expenses, and
other related expenses incurred in connection with the offering of Units.
The Partnerships will not reimburse DWR for any such organizational and
offering costs, and while DWR may recoup such costs from brokerage fees paid
by the Partnerships, the Partnerships will not be liable for any such costs
at any time. Investments by subscribers are not subject to any upfront fees,
commissions or expenses and, therefore, 100% of the
ii
<PAGE>
proceeds of the Initial Offering and Continuing Offering shall be available
for investment in each Partnership. The number of Units sold of each
Partnership will have no effect on the Net Asset Value per Unit of such
Partnership.
------------------------
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 EFFECTING
TRANSACTIONS IN THE REGISTERED SECURITIES, WHETHER OR NOT PARTICIPATING IN THIS
DISTRIBUTION, MAY BE REQUIRED TO DELIVER A PROSPECTUS. THIS IS IN ADDITION TO
THE OBLIGATION OF DEALERS TO DELIVER A PROSPECTUS WHEN ACTING AS UNDERWRITERS
AND WITH RESPECT TO THEIR UNSOLD ALLOTMENTS OR SUBSCRIPTIONS.
------------------------
The Partnerships will be subject to the informational requirements of the
Securities Exchange Act of 1934 and in accordance therewith will file reports,
proxy statements and other information with the Securities and Exchange
Commission (the "SEC"). These reports, proxy statements and other information
can be inspected and copied at the public reference facilities maintained by the
SEC at the SEC's office at 450 Fifth Street, N.W., Room 1024, Washington, D.C.
20549, and at its regional offices located at 7 World Trade Center, Suite 1300,
New York, New York 10048 and 500 West Madison Street, Suite 1400, Chicago,
Illinois 60661. Copies of such material can be obtained from the Public
Reference Section of the SEC at 450 Fifth Street, N.W., Room 1024, Washington,
D.C. 20549, and at the regional offices described above at prescribed rates. The
SEC maintains a World Wide Web site containing reports, proxy and information
statements, and other information regarding registrants that file electronically
with the SEC. The address of such Web site is: http://www.sec.gov.
The Partnerships have filed with the SEC, in Washington, D.C., Registration
Statements on Form S-1 under the Securities Act of 1933, as amended, with
respect to the Units offered hereby. This Prospectus does not contain all the
information included in such Registration Statements, certain items of which
were omitted in accordance with the Rules and Regulations of the SEC. For
further information about the Partnerships and the Units offered hereby,
reference is made to the Registration Statements and the exhibits thereto.
The Partnerships must furnish all Limited Partners annual and monthly
reports complying with CFTC requirements. The annual reports will contain
audited, and the monthly reports unaudited, financial information. The audited
financial statements will be examined and reported upon by independent certified
public accountants.
iii
<PAGE>
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 A POOL AND
CONSEQUENTLY THE VALUE OF YOUR INTEREST IN A POOL. IN ADDITION, RESTRICTIONS ON
REDEMPTIONS MAY AFFECT YOUR ABILITY TO WITHDRAW YOUR PARTICIPATION IN A 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 27 AND A STATEMENT OF THE PERCENTAGE RETURN NECESSARY TO BREAK EVEN, THAT
IS TO RECOVER THE AMOUNT OF YOUR INITIAL INVESTMENT, AT PAGE 30.
THIS BRIEF STATEMENT CANNOT DISCLOSE ALL THE RISKS AND OTHER FACTORS
NECESSARY TO EVALUATE YOUR PARTICIPATION IN EACH COMMODITY POOL. 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 15.
YOU SHOULD ALSO BE AWARE THAT EACH COMMODITY POOL 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 EACH POOL AND
THEIR 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.
iv
<PAGE>
TABLE OF CONTENTS
PAGE
<TABLE>
<S> <C>
Risk Disclosure Statement.............................. iv
Summary of the Prospectus.............................. 1
Investment Requirements.............................. 1
Additional Information............................... 2
The Morgan Stanley Dean Witter Charter Series........ 2
Morgan Stanley Dean Witter Charter Graham L.P...... 2
Morgan Stanley Dean Witter Charter Millburn L.P.... 3
Morgan Stanley Dean Witter Charter Welton L.P...... 4
Organizational Chart................................. 5
The General Partner.................................. 6
The Commodity Brokers................................ 6
Risk Factors......................................... 6
Risks Relating to Futures Interests Trading........ 6
Risks Relating to the Partnerships and the Offering
of Units......................................... 7
Risks Relating to the Trading Advisors............. 7
Taxation and Regulalory Risks...................... 7
Conflicts of Interest................................ 8
Description of Charges............................... 8
Charges to Each Partnership........................ 8
Redemption Charges to Limited Partners............. 9
Exchange Privilege................................... 9
Redemption of Units.................................. 9
Distributions........................................ 10
Transferability of Units............................. 10
The Offering......................................... 10
Securities Offered................................. 10
Subscription Procedure............................. 10
Plan of Distribution............................... 11
No Selling Commissions or Charges for
Organizational or Offering Expenses.............. 12
Suitability Standards.............................. 12
Use of Proceeds...................................... 12
Interest on Partnership Assets....................... 13
Tax Considerations................................... 13
Risk Factors........................................... 15
Risks Relating to Futures Interests Trading and the
Futures Interests Markets.......................... 15
The Partnerships' Futures Interests Trading Is
Speculative and Volatile......................... 15
The Partnerships' Futures Interests Trading Is
Highly Leveraged................................. 15
The Partnerships' Futures Interests Trading May Be
Illiquid......................................... 15
The Partnerships' Forward Trading Is Not Protected
By Regulation.................................... 16
The Partnerships' Trading on Foreign Exchanges
Presents Additional Risks That Do Not Exist When
Solely Trading on Domestic Exchanges............. 16
Trading Futures Options Is Speculative and Highly
Leveraged........................................ 16
The Partnerships Have Credit Risk to the Commodity
Brokers.......................................... 17
The Partnerships Are Subject to Speculative
Position Limits.................................. 17
Risks Relating to the Partnerships and the Offering
of Units........................................... 17
Substantial Charges to Each Partnership and Its
Limited Partners................................. 17
Restricted Investment Liquidity in the Units....... 17
Conflicts of Interest in Each Partnership's
Structure.......................................... 18
Limited Partners Will Not Participate in
Management......................................... 18
Reliance on the General Partner.................... 18
No Assurance That Units Will Be Sold............... 19
Special Characteristics of Start-up Period......... 19
No Operating History of the Partnerships........... 19
Certain Litigation................................. 19
Potential Inability to Trade or Report Results
Because of Year 2000 Problems.................... 19
Risks Relating to the Trading Advisors............... 20
Reliance on the Trading Advisor to Trade
Successfully..................................... 20
Past Performance Not Necessarily Indicative of
Future Results................................... 20
Market Factors May Adversely Influence the Trading
Programs......................................... 20
Single Advisor Funds Lack the Diversity of a Multi-
Advisor Fund..................................... 20
Increasing Assets Managed by a Trading Advisor May
Adversely Affect Performance..................... 20
Charter Graham's Use of an Increased Rate of
Leverage Could Affect Future Performance......... 21
Limited Term of Management Agreements May Limit
Access to the Trading Advisors................... 21
A Trading Advisor or its Trading Program May Be
Changed Without Prior Notice..................... 21
Trading Decisions Based on a Technical Trading
Approach May Not Perform Under Certain Market
Conditions....................................... 21
Taxation and Regulatory Risks........................ 22
Partner's Tax Liability May Exceed Distributions... 22
Limitations on Deduction of Certain Expenses....... 22
Redemption of Units May Produce Negative Tax
Consequences..................................... 22
Tax Laws are Subject to Change..................... 22
Deductibility of Passive Losses May Be Limited..... 22
The Partnerships' Tax Returns May Be Audited....... 23
Absence of Regulations Applicable to Securities
Mutual Funds and Their Advisers.................. 23
Conflicts of Interest.................................. 23
Relationship of the General Partner to DWR as
Commodity Broker................................... 23
Accounts of Affiliates of the General Partner, the
Trading Advisors, and the Commodity Brokers........ 24
Management of Other Accounts by the Trading
Advisors........................................... 25
Customer Agreements with the Commodity Brokers....... 25
Other Commodity Pools................................ 25
Fiduciary Responsibility............................... 25
Description of Charges................................. 27
Charges to Each Partnership.......................... 27
1. Trading Advisor................................. 27
2. Commodity Brokers............................... 28
3. Extraordinary Expenses.......................... 29
4. Expense Limitations............................. 29
Redemption Charges to Limited Partners............... 30
Break-Even Analysis.................................. 30
</TABLE>
v
<PAGE>
PAGE
<TABLE>
<S> <C>
Investment Programs, Use of Proceeds and Trading
Policies............................................. 32
Investment Programs of Each Charter Series
Partnership........................................ 33
Morgan Stanley Dean Witter Charter Graham L.P........ 33
Morgan Stanley Dean Witter Charter Millburn L.P...... 33
Morgan Stanley Dean Witter Charter Welton L.P........ 34
Additional Partnerships.............................. 34
Trading Policies..................................... 34
Capitalization......................................... 35
The General Partner.................................... 36
Directors and Officers of the General Partner........ 37
Description and Performance Information of Commodity
Pools Operated by the General Partner.............. 38
The Trading Advisors/Money Managers.................... 42
Introduction......................................... 42
General Description of Trading Approaches............ 42
Systematic and Discretionary....................... 42
Technical and Fundamental Analysis................. 42
Trend-Following.................................... 43
Risk Control Techniques............................ 43
The Trading Advisors/Money Managers.................. 43
Morgan Stanley Dean Witter Charter Graham L.P...... 44
Morgan Stanley Dean Witter Charter Millburn L.P.... 51
Morgan Stanley Dean Witter Charter Welton L.P...... 61
The Management Agreements.............................. 69
Term................................................. 69
Liability and Indemnification........................ 69
Obligations to a Partnership......................... 69
Exchange Privilege..................................... 70
Redemptions............................................ 70
The Commodity Brokers.................................. 72
Description of the Commodity Brokers................. 72
Brokerage Arrangements............................... 72
Certain Litigation..................................... 73
The Futures, Options and Forwards Markets.............. 74
Futures Contracts.................................... 74
Forward Contracts.................................... 74
Options on Futures................................... 74
Hedgers and Speculators.............................. 75
Commodity Exchanges.................................. 75
Speculative Position Limits.......................... 76
Daily Limits......................................... 76
Regulations.......................................... 76
Margins.............................................. 77
The Limited Partnership Agreements..................... 78
Nature of the Partnerships........................... 78
Management of Partnership Affairs.................... 79
Sharing of Profits and Losses........................ 79
Restrictions on Transfers or Assignments............. 79
Amendments; Meetings................................. 80
Indemnification...................................... 81
Reports to Limited Partners.......................... 81
Plan of Distribution................................... 82
Subscription Procedure................................. 85
Purchases by Employee Benefit Plans--ERISA
Considerations....................................... 87
Material Federal Income Tax Considerations............. 88
Introduction......................................... 88
Partnership Status................................... 88
Partnership Taxation................................. 88
Cash Distributions and Redemptions................... 89
Gain or Loss on Trading Activity..................... 89
Taxation of Limited Partners......................... 91
Tax Audits........................................... 94
State and Local Income Tax Aspects..................... 94
Potential Advantages................................... 95
Investment Diversification........................... 95
Charting a Course for Your Financial Future.......... 96
Futures Interests Traded............................. 101
Exchange Privilege................................... 101
Diversified Professional Trading Management.......... 101
Limited Liability.................................... 101
Interest Income...................................... 101
Administrative Convenience........................... 102
Legal Matters.......................................... 102
Experts................................................ 102
Additional Information................................. 102
Glossary............................................... 102
Certain Terms and Definitions........................ 102
Blue Sky Glossary.................................... 104
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.
Independent Auditors' Report......................... F-1
Statements of Financial Condition.................... F-2
Notes to Statements of Financial Condition........... F-5
Demeter Management Corporation
Independent Auditors' Report......................... F-7
Statements of Financial Condition.................... F-8
Notes to Statements of Financial Condition........... F-9
(certain information relating to the financial
condition of Demeter Management Corporation's
parent is contained in "The General Partner")
Exhibit A--Form of Limited Partnership Agreement....... A-1
Annex--Request for Redemption........................ A-21
Exhibit B--Specimen Form of Subscription and Exchange
Agreement and Power of Attorney...................... B-1
</TABLE>
vi
<PAGE>
SUMMARY OF THE PROSPECTUS
THE DATE OF THIS PROSPECTUS IS *, 1998.
The following is a summary of this Prospectus. This Prospectus contains
more detailed information under the captions referred to below, and this summary
is qualified in its entirety by the information appearing elsewhere herein.
INVESTMENT REQUIREMENTS
The minimum subscription for most subscribers is $20,000, except that, in
the case of eligible subscribers who, pursuant to a Subscription and Exchange
Agreement and Power of Attorney (a "Subscription Agreement"), redeem units of
limited partnership interest in any other commodity pool for which the General
Partner serves as the general partner and commodity pool operator, and use the
proceeds of such redemption to purchase Units of the Partnerships (each such
purchase is hereinafter referred to as a "Non-Series Exchange"), the $20,000
minimum subscription will be satisfied if the proceeds of the redemption of the
units redeemed would have equaled at least $20,000 as of the last day of the
month immediately preceding the Closing at which the Units are purchased,
irrespective of whether the actual proceeds from such redemption are less than
$20,000 when the units are redeemed. In order to be eligible to purchase Units
pursuant to a Non-Series Exchange, an investor must purchase Units at the
Closing held as of the date on which the redemption from the other commodity
pool becomes effective. A subscription may be for Units of one Partnership, or
may be divided among two or all three Partnerships, provided that the minimum
subscription for any one Partnership is: (a) in the case of a cash purchase,
$5,000, or (b) in the case of a Non-Series Exchange, the proceeds from the
redemption of (i) five units from commodity pools other than the Spectum Series
or Morgan Stanley Tangible Asset Fund L.P. ("MSTAF"), (ii) 500 units from one,
or any combination, of the Spectrum Series, or (iii) 500 units from MSTAF. The
minimum subscription per Partnership for subscribers who already own Units in a
Partnership and desire to make an additional investment in such Partnership is:
(a) in the case of a cash purchase, $1,000, or (b) in the case of a Non-Series
Exchange, the proceeds from the redemption of (i) one unit from commodity pools
other than the Spectrum Series or MSTAF, (ii) 100 units from one, or any
combination, of the Spectrum Series, or (iii) 100 units from MSTAF.
Subscribers should be aware that there are minimum net worth and/or annual
income suitability standards that must be met in order to subscribe for Units.
Each subscriber must represent and warrant in a Subscription Agreement that such
subscriber has received this Prospectus and that such subscriber meets the
applicable State minimum financial suitability standard set forth in the
Subscription Agreement, and may be required to provide additional information
regarding the subscriber's background and investment history. DWR and its
financial advisors, or the Additional Seller who sold the Units, have a duty to
determine that this is a suitable investment for the subscriber.
Unless otherwise specified in the Subscription Agreement under "State
Suitability Requirements," a subscriber must have either: (a) a net worth of at
least $150,000 (exclusive of home, furnishings, and automobiles), or (b) a net
worth of at least $45,000 (exclusive of home, furnishings, and automobiles) and
an annual income of at least $45,000. Certain jurisdictions impose more
restrictive suitability requirements than those set forth above, including
requirements for a higher net worth, a higher annual income, or both. A list of
such jurisdictions and the restrictions imposed is included in the Subscription
Agreement under the heading "State Suitability Requirements." A specimen form of
the Subscription Agreement is annexed hereto as Exhibit B. A separate execution
copy of the Subscription Agreement either accompanies this Prospectus or may be
obtained, after delivery of this Prospectus, from a local DWR branch office.
Subject to certain limited revocation rights (see "Subscription
Procedure"), all subscriptions for Units are irrevocable by subscribers, and the
General Partner may, in its sole discretion, reject any subscription in whole or
in part. There are significant restrictions on the ability of a Limited Partner
to redeem Units, and although the Limited Partnership Agreement of each
Partnership permits the transfer of Units subject to certain conditions, there
is no public market for the Units and none is likely to develop. Therefore, a
purchaser of Units must be able to bear the economic risks of an investment in a
Partnership for a significant period of time. See "The Limited Partnership
Agreements--Restrictions on Transfers or Assignments" and "Redemptions."
1
<PAGE>
ADDITIONAL INFORMATION
In addition to this Prospectus, a sales brochure and certain other sales
literature prepared by DWR may be delivered with this Prospectus or may be
obtained from a DWR financial advisor or by writing to Dean Witter Reynolds
Inc., Two World Trade Center, 62nd Floor, New York, New York, 10048. Following
commencement of trading, the Partnerships' monthly reports prepared by the
General Partner will be delivered with this Prospectus.
THE MORGAN STANLEY DEAN WITTER CHARTER SERIES
The Morgan Stanley Dean Witter Charter Series (the "Charter Series ")
consists of three Delaware limited partnerships, each formed to engage primarily
in the speculative trading of futures and forward contracts, options on futures
contracts and on physical commodities, and other commodities interests,
including foreign currencies, financial instruments, precious and industrial
metals, energy products, and agriculturals (hereinafter referred to collectively
as "futures interests"). The Charter Series consists of Morgan Stanley Dean
Witter Charter Graham L.P. ("Charter Graham"), Morgan Stanley Dean Witter
Charter Millburn L.P. ("Charter Millburn"), and Morgan Stanley Dean Witter
Charter Welton L.P. ("Charter Welton") (individually, a "Partnership," and
collectively, the "Partnerships"). Each Partnership was organized as a limited
partnership on July 15, 1998 under the Delaware Revised Uniform Limited
Partnership Act (the "Partnership Act"). The offices of each Partnership are
located at Two World Trade Center, 62nd Floor, New York, New York 10048,
telephone (212) 392-8899. The taxable year for each Partnership is the calendar
year.
A Partnership will terminate upon the first to occur of the following: (a)
December 31, 2035; (b) an election to terminate and dissolve the Partnership at
a specified time by Limited Partners owning more than 50% of its outstanding
Units; (c) the withdrawal, insolvency, bankruptcy, dissolution, liquidation or
termination of the General Partner unless the Partnership's business is
continued by a remaining or successor general partner; (d) the occurrence of any
event which shall make it unlawful for the existence of the Partnership to be
continued; (e) a decline in the Net Asset Value of a Unit as of the close of
business (as determined by the General Partner) on any day to less than $2.50;
(f) a decline in the Partnership's Net Assets as of the close of business (as
determined by the General Partner) on any day to $250,000 or less; (g) a
determination by the General Partner that the Partnership's Net Assets in
relation to its operating expenses make it unreasonable or imprudent to continue
the business of the Partnership; (h) a determination by the General Partner upon
120 days' notice to the Limited Partners to terminate the Partnership; or (i) a
determination by the General Partner to terminate the Partnership following a
Special Redemption Date. See "The Limited Partnership Agreements--Reports to
Limited Partners" as to Special Redemption Dates.
In the future, the Charter Series may be expanded to include additional
limited partnerships.
Each Partnership trades pursuant to trading programs utilized by its
trading advisor (each, a "Trading Advisor" or "Money Manager," and collectively,
the "Trading Advisors" or "Money Managers"), as described more fully in "The
Trading Advisors/Money Managers." Although the General Partner believes that
each Partnership offers its Limited Partners a different trading approach and,
correspondingly, a different potential rate of return on their investment, all
speculative trading of futures interests is inherently risky and there can be no
assurance that a Partnership can achieve a desired rate of return or effectively
reduce the risk arising from an investment in such Partnership.
MORGAN STANLEY DEAN WITTER CHARTER GRAHAM L.P.
The assets of Charter Graham initially will be traded by Graham Capital
Management L.P. ("GCM") pursuant to GCM's Global Diversified Program at 1.5
times the leverage it normally applies for such program. This program has been
traded since July 1994, and relies primarily on computerized trading models to
participate in approximately 70 global markets. The Global Diversified Program
will normally have approximately 29% weighting in futures contracts based on
short-term and long-term global interest rates, 35% in currency forwards, 7% in
stock index futures, 15% in agricultural futures, 10% in metal futures, and 4%
in energy futures. The actual weighting and leverage used in each market will
change over time due to liquidity, price action, and risk considerations.
2
<PAGE>
Certain Summary Information for Morgan Stanley Dean Witter Charter Graham L.P.
<TABLE>
<S> <C>
Trading Advisor: Graham Capital Management, L.P. Break-Even Information:
Partnership Net Assets initially allocated to: Percentage of estimated annual net trading
profits (after interest income) in order to
offset Partnership expenses: 4.2%
GCM's Global Diversified Program: 100%
Global Diversified Program annual rates of return: Percentage of estimated annual net trading
profits (after interest income) in order to
offset Partnership expenses and the 2% re-
demption charge if Units are redeemed dur-
ing the first twelve months after they are
purchased: 6.2%
ACTUAL PRO FORMA
-------- -------
1998 year-to-date return (7 months): (9.85)% (10.72)%
1997 annual return: 4.97% 6.51%
1996 annual return: 14.14% 20.80%
1995 annual return: 23.20% 32.82%
1994 annual return (6 months): (3.73)% (5.30)%
</TABLE>
The actual annual and year-to-date rates of return set forth above relate
to the past performance of GCM's Global Diversified Program, which initially
will be the trading program utilized by Charter Graham. The pro forma annual and
year-to-date rates of return set forth above were calculated using the actual
rates of return, adjusted for the increased leverage to be employed by GCM for
Charter Graham and adjusted for the fees to be applied to Charter Graham. Such
performance results are not necessarily indicative of, and may have no bearing
on, any trading results that may be attained by GCM or Charter Graham. Past
performance is not a guarantee of future results.
See "Description of Charges -- Break-Even Analysis" for details regarding
the above break-even information. The allocation of Net Assets to specific
trading programs of the Trading Advisor is subject to change. See "The Trading
Advisors/Money Managers -- Morgan Stanley Dean Witter Charter Graham L.P." for
information regarding GCM and its trading programs.
MORGAN STANLEY DEAN WITTER CHARTER MILLBURN L.P.
The assets of Charter Millburn initially will be traded by Millburn
Ridgefield Corporation ("MRC") pursuant to MRC's Diversified Portfolio at
standard leverage. This Program has been traded since February 1971 and trades a
portfolio of approximately 50 markets. The Diversified Portfolio program has
approximately 40% weighting in currencies, 20% in interest rates, 11% in softs
and agricultural commodities, 10% in stock indices, 10% in energy products, and
8% in metals.
Certain Summary Information for Morgan Stanley Dean Witter Charter Millburn L.P.
<TABLE>
<S> <C>
Trading Advisor: Millburn Ridgefield Corporation Break-Even Information:
Partnership Net Assets initially allocated to: Percentage of estimated annual net trading
profits (after interest income) in order to
offset Partnership expenses: 4.2%
MRC's Diversified Portfolio: 100%
Diversified Portfolio annual rates of return: Percentage of estimated annual net trading
profits (after interest income) in order to
offset Partnership expenses and the 2% re-
demption charge if Units are redeemed dur-
ing the first twelve months after they are
purchased: 6.2%
ACTUAL PRO FORMA
-------- -------
1998 year-to-date return (7 months): (4.86)% (7.31)%
1997 annual return: 12.61% 6.90%
1996 annual return: 17.33% 13.32%
1995 annual return: 32.82% 25.68%
1994 annual return: 11.78% 8.61%
1993 annual return: 10.90% 7.73%
</TABLE>
The actual annual and year-to-date rates of return set forth above relate
to the past performance of MRC's Diversified Portfolio, which initially will be
the trading program utilized by Charter Millburn. The pro forma annual and
year-to-date rates of return set forth above were calculated using the actual
rates of return, adjusted
3
<PAGE>
for the fees to be applied to Charter Millburn. Such performance results are not
necessarily indicative of, and may have no bearing on, any trading results that
may be attained by MRC or Charter Millburn. Past performance is not a guarantee
of future results.
See "Description of Charges -- Break-Even Analysis" for details regarding
the above break-even information. The allocation of Net Assets to specific
trading programs of the Trading Advisor is subject to change. See "The Trading
Advisors/Money Managers -- Morgan Stanley Dean Witter Charter Millburn L.P." for
information regarding MRC and its trading programs.
MORGAN STANLEY DEAN WITTER CHARTER WELTON L.P.
The assets of Charter Welton initially will be traded by Welton Investment
Corporation ("WIC") pursuant to WIC's Diversified Portfolio at standard
leverage. This program has been traded since April 1992, and trades in over 75
global futures, options, and forwards markets. The Diversified Portfolio has
approximately 22% weighting in global interest rate futures, 22% in currencies,
22% in stock index futures, 10% in agricultural futures, 14% in metal futures,
and 10% in energy futures.
Certain Summary Information for Morgan Stanley Dean Witter Charter Welton L.P.
<TABLE>
<S> <C>
Trading Advisor: Welton Investment Corporation Break-Even Information:
Partnership Net Assets initially allocated to: Percentage of estimated annual net trading
profits (after interest income) in order to
offset Partnership expenses: 4.2%
WIC's Diversified Portfolio: 100%
Diversified Portfolio annual rates of return: Percentage of estimated annual net trading
profits (after interest income) in order to
offset Partnership expenses and the 2% re-
demption charge if Units are redeemed dur-
ing the first twelve months after they are
purchased: 6.2%
ACTUAL PRO FORMA
-------- -------
1998 year-to-date return (7 months): 8.10% 7.97%
1997 annual return: 23.62% 19.24%
1996 annual return: 7.17% 5.76%
1995 annual return: 36.35% 37.68%
1994 annual return: 2.38% 1.26%
1993 annual return: 47.90% 47.03%
</TABLE>
The actual annual and year-to-date rates of return set forth above relate
to the past performance of WIC's Diversified Portfolio, which initially will be
the trading program utilized by Charter Welton. The pro forma annual and
year-to-date rates of return set forth above were calculated using the actual
rates of return, adjusted for the fees to be applied to Charter Welton. Such
performance results are not necessarily indicative of, and may have no bearing
on, any trading results that may be attained by WIC or Charter Welton. Past
performance is not a guarantee of future results.
See "Description of Charges -- Break-Even Analysis" for details regarding
the above break-even information. The allocation of Net Assets to specific
trading programs of the Trading Advisor is subject to change. See "The Trading
Advisors/Money Managers -- Morgan Stanley Dean Witter Charter Welton L.P." for
information regarding WIC and its trading programs.
4
<PAGE>
ORGANIZATIONAL CHART
Following is an organizational chart showing the relationships among the
various service providers of this offering. As indicated, with the exception of
Carr Futures, Inc., all parties are affiliates of Morgan Stanley Dean Witter &
Co. ("MSDW").
Morgan Stanley Dean Witter Charter Series
Organizational Chart
For Each Partnership
Morgan Stanley Dean Witter & Co.
wholly-owned wholly-owned
Dean Witter
Reynolds Inc. Demeter Management
Corporation
Selling Agent and Selling General Partner
Non-Clearing Commodity Broker Agreement
DWR general
Customer partnership
Agreement interest
Management
Agreement
CFI
Customer
Agreement Morgan Stanley Dean Witter
Charter Series Partnership
CFI Customer
Agreement Management
Agreement
F/X Agreement
Carr Futures, Inc.
Trading Advisor
Clearing Commodity Broker
5
<PAGE>
THE GENERAL PARTNER
The general partner and commodity pool operator of each Partnership is
Demeter Management Corporation, a Delaware corporation ("Demeter" or the
"General Partner"). The General Partner is a wholly-owned subsidiary of MSDW.
See "Conflicts of Interest," "The General Partner" and "The Commodity Brokers."
Although each Trading Advisor makes all trading decisions with respect to the
Partnership for which it trades, the General Partner may override the
instructions of each Trading Advisor and make trading decisions under certain
circumstances. See "The Management Agreements." The General Partner's main
business office is located at Two World Trade Center, 62nd Floor, New York, New
York 10048, Telephone (212) 392-5453. The General Partner is or has been the
general partner and commodity pool operator of 33 commodity pools, seven of
which have terminated. The General Partner had, in the aggregate, approximately
$1.2 billion of net assets under management as of July 31, 1998.
THE COMMODITY BROKERS
DWR will act as the Partnerships' non-clearing commodity broker. DWR, as
the non-clearing commodity broker, will hold each Partnership's funds in a
customer segregated account as required under CFTC regulations, and will provide
all required margin funds to Carr Futures, Inc. ("CFI" and, together with DWR,
the "Commodity Brokers"), the clearing commodity broker, to cover margin
requirements for each Partnership's trading positions. DWR will also monitor
each Partnership's futures positions that CFI reports it is carrying for any
errors in trade prices or trade fill. DWR currently acts as the non-clearing
commodity broker for all but one of the commodity pools for which the General
Partner acts as general partner and commodity pool operator, as well as for
other commodity pools. DWR is a wholly-owned subsidiary of MSDW and an affiliate
of the General Partner, but is not affiliated with CFI or any Trading Advisor.
As the clearing commodity broker for the Partnerships, CFI is directly
accountable to the futures exchange (or clearinghouse) for each Partnership's
trades. All payments, including margin payments, to and from the futures
exchanges resulting from each Partnership's trades will flow through CFI. In
addition, CFI also will act as the counterparty on each Partnership's foreign
currency forward contracts. CFI is a wholly-owned subsidiary of Credit Agricole
Indosuez and acts as the clearing commodity broker for all but one of the
commodity pools for which the General Partner acts as general partner and
commodity pool operator. CFI is not affiliated with the General Partner, DWR,
MSDW, or any of the Trading Advisors. See "Conflicts of Interest," "Description
of Charges--Charges to Each Partnership--2. The Commodity Brokers" and "The
Commodity Brokers."
RISK FACTORS
As a general matter, an investment in any Partnership is speculative and
involves substantial risk, including the risk of loss of a Limited Partner's
entire investment. The risks described below include all material risks, and are
relevant to each of the Partnerships. Risks of an investment in each of the
Partnerships include:
Risks Relating to Futures Interests Trading
O Futures interests trading is speculative and volatile. Such volatility
could result in an investor losing all or a substantial part of his
investment.
O Futures interests trading is highly leveraged and relatively small price
movements can result in significant losses to a Partnership.
O Futures interests trading may be illiquid and in certain situations
prevent a Partnership from limiting its loss on an unfavorable position.
O Trading in forward contracts may subject a Partnership to losses if a
counterparty is unable to meet its obligations.
O Trading on foreign exchanges may result in a Partnership having less
regulatory protection available. In addition, a Partnership may suffer
losses due to exchange rate changes.
O Trading in futures options can be extremely expensive if market
volatility is incorrectly predicted.
O The Partnerships have credit risk because the Commodity Brokers act as
the futures commission merchants or the counterparty with respect to the
Partnerships' assets.
O Speculative position limits may result in a Partnership having to
liquidate profitable positions.
6
<PAGE>
Risks Relating to the Partnerships and the Offering of Units
O Each Partnership incurs substantial charges regardless of whether it
realizes profits. Each Partnership must earn estimated annual net trading
profits (after taking into account estimated interest income based upon
current rates of 5%) of 4.2% of its average annual Net Assets to offset
Partnership expenses, and 6.2% to offset Partnership expenses and the 2%
redemption charge if Units are redeemed during the first twelve months
after they are purchased.
O The liquidity of the Units is restricted in that there is an absence of a
secondary market, the ability to assign or transfer is restricted,
redemptions are limited to monthly beginning with the sixth month after a
Limited Partner first becomes a partner in any Partnership, and Units
redeemed within twenty-four months of their purchase may be subject to
redemption charges.
O Significant actual and potential conflicts of interest exist involving
the General Partner, the Partnerships, DWR and the Additional Sellers.
O Limited Partners do not participate in the management of the Partnerships
or in the conduct of their business.
O Limited Partners must rely on the General Partner's selection of Trading
Advisors.
O THE POOLS HAVE NOT COMMENCED TRADING AND DO NOT HAVE ANY PERFORMANCE
HISTORY.
O The Partnerships could be adversely affected if computer systems used by
them or third parties with whom they have a material relationship do
not properly process and calculate date-related information and data
concerning dates on or after January 1, 2000.
Risks Relating to the Trading Advisors
O A Partnership will not be profitable unless its Trading Advisor is
successful with its trading program(s).
O The performance record of a given Trading Advisor may be potentially
misleading because a Trading Advisor's past performance is not
necessarily indicative of future results.
O Factors outside the control of a Trading Advisor may reduce the
profitability of a trading program or require an alteration in the
program(s).
O A substantial increase in the assets managed by a Trading Advisor may
adversely affect its performance.
O The Management Agreement with a particular Trading Advisor may or may not
be renewed, may be renewed on less favorable terms to the Partnership, or
may be terminated by the Trading Advisor such that the Trading Advisor
will no longer be available to the Partnership.
O The General Partner, without prior notice to the Limited Partners, may
replace or add an additional Trading Advisor to a Partnership or may
instruct an existing Trading Advisor to trade a Partnership's Net Assets
among one or more of a Trading Advisor's trading programs.
O Technical trading programs require trending markets and substantial price
moves to be profitable.
Taxation and Regulatory Risks
O Profits earned in any year will result in taxable income to investors,
even though the General Partner does not intend to make any
distributions.
O Deductibility of certain of a Partnership's expenses may be limited.
O A Partnership's tax return may be audited by the Internal Revenue
Service.
O The Partnerships are not registered as investment companies or mutual
funds, and investors, therefore, are not afforded the protective measures
provided by such registration.
Only the General Partner will be liable for a Partnership's obligations
(including margin calls) to the extent that the Partnership's assets, including
amounts contributed by the Limited Partners and amounts paid to Limited Partners
upon redemptions, distributions or otherwise (together with interest thereon),
are insufficient to meet those obligations. See "Risk Disclosure Statement,"
"Risk Factors," "Conflicts of Interest," "Description of Charges," and "The
Limited Partnership Agreements--Nature of the Partnerships."
7
<PAGE>
CONFLICTS OF INTEREST
Significant actual and potential conflicts of interest exist in the
structure and operation of the Partnerships, principally arising from the
affiliation between the General Partner and DWR and the trading of other
accounts of, or managed by, the General Partner, DWR, the Trading Advisors and
their affiliates. Except as otherwise provided in this Prospectus, the General
Partner has not established any formal procedures to resolve the following
conflicts of interest. Conflicts of interest include the fact that the commodity
brokerage arrangements were not agreed upon in arm's-length negotiations due to
the affiliation between the General Partner and DWR; that employees of DWR and
Additional Sellers selling Units will receive a portion of the brokerage fees
paid by the Partnerships, and thereby have a conflict in advising Limited
Partners whether and when to redeem Units; that the General Partner and the
Commodity Brokers may have conflicting demands in respect of other commodity
pools; that the Trading Advisors and the Commodity Brokers, and individuals and
entities associated with the General Partner, the Trading Advisors and the
Commodity Brokers may trade futures interests for their own accounts, which
trading may compete with a Partnership for positions; that trading by the
Trading Advisors for their own accounts and for other customers could result in
application of position limits to restrict a Partnership's trading; that under
the customer agreements with the Commodity Brokers, the Commodity Brokers may
close out positions and take certain other actions with regard to a
Partnership's accounts without the Partnership's consent; and that other
commodity pools managed by the General Partner and the Trading Advisors may
compete with the Partnerships. See "Conflicts of Interest," "The General
Partner," "The Commodity Brokers," and "The Trading Advisors."
DESCRIPTION OF CHARGES
CHARGES TO EACH PARTNERSHIP
Each Partnership is subject to substantial charges which are summarized
below and described in detail under "Description of Charges -- Charges to Each
Partnership." The charges described below are the same for each Partnership and
represent all of the fees and compensation to be paid by the Partnerships to the
Trading Advisors, DWR and CFI. See also "Risk Factors--Risks Relating to the
Partnerships and the Offering of Units--Substantial Charges to Each
Partnership," and "Investment Programs, Use of Proceeds and Trading Policies."
<TABLE>
<S> <C>
FORM OF COMPENSATION AMOUNT OF COMPENSATION
- ----------------------------------------------- ------------------------------------------------------
Monthly management fee to the Trading Advisor.. A flat-rate monthly fee of 1/12 of 2% of the
Partnership's Net Assets on the first day of each
month (a 2% annual rate).
Monthly incentive fee to the Trading Advisor... 20% of the Trading Profits experienced by the
Partnership as of the end of each calendar month.
Monthly brokerage fee to DWR................... A flat-rate monthly fee of 1/12 of 7% of the
Partnership's Net Assets (a 7% annual rate) as of the
first day of the month. Such fee covers all brokerage
commissions, transaction fees and costs, and ordinary
administrative and offering expenses.
Financial benefit to DWR and CFI or their
affiliates from interest earned on the
Partnership's assets in excess of the interest
paid to the Partnership and from compensating
balance treatment in connection with the
designation of a bank or banks in which the
Partnership's assets are deposited............. The aggregate of (i) the flat-rate brokerage fee
payable by the Partnership, as described above, and
(ii) net excess interest and compensating balance
benefits to DWR and CFI or their affiliates (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>
The management, incentive, and brokerage fees may not be increased unless
Limited Partners of a Partnership are given prior notice thereof and an
opportunity to redeem their Units, and are subject to additional limits as
described under "Description of Charges--Charges to Each Partnership."
8
<PAGE>
Based on the annual fees and expenses described above, each Partnership
must earn estimated annual net trading profits (after taking into account
estimated interest income based upon current rates of 5%) of 4.2% of its average
annual Net Assets in order to offset Partnership expenses.
REDEMPTION CHARGES TO LIMITED PARTNERS
Persons who have been Limited Partners in a Charter Series Partnership for
six months may redeem all or part of their Units, regardless of when such Units
were purchased, at any month-end (a "Redemption Date") in the manner described
herein.
Subject to certain exceptions, Units redeemed on or prior to the last day
of the twelfth month after such Units were purchased will be 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 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 of a
Unit on the Redemption Date. 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. The foregoing redemption charges will be paid to DWR. For a
more detailed discussion, including exceptions to such charges, see
"Redemptions."
Based on the annual fees and expenses of each Partnership described above,
in order for a Limited Partner to break-even (earning profits sufficient to pay
the redemption charge and recoup its initial investment) upon redemption at the
end of one year from the date of purchase, each Partnership must earn estimated
net trading profits (after taking into account estimated interest income based
upon current rates of 5%) of $0.62 (6.2%) per Unit. This assumes that each
Trading Advisor's gross profits equal expenses, and interest income exceeds the
redemption charges, such that no incentive fees are earned by the Trading
Advisor. See "Description of Charges--Break-Even Analysis."
EXCHANGE PRIVILEGE
If certain conditions are satisfied, a Limited Partner can redeem his Units
in a Partnership as of the last day of any calendar month and, with the proceeds
of such redemption, purchase Units of either or both of the other Partnerships
(hereafter referred to as a "Series Exchange"), at a price per Unit equal to
100% of the Net Asset Value thereof. A Series Exchange will be effected for a
Limited Partner only if each of the following conditions is satisfied
immediately prior to the Series Exchange: (i) the Partnership redeeming Units
has assets sufficient to discharge its liabilities and redeem Units; (ii) six
months have elapsed after such person first became a Limited Partner in a
Charter Series Partnership; (iii) the General Partner has received a properly
completed Subscription Agreement at least 5 business days prior to the date on
which such Series Exchange is to be effective; (iv) a minimum of 500 Units must
be exchanged, unless a Limited Partner is purchasing additional Units in a
Partnership in which he is already a Limited Partner, in which case only a
minimum of 100 Units must be exchanged, unless a Limited Partner is liquidating
his entire interest in a Partnership; and (v) the Partnership issuing Units has
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 currently intends to maintain a sufficient number of Units
registered to effect Series Exchanges, the General Partner shall not have any
obligation to have Units registered or to maintain a current Prospectus. There
can be no assurance that any or a sufficient number of Units will be available
for sale when a Series Exchange is requested. If Units are not registered or
qualified for sale under either federal or applicable state law or pursuant to a
current Prospectus, the General Partner will not be able to effect the Series
Exchange for a Limited Partner. In addition, if the Initial Closing is held for
only two of the Partnerships, Limited Partners in such Partnerships will only be
able to effect Series Exchanges for Units of those Partnerships; likewise, if
the Initial Closing is held for only one of the Partnerships, Limited Partners
in that Partnership will have no Series Exchange privilege. See "Plan of
Distribution."
REDEMPTION OF UNITS
Persons who have been Limited Partners for six months may redeem all or
part of their Units regardless of when such Units were purchased, at any
month-end in the manner described herein. Redemptions may only be made in whole
Units, with a minimum of 100 Units required for each redemption, unless a
Limited Partner is redeeming his entire interest in a Partnership. Redemption of
Units will be deemed to be in the order in which they are purchased (assuming
purchases at more than one closing).
Units redeemed on or prior to the last day of the twelfth month from the
date of purchase will be subject to a redemption charge equal to 2% of the Net
Asset Value of a Unit on the Redemption Date. Units redeemed after
9
<PAGE>
the last day of the twelfth month and on or prior to the last day of the
twenty-fourth month from the date of purchase will be subject to a redemption
charge equal to 1% of the Net Asset Value of a Unit on the Redemption Date.
Units redeemed after the last day of the twenty-fourth month from the date of
purchase will not be subject to a redemption charge. The foregoing redemption
charges will be paid to DWR.
Under certain circumstances, Units are exempt from redemption charges, as
follows. Units purchased by an investor who purchases $500,000 or more of Units
will not be subject to redemption charges. A Limited Partner redeeming Units at
the first Redemption Date following notice of an increase in certain fees will
not be subject to redemption charges. A Limited Partner who redeems Units
pursuant to a Series Exchange will not be subject to redemption charges with
respect to the Units exchanged and, for purposes of determining the
applicability of future redemption charges, such Units will be deemed as having
the same purchase date as the Units exchanged. A Limited Partner who redeems
units pursuant to a Non-Series Exchange will be subject to any applicable
redemption charges with respect to those units redeemed from the other limited
partnership; however, Units purchased pursuant to a Non-Series Exchange will not
be subject to the foregoing redemption charges. Further, a Limited Partner who
redeems Units and has either paid a redemption charge with respect to such Units
or held such Units for at least two years 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. Such subscribers remain subject to the minimum purchase and
suitability requirements. See "Subscription Procedure."
In addition to the information and reports described below under "The
Limited Partnership Agreements--Reports to Limited Partners," the General
Partner will provide Limited Partners with such other information and will
comply with any such procedures in connection with redemptions as in the future
are specifically required under Securities and Exchange Commission (the "SEC")
rules and policies for commodity pools and similar investment vehicles.
The right to obtain redemptions is contingent upon the redeeming
Partnership having assets sufficient to discharge its liabilities as of the end
of the applicable month and the General Partner's timely receipt of a properly
executed Request for Redemption. A Partnership may be forced to liquidate open
positions to satisfy redemptions in the event it does not have sufficient cash
on hand. See "Redemptions."
DISTRIBUTIONS
Each Partnership will make distributions of profits, if any, at the sole
discretion of the General Partner (it is currently the intention of the General
Partner not to make distributions). Distributions may be made by credit to a
Limited Partner's customer account with DWR. It is possible that no
distributions will be made in some years in which a Partnership has taxable
profits, realized or unrealized. However, a Limited Partner of such Partnership
will nevertheless account for his share of such profits as income for federal
tax purposes. See "Material Federal Income Tax Considerations."
TRANSFERABILITY OF UNITS
The assignability or transferability of Units of each Partnership is
limited by the applicable Limited Partnership Agreement and no assignee or
transferee may become a substituted limited partner without the consent of the
General Partner, which consent the General Partner may not unreasonably
withhold. There is and will be no public market for the Units. See "The Limited
Partnership Agreements--Restrictions on Transfers or Assignments."
THE OFFERING
SECURITIES OFFERED
Each Partnership has registered 3,000,000 Units with the SEC, which are
available to cover sales and Exchanges of Units of each Partnership. The General
Partner, in its discretion, may in the future register additional Units of any
or all of the Partnerships.
SUBSCRIPTION PROCEDURE
The minimum subscription for most subscribers is $20,000, except that, in
the case of eligible subscribers purchasing Units pursuant to a Non-Series
Exchange, the $20,000 minimum subscription will be satisfied if the proceeds of
the redemption of the units redeemed would have equaled at least $20,000 as of
the last day of the month immediately preceding the Closing at which Units are
purchased, irrespective of whether the actual proceeds from such redemption are
less than $20,000 when the units are redeemed. A subscription may be for
10
<PAGE>
Units of one Partnership, or may be divided among two or all three Partnerships,
provided that the minimum subscription for any one Partnership is: (a) in the
case of a cash purchase, $5,000, or (b) in the case of a Non-Series Exchange,
the proceeds from the redemption of (i) five units from commodity pools other
than the Spectrum Series or MSTAF, (ii) 500 units from one, or any combination,
of the Spectrum Series, or (iii) 500 units from MSTAF. A subscriber who already
owns Units in a Partnership and desires to make an additional investment in such
Partnership may subscribe for additional Units at a Monthly Closing with a
minimum investment of: (a) in the case of a cash purchase, $1,000, or (b) in the
case of a Non-Series Exchange, the proceeds from the redemption of (i) one unit
from commodity pools other than the Spectrum Series or MSTAF, (ii) 100 units
from one, or any combination, of the Spectrum Series, or (iii) 100 units from
MSTAF. Subject to certain limited revocation rights (see "Subscription
Procedure"), all subscriptions for Units are irrevocable by subscribers. See
"Investment Requirements," "Plan of Distribution," and "Subscription Procedure."
In order to purchase Units, a subscriber must complete, execute, and
deliver an execution copy of the Subscription Agreement to DWR. In the
Subscription Agreement, a subscriber will authorize the General Partner and DWR
to transfer the subscription amount from the subscriber's customer account with
DWR to the Partnerships' Escrow Account. In connection with any Closing, a
subscriber whose Subscription Agreement is received by DWR and whose
subscription is not immediately rejected, must have the appropriate amount in
his customer account with DWR on the first business day following the date that
his Subscription Agreement is received by DWR, and DWR will debit the customer
account and transfer such funds to the Escrow Account with the Escrow Agent on
that date. In the case of a Non-Series Exchange, a subscriber will authorize the
General Partner to redeem all or a portion of such subscriber's interest in
another commodity pool for which the General Partner serves as general partner
and commodity pool operator (subject to the terms of the applicable limited
partnership agreement) and use the proceeds of such redemption (less any
applicable redemption charges) to purchase Units in the Partnerships.
At each Closing, each Partnership will issue to each subscriber whose
subscription is accepted the appropriate number of whole and fractions of Units
as may be determined by dividing the subscription amount for such Partnership by
the Net Asset Value of a Unit of such Partnership. See "Investment Requirements"
and "Subscription Procedure."
PLAN OF DISTRIBUTION
The Units are being offered and sold by each Partnership through DWR and MS
& Co., and any other Additional Sellers appointed by DWR with the approval of
the General Partner. Pursuant to the Selling Agreement among the Partnerships,
the General Partner and DWR, DWR will use its best efforts to sell Units, but
DWR has not made any commitment to offer and sell a specific amount of Units or
to purchase Units in any Partnership. See "Plan of Distribution." The General
Partner, in its sole discretion, may reject a subscription in whole or in part
at any time prior to acceptance. Units of each Partnership are being offered
initially (the "Initial Offering") to the public at $10 per Unit, for issuance
at an Initial Closing, which is currently scheduled to be held on October 31,
1998; provided, however, that the General Partner may at its discretion hold
such Initial Closing at any time during the Initial Offering Period (as defined
below). Units that remain unsold following the Initial Closing may be offered
for sale in a continuing offering (the "Continuing Offering") at subsequent
monthly closings to be held as of the last day of each month (each, a "Monthly
Closing"; any Monthly Closing or the Initial Closing, a "Closing"), at a price
per Unit equal to 100% of the Net Asset Value of a Unit of such Partnership as
of the close of business on the date of the Monthly Closing. The period from the
date of this Prospectus through November 13, 1998 will be referred to herein as
the "Initial Offering Period"; provided, however, that the General Partner may,
in its sole discretion, extend the Initial Offering Period up to and including
March 12, 1999. If at least 400,000 Units in a Partnership have been subscribed
for at any time during the Initial Offering Period, the General Partner will
accept subscriptions for such Partnership at the Initial Closing and commence
such Partnership's trading operations, and continue to offer Units of such
Partnership in the Continuing Offering. The Net Asset Value of a Unit of one
Partnership is not related to any other Partnership and depends entirely on the
Net Assets and the total number of Units of that Partnership outstanding. It is
contemplated that only one Initial Closing shall be held for the Partnerships,
and it is not a condition of the Initial Closing that all three Partnerships
sell the minimum number of Units.
During the Initial Offering Period, and thereafter during the Continuing
Offering, all subscription amounts received and not rejected by the General
Partner will be held by The Chase Manhattan Bank, New York, New York (the
"Escrow Agent"), until subsequently accepted or rejected by the General Partner
at a Closing. If a subscription is accepted by the General Partner at a Closing,
the Escrow Agent will promptly pay to the appropriate Partnership the accepted
subscription funds and pay to DWR any interest earned on such
11
<PAGE>
subscription funds, and DWR will credit the subscriber's customer account with
DWR with such interest. If a subscription is rejected by the General Partner,
the Escrow Agent will promptly pay to DWR the rejected subscription funds and
any interest earned thereon, and DWR will credit the subscriber's customer
account with DWR with such amounts. Interest will be earned on subscription
funds from the day of deposit of such funds with the Escrow Agent to the day
that such funds are either paid to the appropriate Partnerships in the case of
accepted subscriptions or paid to DWR in the case of rejected subscriptions.
If fewer than 400,000 Units ($4,000,000) in any Partnership have been
subscribed for at the termination of the Initial Offering Period, the offer of
Units with respect to such Partnership will terminate and each subscription will
be promptly credited to the subscriber's customer account with DWR within five
business days following termination of the Initial Offering Period, together
with any interest earned on the subscriber's subscription funds while held in
escrow, and at such time such funds will be immediately available to the
subscriber for investment or withdrawal. The General Partner, DWR, any
Additional Sellers, and the Trading Advisors and their respective affiliated
entities may, but are not required to, subscribe for any number of Units. Units
subscribed for by such entities will be counted for purposes of determining
whether the 400,000 Unit minimum subscription requirement for a Partnership has
been met. However, Units subscribed for by such entities during the Initial
Offering Period may not be redeemed for a period of two years after the Initial
Closing if the Partnership would not have the minimum $4,000,000 in Net Assets
remaining immediately following such redemption.
Employees of DWR, MS & Co. and other Additional Sellers, if any, will
receive compensation from DWR and not from the Partnerships, out of the
brokerage fees paid to DWR by the Partnerships. Such continuing compensation is
in consideration of certain additional services provided to Limited Partners by
such persons on a continuing basis and may be deemed to be additional
underwriting compensation. See "Plan of Distribution."
NO SELLING COMMISSIONS OR CHARGES FOR ORGANIZATIONAL OR OFFERING EXPENSES
In connection with the offering of Units by each Partnership pursuant to
this Prospectus, no selling commissions or organizational or offering expenses
will be paid by the Limited Partners or the Partnership; DWR will pay all costs
incurred in connection with the organization of the Partnerships and the Initial
Offering of Units, estimated to be $1,000,000 in the aggregate, and will also
pay all of the costs incurred in connection with the Continuing Offering. The
Partnerships will not reimburse DWR for any portion of the costs so incurred,
and will not be liable for any such costs at any time (although DWR may recoup
such costs from brokerage fees paid by the Partnerships and receipt of interest
and compensating balance benefits with respect to the Partnerships' assets
deposited with DWR). Except as otherwise provided herein, qualified employees of
DWR will receive from DWR (payable solely from its own funds) a gross sales
credit equal to 4% of the Net Asset Value per Unit as of the applicable Closing
for each Unit sold by them and issued at such Closing, and/or a gross sales
credit of up to 71% of the brokerage fees attributable to each outstanding Unit
sold by them and received by DWR from the Partnership each month, which credit
will continue until such Partnership terminates or such Unit is redeemed
(whichever comes first). Such continuing compensation will be paid only to
employees who are properly registered with the Commodity Futures Trading
Commission ("CFTC") and are members of the NFA, and who provide certain
continuing services to Limited Partners. DWR may compensate MS & Co. and any
other Additional Seller for each Unit sold, payable solely from DWR's funds. See
"Plan of Distribution" for the terms and conditions applicable to such gross
sales credits and a description of the continuing services to be provided by
employees. DWR's employees and Additional Sellers may have a conflict of
interest in rendering advice to Limited Partners as to when and whether to
redeem Units because of their interest in receiving certain continuing
compensation for ongoing services rendered to holders of outstanding Units. Net
Assets will not be reduced as a result of any such compensation to such
employees.
SUITABILITY STANDARDS
Each investor (or person entitled to exercise control over assets of such
investor's account under an IRA or other employee benefit plan) must represent
and warrant in the Subscription Agreement that such investor and/or other person
has received this Prospectus and satisfies certain suitability requirements
described under "--Investment Requirements" above.
USE OF PROCEEDS
The entire proceeds of this offering, together with the General Partner's
capital contribution to each Partnership, will be divided among the Partnerships
based on the number of Units sold by each Partnership
12
<PAGE>
and the Net Asset Value of each Unit sold, and deposited in each Partnership's
futures interests trading accounts with the Commodity Brokers and used to trade
futures interests. See "Investment Programs, Use of Proceeds and Trading
Policies."
INTEREST ON PARTNERSHIP ASSETS
Once each Partnership's assets are deposited with the Commodity Brokers,
they will be held in separate customer segregated and secured funds accounts
established by the Commodity Brokers. DWR will credit each Partnership with
interest income at month-end at the rate earned by DWR on its U.S. Treasury bill
investments with customer segregated funds as if 100% of each Partnership's
average daily funds (including cash and securities) held in such Partnership's
account with DWR during the month were invested in U.S. Treasury bills at such
rate. In addition, DWR will credit each Partnership with 100% of the interest
income DWR receives from CFI with respect to such Partnership's assets deposited
as margin with CFI. Each Partnership's assets held by the Commodity Brokers may
be used as margin solely for such Partnership's trading. It is anticipated that
approximately 80% of each Partnership's average daily funds maintained in
trading accounts will be on deposit with DWR and that approximately 20% of each
Partnership's average daily funds maintained in trading accounts will be on
deposit with CFI, although such percentages will vary from time to time. See
"Investment Programs, Use of Proceeds, and Trading Policies."
TAX CONSIDERATIONS
In the opinion of the General Partner's tax counsel, the Partnerships will
be classified as partnerships for federal income tax purposes and not as
associations (or publicly traded partnerships) taxable as corporations.
Accordingly, the Partnerships will not be subject to federal income tax. Each
Limited Partner in computing his federal income tax liability for a taxable year
will be required to take into account his distributive share of all items of
Partnership income, gain, loss, deduction or credit for the taxable year of the
Partnership ending within or with the taxable year of the Limited Partner,
regardless of whether such Limited Partner has received any distributions from
the Partnership. Such items of Partnership gain or loss retain their character
(e.g., capital or ordinary) when allocated to the Limited Partners. Moreover,
the special allocation of Partnership 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 such Limited Partner. All such
allocations will increase or decrease each Limited Partner's tax basis in his
Units. The allocation provisions are designed to reconcile tax allocations to
economic allocations; however, no assurance can be given that the Internal
Revenue Service will not challenge such allocation (including any Partnership's
tax allocations in respect of redeemed Units), especially in light of recently
issued final regulations. See "Material Federal Income Tax Considerations."
Taxes payable by partners with respect to a Partnership's profits may
exceed the amount of such Partnership's distributions, if any, for a taxable
year. Based upon the contemplated activities of the Partnerships, the General
Partner has been advised by its legal counsel that, in such counsel's opinion,
expenses incurred by the Partnerships should not be subject to the limitations
on the deductibility of certain miscellaneous itemized expenses, except to the
extent that the Internal Revenue Service promulgates regulations that so
provide.
Cash distributions by a Partnership and amounts received or deemed received
upon the partial or complete redemption of a Limited Partner's Units that do not
exceed the Limited Partner's aggregate basis in his Units are not taxable.
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, to the extent cash distributions and
amounts received or deemed received upon the partial redemption of a Limited
Partner's Units exceed a Limited Partner's aggregate tax basis in his Units, the
excess will be taxable to the Limited Partner as though it were gain on the sale
of his Units. Loss will generally be recognized on a redemption of Units only if
a Limited Partner redeems all of his Units in a Partnership and, following the
complete redemption, such Limited Partner has remaining tax basis in the
Partnership. In such case, the Limited Partner will recognize loss to the extent
of the remaining basis. Subject to an exception for certain types of Partnership
assets, such gain or loss (assuming that the Units constitute capital assets)
will be either short-term capital gain or loss or long-term capital gain or
loss, depending upon the length of time that Units were held prior to the
distribution or redemption. See "Material Federal Income Tax Considerations."
13
<PAGE>
The General Partner has been advised that, in the opinion of its counsel, a
Limited Partner who is a nonresident alien individual, foreign corporation,
foreign partnership, foreign trust, or foreign estate (a "Foreign Limited
Partner") should not be deemed engaged in a trade or business in the United
States, and should not be subject to United States federal income tax, solely
because such Foreign Limited Partner is a limited partner in a Partnership,
provided such Foreign Limited Partner is not a dealer in commodities. In the
event a Partnership's activities should in the future not fall within certain
safe harbors from U.S. trade or business status, there is a risk that all of a
Foreign Limited Partner's distributive share of income of the Partnership would
be treated as effectively connected with the conduct of a trade or business in
the United States. In that event, the Foreign Limited Partner would be taxed at
regular rates applicable to U.S. taxpayers and, if a foreign corporation, could
be subject to a 30% branch profits tax. See "Material Federal Income Tax
Considerations." As regards tax-exempt Limited Partners, see "Purchases by
Employee Benefit Plans--ERISA Considerations."
14
<PAGE>
RISK FACTORS
In addition to the Risk Disclosure Statement appearing at the beginning of
this Prospectus, prospective subscribers should consider the following risks
before subscribing for Units. The risks described below include all material
risks, and are relevant to each of the Partnerships, except as indicated below.
RISKS RELATING TO FUTURES INTERESTS TRADING AND THE FUTURES INTERESTS MARKETS
THE PARTNERSHIPS' FUTURES INTERESTS TRADING IS SPECULATIVE AND VOLATILE.
Futures interests prices are highly volatile. Price movements of futures
interests are influenced by, among other things: changing supply and demand
relationships; weather; agricultural, trade, fiscal, monetary and exchange
control programs and policies of governments; domestic and foreign political and
economic events and policies; and changes in interest rates. Since each
Partnership's performance will be influenced by such factors, performance
results may be volatile. See "The Trading Advisors" for a discussion of the
volatility of, and performance records for, the trading programs to be employed
for the Partnerships.
Each Partnership is also subject to the risk of failure of any of the
exchanges on which it trades or of its clearinghouses, if any. In addition,
under certain circumstances, such as the inability of a customer of a Commodity
Broker or a Commodity Broker itself to satisfy substantial deficiencies in such
customer's account, a Partnership may be subject to a risk of loss of its funds
on deposit with such Commodity Broker. Each Partnership is also subject to the
risk of any party to a transaction not being able to reimburse the Partnership
for its errors. See "The Futures, Options and Forwards Markets."
THE PARTNERSHIPS' FUTURES INTERESTS TRADING IS HIGHLY LEVERAGED. Because of
the low margin deposits normally required in trading futures interests
(typically between 2% and 15% of the value of the contract purchased or sold),
an extremely high degree of leverage is typical of a futures interests trading
account. As a result, a relatively small price movement in a futures interest
may result in immediate and substantial losses to the investor. The Partnerships
use substantial leverage which could, depending on performance, result in
increased gain or loss. For example, if at the time of purchase 10% of the price
of a contract is deposited as margin, a 10% decrease in the price of the
contract would, if the contract is then closed out, result in a total loss of
the margin deposit before any deduction for brokerage fees. A decrease of more
than 10% would result in a loss of more than the total margin deposit. See "The
Futures, Options and Forwards Markets--Margins" and "The Limited Partnership
Agreements--Nature of the Partnerships." See also "The Trading Advisors" for a
discussion of the leverage utilized in the trading programs employed by the
Trading Advisors.
THE PARTNERSHIPS' FUTURES INTERESTS TRADING MAY BE ILLIQUID. Most United
States futures exchanges limit fluctuations in certain futures interests prices
during a single day by regulations referred to as "daily price fluctuation
limits" or "daily limits." Pursuant to such regulations, during a single trading
day no trades may be executed at prices beyond the daily limits. Once the price
of a particular futures interest has increased or decreased by an amount equal
to the daily limit, positions in the futures interest can neither be taken nor
liquidated unless traders are willing to effect trades at or within the limit.
Prices in various futures interests have occasionally moved the daily limit for
several consecutive days with little or no trading. Similar occurrences could
prevent a Partnership from promptly liquidating its unfavorable positions and
subject it to substantial losses. While daily limits may reduce or effectively
eliminate the liquidity of a particular market, they do not limit ultimate
losses, and may in fact substantially increase losses because they may prevent
the liquidation of unfavorable positions. There is no limitation on daily price
moves in trading currency forward contracts.
In addition, a Partnership may not be able to execute trades at favorable
prices if little trading in the futures interests involved is taking place.
Under certain circumstances, a Partnership may be required to accept or make
delivery of the underlying commodity if the position cannot be liquidated prior
to its expiration date. See "Investment Programs, Use of Proceeds and Trading
Policies--Trading Policies." It also is possible that an exchange or the CFTC
might suspend trading in a particular contract, order immediate liquidation and
settlement of a particular futures interest, or order that trading in a
particular futures interest be conducted for liquidation only. Similarly,
trading in options on a particular futures interest may become restricted if
trading in the underlying futures interest has become restricted. During periods
in October 1987, for example, trading in certain stock index futures was too
illiquid for markets to function efficiently and was at one point actually
suspended. See "The Futures, Options and Forwards Markets." The principals who
deal in the forward contract markets are not required to continue to make
markets in the forward contracts they trade. There have been periods during
which certain participants in forward markets have refused to quote prices for
forward
15
<PAGE>
contracts or have quoted prices with an unusually wide spread between the price
at which they are prepared to buy and that at which they are prepared to sell.
THE PARTNERSHIPS' FORWARD TRADING IS NOT PROTECTED BY REGULATION. Each of
the Partnerships will trade in currency forward contracts. GMC's Global
Diversified Program will normally have approximately 35-40% weighting in forward
contracts; MRC's Diversified Portfolio will normally have approximately 40%
weighting in forward contracts; and WIC's Diversified Portfolio will normally
have approximately 20% weighting in forward contracts.
A forward contract is a contractual obligation to purchase or sell a
specified quantity of a commodity at a specified date in the future at a
specified price and, therefore, is similar to a futures contract. However,
forward contracts are not traded on exchanges and, as a consequence, investors
in forward contracts are not afforded the regulatory protections of such
exchanges or the CFTC; rather, banks and dealers act as principals in such
markets. Neither the CFTC nor banking authorities regulate trading in forward
contracts on currencies, and foreign banks may not be regulated by any United
States governmental agency.
Generally, when a Trading Advisor instructs a Partnership to either sell or
buy a particular currency, CFI will do back-to-back principal trades in order to
carry out such instructions. CFI, as principal, will arrange bank lines of
credit and contract with a United States or foreign bank or dealer to make or
take future delivery of a specified quantity of currency at a negotiated price.
CFI, again as principal, will in turn contract with the Partnership to make or
take future delivery of the same specified quantity of currency at the same
price. CFI will not attempt to profit from any mark-up or spread on the trade
with the Partnership.
Because performance of forward contracts is not guaranteed by any exchange
or clearinghouse, a Partnership is subject to the risk of the inability or
refusal to perform with respect to such contracts on the part of the principals
or agents with or through which the Partnership trades. Any such failure or
refusal, whether due to insolvency, bankruptcy or other causes, could subject a
Partnership to substantial losses. The Partnerships will trade forward contracts
only with banks, brokers, dealers and other financial institutions which the
General Partner, in conjunction with DWR, has determined to be creditworthy.
Initially the Partnerships will trade forward contracts only with CFI.
The CFTC has published for comment in the United States Federal Register a
statement concerning its jurisdiction over transactions in the foreign currency
markets, including transactions of the type which may be engaged in by the
Partnerships. In the future, the CFTC might assert that forward contracts of the
type entered into by the Partnerships constitute unauthorized futures contracts
subject to the CFTC's jurisdiction and attempt to prohibit the Partnerships from
participating in transactions in such contracts. If the Partnerships were
restricted in their ability to trade in the currency markets, the activities of
the Trading Advisors could be materially affected, as each Partnership may trade
significantly in the foreign currency forward markets.
THE PARTNERSHIPS' TRADING ON FOREIGN EXCHANGES PRESENTS ADDITIONAL RISKS
THAT DO NOT EXIST WHEN SOLELY TRADING ON DOMESTIC EXCHANGES. Each of the
Partnerships may trade in futures, forward and/or option contracts on exchanges
located outside the United States where CFTC regulations do not apply. GMC's
Global Diversified Program will normally have approximately 35-40% weighting in
instruments traded on foreign exchanges; MRC's Diversified Portfolio will
normally have approximately a 35% weighting in instruments traded on foreign
exchanges; and WIC's Diversified Portfolio will normally have approximately a
40% weighting in instruments traded on foreign exchanges. Some foreign
exchanges, in contrast to domestic exchanges, are "principals' markets" in which
performance with respect to a contract is the responsibility only of the
individual member with whom the trader has entered into a contract and not of
the exchange or clearinghouse, if any. In the case of trading on such foreign
exchanges, a Partnership will be subject to the risk of the inability of, or
refusal by, the counterparty to perform with respect to such contracts. The
General Partner will attempt to monitor and control the credit exposure of
trading on foreign exchanges.
Trading on foreign exchanges may involve certain other risks not applicable
to trading on United States exchanges, such as the risks of exchange controls,
expropriation, burdensome or confiscatory taxation, moratoriums, or political or
diplomatic events. In addition, certain of these foreign markets are newly
formed and may lack personnel experienced in floor trading as well as in
monitoring floor traders for compliance with exchange rules. The Partnerships
trade on foreign exchanges and, as such, are subject to these additional risks
as compared to trading on U.S. exchanges. The Partnerships trade on foreign
exchanges and, as such, are subject to the additional risks as compared to
trading on U.S. exchanges. For an additional discussion of the credit risks
relating to trading on foreign exchanges, see "The Futures, Options and Forwards
Markets."
Furthermore, as the Partnerships will determine their respective Net Assets
in United States dollars, with respect to trading on foreign markets the
Partnerships will be subject to the risk of fluctuation in the exchange rate
between the local currency and dollars. Unless a Partnership hedges itself
(which none of the Trading Advisors intends to do) against fluctuations in
exchange rates between the United States dollar and the currencies in which
trading is done on such foreign exchanges, any profits which the Partnership
might realize in such trading could be eliminated as a result of adverse changes
in exchange rates, and the Partnership could even incur losses as a result of
any such changes. See "The Futures, Options and Forwards Markets."
TRADING OF FUTURES OPTIONS IS SPECULATIVE AND HIGHLY LEVERAGED. Options on
futures contracts and options on physical commodities are traded on United
States commodity exchanges and may be traded by the Partnerships on certain
foreign exchanges. While each Partnership is authorized to trade options, only
WIC
16
<PAGE>
currently includes options in its trading program. Neither GCM nor MRC presently
intends to trade options, although either could do so in the future. Each option
is a right, purchased for a certain price, to either buy or sell the underlying
futures contract or physical commodity during a certain period of time for a
fixed price. Such trading involves risks substantially similar to those involved
in trading futures contracts in that options are speculative and highly
leveraged. Specific market movements of the physical commodity or futures
contract underlying an option cannot be accurately predicted. If a Partnership
purchases an option, it is subject to the risk of losing the entire purchase
price of the option. If a Partnership writes an option, it is subject to the
risk of loss resulting from the difference between the premium received for the
option and the price of the commodity or futures contract underlying the option,
which such Partnership must then purchase or deliver upon exercise of the
option. Therefore, trading in futures options can be extremely expensive if
market volatility is incorrectly predicted. See "The Futures, Options and
Forwards Markets--Options on Futures."
THE PARTNERSHIPS HAVE CREDIT RISK TO THE COMMODITY BROKERS. The
Partnerships have credit risk because the Commodity Brokers will act as the
futures commission merchants or the counterparty with respect to most of the
Partnerships' assets. Exchange-traded futures and futures styled options
contracts are marked to market on a daily basis, with variations in value
credited or charged to a Partnership's account on a daily basis. Each of DWR and
CFI, as a futures commission merchant for each Partnership's exchange-traded
contracts, is required, pursuant to CFTC regulations, to segregate from its own
assets, and for the sole benefit of its commodity customers, all funds held by
it with respect to exchange-traded futures and futures styled options contracts,
including an amount equal to the net unrealized gain on all open futures and
futures styled options contracts. With respect to a Partnership's off-exchange
traded forward currency contracts with CFI, there are no daily settlements of
variations in value or any requirement to segregate funds held with respect to
such contracts.
THE PARTNERSHIPS ARE SUBJECT TO SPECULATIVE POSITION LIMITS. The CFTC and
United States futures exchanges have established limits referred to as
"speculative position limits" or "position limits" on the maximum net long or
net short futures interests position which any person or group of persons may
own, hold or control in particular futures interests.
All futures interests accounts owned, controlled or managed by each Trading
Advisor and its principals and affiliates will be combined for position limit
purposes, to the extent they may be applicable. The Trading Advisors are the
trading advisors for other commodity pools and/or numerous individual accounts
and will in the future manage additional accounts. In this connection, each
Management Agreement provides that if speculative position limits are exceeded
by a Trading Advisor or any of its principals or affiliates in the opinion of
independent counsel (who must be other than counsel to the Partnerships) or in
the opinion of the CFTC or any other regulatory body, exchange, or board, such
Trading Advisor and its principals and affiliates will promptly liquidate
positions in all of their accounts, including the Partnership's account, as
nearly as possible in proportion to their respective equities to the extent
necessary to comply with applicable position limits. See "The Management
Agreements." While each Trading Advisor believes that established position
limits, where applicable, will not adversely affect its contemplated trading for
a Partnership, it is possible that, from time to time, the trading system or
instructions of a Trading Advisor to a Partnership may have to be modified and
that positions held by such Partnership may have to be liquidated in order to
avoid exceeding such limits. Such modification or liquidation, if required,
could adversely affect the operations and profitability of a Partnership. See
"Conflicts of Interest--Management of Other Accounts by the Trading Advisors."
Speculative position limits are not applicable to forward contract trading,
although the principals with which CFI or a Partnership may deal in the forward
markets may limit the positions available to CFI or the Partnership as a
consequence of credit considerations.
RISKS RELATING TO THE PARTNERSHIPS AND THE OFFERING OF UNITS
SUBSTANTIAL CHARGES TO EACH PARTNERSHIP AND ITS LIMITED PARTNERS. Each of
the Partnerships incurs substantial charges from payment of the monthly
flat-rate brokerage fee of 1/12 of 7% of Net Assets (a 7% annual rate) to DWR
and the monthly management fee of 1/12 of 2% of Net Assets (a 2% annual rate) to
its Trading Advisor, regardless of whether the Partnership realizes profits. As
such, each Partnership must earn significant profits to pay these charges. Each
Partnership must also pay its Trading Advisor a monthly incentive fee of 20% of
its "Trading Profits" (as defined). See "Description of Charges--Charges to Each
Partnership." In addition, Limited Partners who redeem Units on or prior to the
last day of the twenty-fourth month after such Units were purchased may be
subject to a redemption charge equal to 2% or 1%, as applicable, of the Net
Asset Value of a Unit. See "Description of Charges -- Redemption Charges to
Limited Partners" and "Redemptions." See also "Description of Charges --
Break-Even Analysis."
17
<PAGE>
RESTRICTED INVESTMENT LIQUIDITY IN THE UNITS. The Units cannot be assigned
or transferred except on the terms and conditions set forth in each Limited
Partnership Agreement, and there is and will be no public market for the Units.
See "The Limited Partnership Agreements--Restrictions on Transfers or
Assignments." Limited Partners of a Partnership may require such Partnership to
redeem all or part of their Units as of the last day of any month at the Net
Asset Value thereof. However, Limited Partners may only redeem Units as of, but
not before the sixth month-end following the Closing at which such person first
became a Limited Partner in a Charter Series Partnership. Furthermore,
redemptions may only be made in whole Units, with a minimum of 100 Units
required for each redemption, unless a Limited Partner is redeeming his entire
interest in a Partnership. Redemptions of Units are subject to redemption
charges through the end of the twenty-fourth month following the Closing at
which such Unit was issued. The foregoing redemption charges will not apply
under the circumstances outlined herein with respect to Limited Partners who
purchased Units in a Series Exchange or a Non-Series Exchange. Units purchased
pursuant to a Series Exchange will not be subject to the six-month limitation on
redemptions described above. An investor who purchases $500,000 or more of Units
will not be subject to the redemption charges described above. The right to
obtain payment on redemption is contingent upon (a) the Partnership having
assets sufficient to discharge its liabilities on the effective date of the
redemption, and (b) the timely receipt by the General Partner of a Request for
Redemption in the form annexed to the Limited Partnership Agreement. All
liabilities of the Partnerships are accrued daily and are reflected in the daily
Net Asset Value of the Partnerships. Under certain circumstances (including, but
not limited to, a Partnership's inability to liquidate or a delay in liquidating
positions or the default or delay in payments due a Partnership from dealers,
brokers, banks, or other persons), a Partnership may delay payment to Limited
Partners requesting redemptions of the proportionate part of the redemption
requests represented by the sums which are the subject of any such default or
delay. See "Redemptions."
CONFLICTS OF INTEREST IN EACH PARTNERSHIP'S STRUCTURE. The actual and
potential conflicts of interest in the structure and operation of the
Partnerships include the fact that the commodity brokerage arrangements were not
agreed upon in arm's-length negotiations due to the affiliation between the
General Partner and DWR; that employees of DWR and Additional Sellers selling
Units will receive a portion of the brokerage fees paid by the Partnerships, and
thereby have a conflict in advising Limited Partners whether and when to redeem
Units; that the General Partner and the Commodity Brokers may have conflicting
demands in respect of other commodity pools; that the Trading Advisors and the
Commodity Brokers, and individuals and entities associated with the General
Partner, the Trading Advisors and the Commodity Brokers, may trade futures
interests for their own accounts, which trading may compete with a Partnership
for positions; that trading by the Trading Advisors for their own accounts and
for other customers could result in the application of position limits to
restrict a Partnership's trading; that under the customer agreements with the
Commodity Brokers, the Commodity Brokers may close out positions and take
certain other actions with regard to a Partnership's accounts without the
Partnership's consent; and that other commodity pools managed by the General
Partner and the Trading Advisors may compete with the Partnerships. DWR and the
General Partner were instrumental in the organization of each Partnership and
may be deemed "promoters" of each Partnership within the meaning of Rule 405
under the Securities Act of 1933, as amended (the "1933 Act"). Moreover, each
Partnership, DWR, and the General Partner are affiliated entities and are
represented by a single counsel. As a consequence of the foregoing, there is an
absence of arm's-length negotiation with respect to some of the terms of this
offering, and there has been no independent due diligence conducted with regard
to this offering. See "Conflicts of Interest."
LIMITED PARTNERS WILL NOT PARTICIPATE IN MANAGEMENT. Limited Partners will
not participate in the management of a Partnership or in the conduct of its
business. See "The Limited Partnership Agreements--Management of Partnership
Affairs." However, each Limited Partnership Agreement provides that certain
actions may be taken upon the affirmative vote of Limited Partners owning more
than 50% of the Units then owned by Limited Partners. See "The Limited
Partnership Agreements--Amendments; Meetings."
RELIANCE ON THE GENERAL PARTNER. A Limited Partner is relying on the
ability of the General Partner in the selection of a successful Trading Advisor
for each Partnership. The selection by the General Partner of the current
Trading Advisor for each Partnership involved numerous considerations. The
General Partner evaluated the performance record of each Trading Advisor, the
Trading Advisor's trading programs, experience, volatility of trading, futures
interests traded, amount of management and incentive fees normally charged,
reputation of the Trading Advisor and its personnel and amount of funds under
management, and made certain subjective judgments in retaining a Trading Advisor
for each Partnership. Although the General Partner carefully weighed the above
factors in making its selections, other factors not considered by the General
Partner may also be important. In the future, the General Partner may be
required to terminate and replace a Trading Advisor by reason of its poor
performance or for other reasons, or to retain additional Trading Advisors for
each
18
<PAGE>
Partnership, and similar judgments will have to be made from time to time. See
"Investment Programs, Use of Proceeds and Trading Policies--Investment Programs
of Each Charter Series Partnership."
NO ASSURANCE THAT UNITS WILL BE SOLD. No assurance is given that any or all
of the Units of any Partnership will be sold. No Partnership will commence
trading operations unless at least 400,000 Units (representing subscriptions of
$4,000,000) are subscribed for during the Initial Offering Period and such
subscriptions are accepted by the General Partner at the Initial Closing.
Because DWR, in its capacity as selling agent, and MS & Co. and any other
Additional Seller have only agreed to use their best efforts to offer and sell
the Units, but have not agreed to purchase any specific amount of Units from any
Partnership, there is no assurance that DWR will be able to raise such amount
and that a subscriber ultimately will be able to purchase Units. Further, while
the General Partner, DWR, any Additional Sellers, and the Trading Advisors and
their respective affiliated entities may subscribe for Units, so that the
400,000 Unit minimum is met for a particular Partnership at the Initial Closing,
they are not required to subscribe for any number of Units. If the Initial
Closing is held for only two of the Partnerships, Limited Partners in such
Partnerships will only be able to effect Series Exchanges for Units of those
Partnerships; likewise, if the Initial Closing is held for only one of the
Partnerships, Limited Partners in that Partnership will have no Series Exchange
privilege. See "Exchange Privilege" and "Plan of Distribution."
SPECIAL CHARACTERISTICS OF START-UP PERIOD. Each Partnership will encounter
a start-up period during which it will incur certain risks relating to the
initial investment of its Net Assets. The Partnerships may commence trading
operations at an unpropitious time, such as after sustained moves in the futures
markets, resulting in significant initial losses. Moreover, the start-up period
also presents a special risk in that the level of diversification of a
Partnership's portfolio will be lower than in a fully-committed portfolio. No
assurance can be given that a Trading Advisor's procedures for moving to a
fully-committed portfolio will be successful.
NO OPERATING HISTORY OF THE PARTNERSHIPS. 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 THESE POOLS HAVE NOT COMMENCED TRADING AND DO
NOT HAVE ANY PERFORMANCE HISTORY.
There can be no assurance that the past performance of accounts managed by
the Trading Advisors, or other commodity pools for which the General Partner
serves as the general partner and commodity pool operator, is representative of
the performance of the Partnerships in the future.
CERTAIN LITIGATION. DWR, the General Partner, other affiliated entities,
certain limited partnership commodity pools of which the General Partner is the
general partner, and certain trading advisors to those pools, are all defendants
in certain purported class actions. Generally, these class actions allege, among
other things, fraud, deceit, misrepresentation, breach of fiduciary duty,
fraudulent and unfair business practices, unjust enrichment, and conversion in
connection with the sale and operation of the various limited partnership
commodity pools. Although the ultimate outcome of the legal proceedings cannot
be predicted with certainty, the DWR related parties believe that strong
defenses to these allegations exist and, as such, they are being vigorously
contested. Note that none of the Partnerships or the Trading Advisors for the
Partnerships is a named defendant in the class action litigation. In addition,
the Commodity Brokers from time to time are subject to various legal actions.
See "Certain Litigation."
POTENTIAL INABILITY TO TRADE OR REPORT RESULTS BECAUSE OF YEAR 2000
PROBLEMS. Commodity pools, like financial and business organizations and
individuals around the world, depend on the smooth functioning of computer
systems. Many computer systems in use today cannot recognize the computer code
for the year 2000, but revert to 1900 or some other date. This is commonly known
as the "Year 2000 Problem." The Partnerships could be adversely affected if
computer systems used by them or any third party with whom they have a material
relationship do not properly process and calculate date-related information and
data concerning dates on or after January 1, 2000. Such a failure could have a
negative impact on the handling or determination of futures trades and prices
and the services provided the Partnerships.
MSDW, the parent of Demeter, began its planning in response to the Year
2000 Problem in 1995 and currently has several hundred employees working on such
response. It has developed its own Year 2000 compliance plan to deal with the
problem and had the plan approved by the company's executive management, Board
of Directors and Information Technology Department. Demeter is co-ordinating
with MSDW in taking steps that both believe are reasonably designed to address
the Year 2000 Problem with respect to Demeter's computer systems that relate to
the Partnerships. This includes hardware and software upgrades, systems
consulting and computer maintenance.
19
<PAGE>
Beyond the challenge facing internal computer systems, the systems failure
of any of the third parties with whom the Partnerships have a material
relationship -- the futures exchanges and clearing organizations through which
they trade, CFI and their respective Trading Advisors -- could result in a
material financial risk to the Partnerships. Regarding the futures exchanges,
all US futures exchanges will be subject to the monitoring of the CFTC for their
Year 2000 preparedness and the major foreign futures exchanges are also expected
to be subject to market-wide testing of their Year 2000 compliance during 1999.
With respect to CFI and each of the Trading Advisors, Demeter intends to monitor
their progress throughout 1999 in their Year 2000 compliance and, where
applicable, to test its external interface with CFI and the Trading Advisors.
Finally, MSDW has begun developing various "contingency plans" in the event
that the systems of such third parties fail, and Demeter intends to consult
closely with MSDW in implementing those plans. MSDW has also recently reported
that its development of such contingency plans is proceeding on schedule.
Despite the best efforts of both Demeter and MSDW, however, there can be no
assurance that the above steps will be sufficient to avoid any adverse impact to
the Partnerships, whether from failures in their own computer systems or those
of CFI, a Trading Advisor or other third party.
RISKS RELATING TO THE TRADING ADVISORS
RELIANCE ON THE TRADING ADVISOR TO TRADE SUCCESSFULLY. Under each
Management Agreement, the Trading Advisor has exclusive responsibility for
making trading decisions with respect to the Net Assets of the Partnership for
which it trades, except in certain limited situations. No assurance can be given
that the respective trading systems and strategies utilized by the Trading
Advisor will prove successful under all or any market conditions.
PAST PERFORMANCE NOT NECESSARILY INDICATIVE OF FUTURE RESULTS. Certain
commentators have expressed concerns over the potentially misleading character
of the performance records included in futures fund prospectuses. In fact,
certain academic studies reached the conclusion that public commodity pools
often significantly underperform the prior performance records of the selected
trading advisors included in their prospectuses. See, for example, Elton, Gruber
& Rentzler, "New Public Offerings, Information and Investor Rationality: The
Case of Publicly Offered Funds," 62 Journal of Business, 1-15 (1989), and
Edwards & Ma, "Commodity Pool Performance: Is the Information Contained in Pool
Prospectuses Useful?," 8 The Journal of Futures Markets, 589-616 (1988). New
futures funds, such as the Partnerships, often are offered following periods of
successful trading by an advisor. No assurance can be given that any Partnership
will perform successfully in the future inasmuch as a Trading Advisor's past
performance is not necessarily indicative of future results.
MARKET FACTORS MAY ADVERSELY INFLUENCE THE TRADING PROGRAMS. Any factor
which may lessen the prospect of major futures interests price trends in the
future (for example, increased governmental control of, or participation in, the
currency markets) may reduce a Trading Advisor's ability to trade profitably for
a Partnership in the future. Any factor which would make it more difficult to
execute timely trades, such as a significant lessening of liquidity in a
particular market, would also be detrimental to the profitability of a
Partnership. As a result of these factors and the general volatility of the
futures interests markets, investors should view their investment as long term
(at least 2 years) in order to permit a Trading Advisor's program to function
over time. Further, a Trading Advisor may alter its programs from time to time
in an attempt to better evaluate market movements. As a result of such periodic
modifications, it is possible that the trading programs used by a Trading
Advisor for a Partnership in the future may be different from those presently in
use.
SINGLE ADVISOR FUNDS LACK THE DIVERSITY OF A MULTI-ADVISOR FUND. Each
Partnership is managed by a single Trading Advisor and, as such, the success of
each Partnership is solely dependent on the performance of that Trading Advisor.
Further, while the Trading Advisor for each Partnership has more than one
trading program, each Partnership initially will be traded pursuant to only one
trading program, and there will be therefore a lack of diversification in the
trading strategies to be employed for each Partnership. In addition, if the
Trading Advisor for any Partnership resigns or is discharged or otherwise
terminated, the General Partner must promptly replace the Trading Advisor, or
suspend trading operations until a new Trading Advisor is employed. See "The
Management Agreements -- Term" and "The Limited Partnership Agreements --
Management of Partnership Affairs."
INCREASING ASSETS MANAGED BY A TRADING ADVISOR MAY ADVERSELY AFFECT
PERFORMANCE. The total amount of funds being managed by each Trading Advisor may
be substantially increased by the addition of assets to a Partnership's account.
There appears to be a tendency for the rates of return achieved by commodity
trading advisors to diminish as equity under management increases. None of the
Trading Advisors has agreed to limit
20
<PAGE>
the amount of additional equity which it may manage. There can be no assurance
whatsoever as to the effect such increased equity will have on performance. See
"The Trading Advisors."
CHARTER GRAHAM'S USE OF AN INCREASED RATE OF LEVERAGE COULD AFFECT FUTURE
PERFORMANCE. The General Partner and GCM, the Trading Advisor for Charter
Graham, have agreed that GCM will leverage the funds of Charter Graham at 1.5
times the leverage it normally applies to its Global Diversified Program. The
increased leverage used by GCM for Charter Graham could, depending on GCM's
performance, result in increased gain or loss and trading volatility by Charter
Graham, as compared to other accounts employing GCM's Global Diversified
Program.
LIMITED TERM OF MANAGEMENT AGREEMENTS MAY LIMIT ACCESS TO THE TRADING
ADVISORS. The Management Agreement with each Trading Advisor will not expire
until October 31, 2001. Thereafter, unless otherwise terminated upon written
notice from each Trading Advisor at least 30 days prior to the expiration of the
respective Management Agreement, each such agreement shall be automatically
renewed for additional one-year terms. In addition, each Management Agreement
may be terminated by the Partnership at any time without penalty on prior
written notice and may be terminated by either party in certain circumstances.
See "The Management Agreements." Upon the expiration or termination of a
Management Agreement, the General Partner may be unable to enter into
arrangements with the Trading Advisor or another Trading Advisor which are
substantially similar to the Management Agreements described in this Prospectus.
A TRADING ADVISOR OR ITS TRADING PROGRAM MAY BE CHANGED WITHOUT PRIOR
NOTICE. The General Partner may replace a Trading Advisor or instruct a Trading
Advisor to reapportion Partnership assets among one or more of such Trading
Advisor's other trading programs. Any such change in Trading Advisors and/or
trading programs may be effected without prior notice to, or approval by,
Limited Partners, who may not have the opportunity to review the performance
record of a newly-appointed Trading Advisor prior to its appointment or the
updated performance record of such trading programs prior to their
implementation. See "The Trading Advisors."
TRADING DECISIONS BASED ON A TECHNICAL TRADING APPROACH MAY NOT PERFORM
UNDER CERTAIN MARKET CONDITIONS. Trading decisions of the Trading Advisor for
each Partnership initially will be based on a "technical" trading program, as
opposed to a "fundamental" trading program. Fundamental trading programs attempt
to examine external factors (such as governmental policies, domestic and foreign
political and economic events, changing trade prospects, and similar factors
which affect the supply and demand for a particular futures interest) in order
to predict future prices. Technical trading systems, however, generate buy and
sell signals which are not based on analysis of fundamental supply and demand
factors, but rather are based, in most cases, upon a study of actual daily,
weekly, and monthly price fluctuations, volume variations and changes in open
interest and other related mathematical, statistical or quantitative data
utilizing charts and/or computers. Thus, the Partnerships may not respond to
fundamental price moves and, as a result, achieve performance results that may
otherwise have been more favorable had a fundamental trading program been
employed.
The profitability of both technical and fundamental analysis in futures
interest trading generally depends upon the accurate forecasting of major price
moves or trends in some futures interests. No assurance can be given of the
accuracy of the forecasts or the existence of some major price move. The best
trading approach will not be profitable if there are sustained periods in which
there are no price moves or trends of the kind the trading approach seeks to
identify and follow. In the past, there have been periods without discernible
trends and, presumably, such periods will continue to occur in the future.
Periods without such price moves may produce losses. Any factor which would
lessen the prospect of major trends occurring in the future (such as increased
governmental control of or participation in the markets) may reduce the prospect
that a particular trading approach will be profitable in the future. Moreover,
any factor which would make it more difficult to execute trades at desired
prices in accordance with a trading approach (such as a significant lessening of
liquidity in a particular market) would also be detrimental to profitability.
Many other trading approaches utilize similar analyses in making trading
decisions; therefore, bunching of buy and sell orders can occur which makes it
more difficult for a position to be taken or liquidated. No assurance can be
given that a Trading Advisor's trading program and trading decisions will be
successful under all or any market conditions.
A limiting factor in the use of technical analysis is that such an approach
generally requires price movement data which can be translated into price trends
sufficient to dictate a market entry or exit decision. Any trading approach
which is based upon such technical concepts may not perform well when futures
interests markets are trendless or erratic, because a technical approach may
fail to identify a trend on which action should be taken or it may react to
minor price movements and thus establish a position contrary to
21
<PAGE>
overall price trends, which may result in losses. In addition, a technical
trading approach may underperform other trading approaches when fundamental
factors dominate price moves within a given market. For example, since technical
analysis generally does not take into account fundamental factors such as
supply, demand, and political and economic events (except insofar as such
factors may have influenced price and other technical data constituting input
information for such approach), a technical trading approach may be unable to
respond to fundamental causative events until after their impact has ceased to
influence the markets; positions dictated by such resultant price movements may
be incorrect in light of the fundamental factors then affecting the markets. See
"The Trading Advisors--General Description of Trading Approaches."
TAXATION AND REGULATORY RISKS
PARTNER'S TAX LIABILITY MAY EXCEED DISTRIBUTIONS. If a Partnership has
profits for a taxable year, such profit will be taxable to the Partners in
accordance with their distributive shares of Partnership profit, whether or not
the profit actually has been distributed to its Partners. Accordingly, United
States federal income taxes (hereinafter "federal income tax") payable by
Partners with respect to Partnership profit may exceed the amount of Partnership
distributions, if any, for a taxable year. Further, a Partnership may sustain
losses offsetting such profit in a succeeding taxable year, so that Partners may
never receive the profit on which they were taxed in the prior year. See
"Material Federal Income Tax Considerations."
LIMITATIONS ON DEDUCTION OF CERTAIN EXPENSES. The deductibility of certain
miscellaneous itemized deductions is limited to the extent such expenses exceed
2% of the adjusted gross income of an individual, trust or estate. In addition,
certain of an individual's itemized deductions are reduced by an amount equal to
the lesser of (i) 3% of such individual's adjusted gross income over a certain
threshold amount and (ii) 80% of such itemized deductions. Based upon the
activities of the Partnerships, the General Partner has been advised by its
legal counsel that in its opinion various expenses incurred by the Partnerships
should not be subject to these limitations except to the extent that the United
States Internal Revenue Service (the "Internal Revenue Service") promulgates
regulations that so provide. Such advice is not binding on the Internal Revenue
Service or any court. If a Partnership's expenses (including incentive fees)
were treated as subject to these limitations, a Limited Partner's after-tax
return could be significantly reduced. See "Material Federal Income Tax
Considerations."
REDEMPTION OF UNITS MAY PRODUCE NEGATIVE TAX CONSEQUENCES. Each Partnership
will allocate taxable gains or losses to a Limited Partner who redeems a Unit
generally to the extent such Limited Partner's capital account allocable to such
Unit differs from the federal income tax basis allocable to such Unit. Gain or
loss allocable to a Limited Partner as his distributive share of Partnership
gain or loss (including such distributive share arising from a special
allocation upon redemption of Units) retains the same character as in the hands
of the Partnership. Accordingly, this special allocation of Partnership gain or
loss upon a redemption of Units may alter or modify the character of such
Limited Partner's income arising from a redemption of Units (by reducing the
amount of long-term capital gain recognized upon a receipt of redemption
proceeds) and may accelerate the recognition of income by such Limited Partner.
Further, no assurance can be given that the Internal Revenue Service will not
challenge a Partnership's tax allocations (including the special allocation upon
redemption of Units), and if such allocations are successfully challenged, the
amount of income or loss allocated to the Limited Partners may be increased or
reduced, or the character of such income or loss may be modified. See "Material
Federal Income Tax Considerations."
TAX LAWS ARE SUBJECT TO CHANGE. It is possible that the current federal
income tax treatment accorded an investment in the Partnerships will be modified
by legislative, administrative, or judicial action in the future. The nature of
additional changes in federal income tax law cannot be determined prior to
enactment of any new tax legislation or administrative or judicial action.
However, such legislation could significantly alter the tax consequences and
decrease the after-tax rate of return of an investment in the Partnerships.
Prospective subscribers should seek, and must rely on, the advice of their own
tax advisers with respect to the possible impact on their investments of any
future proposed tax legislation or administrative or judicial action.
DEDUCTIBILITY OF PASSIVE LOSSES MAY BE LIMITED. Losses from a passive
activity ("passive losses") are generally disallowed to the extent such losses
exceed income from all passive activities ("passive income"). Pursuant to
Proposed and Temporary Treasury Regulations, none of the Partnerships will be
treated as a passive activity. Accordingly, a Limited Partner's distributive
share of items of income, gain, deduction or loss from a Partnership will not be
characterized as passive income or loss, and Partnership gains allocable to the
Limited Partners will not be available to offset passive losses from other
investments. However, Partnership gains allocable to the Limited Partners will
be available to offset losses with respect to "portfolio" investments, such
22
<PAGE>
as stocks and bonds. Moreover, any Partnership losses allocable to the Limited
Partners will be available to offset other income, regardless of source. See
"Material Federal Income Tax Considerations."
THE PARTNERSHIPS' TAX RETURNS MAY BE AUDITED. There can be no assurance
that the Partnerships' tax returns will not be audited by the Internal Revenue
Service or that adjustments to such returns will not be made as a result of such
audits. If an audit results in an adjustment, Limited Partners may be required
to file amended returns (which may themselves also be audited) and to pay back
taxes plus interest and/or penalties that may then be due. See "Material Federal
Income Tax Considerations."
ABSENCE OF REGULATIONS APPLICABLE TO SECURITIES MUTUAL FUNDS AND THEIR
ADVISERS. None of the Partnerships is registered as an investment company or a
"mutual fund" under the Investment Company Act of 1940, as amended (or any
similar state law), and neither the General Partner nor any of the Trading
Advisors is registered as investment advisers under the Investment Advisers Act
of 1940, as amended (or any similar state law). Investors, therefore, are not
accorded the protective measures provided by such legislation. However, in
accordance with the provisions of the Commodity Exchange Act, as amended (the
"CEAct"), the regulations of the CFTC thereunder and the NFA rules, the General
Partner is registered as a commodity pool operator, each Trading Advisor is
registered as a commodity trading advisor, and DWR and CFI are each registered
as a futures commission merchant, each subject to regulation by the CFTC and
each a member of the NFA in such respective capacities.
THE FOREGOING RISK FACTORS DO NOT PURPORT TO BE A COMPLETE EXPLANATION OF
ALL OF THE RISKS INVOLVED IN THIS OFFERING. POTENTIAL INVESTORS SHOULD READ THIS
PROSPECTUS IN ITS ENTIRETY BEFORE DETERMINING WHETHER TO INVEST IN THE UNITS.
CONFLICTS OF INTEREST
RELATIONSHIP OF THE GENERAL PARTNER TO DWR AS COMMODITY BROKER
The General Partner and DWR are each wholly-owned subsidiaries of Morgan
Stanley Dean Witter & Co. ("MSDW"). Except as otherwise provided below, the
General Partner has not established any formal procedures to resolve the
following conflicts of interest. DWR, in acting as the non-clearing Commodity
Broker for each Partnership pursuant to a Customer Agreement, receives brokerage
fees for futures interests transactions effected for each Partnership pursuant
to the instructions of its Trading Advisor. Because the General Partner is an
affiliate of DWR, there has been no arm's-length negotiation of the flat-rate
brokerage fees charged to each Partnership (CFI's fees will be paid by DWR).
Moreover, because of such relationship, the General Partner has a conflict of
interest between its responsibilities to limit and reduce the brokerage fees
paid by the Partnerships and otherwise manage the Partnerships for the benefit
of the Limited Partners and its interest in obtaining for DWR favorable
brokerage fees, as well as a disincentive to replace DWR as the non-clearing
Commodity Broker for the Partnerships. Most customers of DWR who maintain
commodity trading accounts with over $1,000,000 pay commissions at negotiated
rates which are substantially less than the rate which is paid by each
Partnership. Nine of the 26 currently active commodity pools for which Demeter
acts as general partner are charged flat-rate asset-based brokerage fees, 16 of
such commodity pools are charged brokerage fees on a roundturn brokerage
commission basis (i.e., a charge for entering and exiting each futures interest
transaction) and such fees are subject to a monthly asset-based cap, and one is
charged on a roundturn brokerage commission basis without a monthly asset-based
cap. See "The Commodity Brokers" and "Fiduciary Responsibility."
The General Partner selected each Trading Advisor and will select any new
Trading Advisors for the Partnerships. However, because the selection of Trading
Advisors who engage in a high volume of trades will increase the costs to DWR,
without DWR's receipt of an offsetting increase in revenue, the General Partner
has an incentive to select Trading Advisors who engage in a low volume of
trades.
In addition, the Partnerships, DWR, and the General Partner are affiliated
entities. As a consequence of the foregoing, there is an absence of arm's-length
negotiation with respect to some of the terms of, and there has been no
independent due diligence conducted with respect to, this offering. However, the
General Partner has a fiduciary duty under the Partnership Act to exercise good
faith and fairness in all dealings on behalf of the Partnerships, including the
Partnerships' dealings with DWR, as non-clearing Commodity Broker. See
"Fiduciary Responsibility." In addition, the Limited Partnership Agreements
contain restrictions on the General Partner's ability to contract with its
affiliates on behalf of the Partnerships. See "The Limited Partnership
Agreements--Management of Partnership Affairs."
While each Customer Agreement is nonexclusive, so that each Partnership has
the right to seek lower commission rates from other brokers at any time, the
General Partner believes that the Customer Agreements
23
<PAGE>
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 matters discussed in this paragraph below and in the
immediately following paragraph. DWR is subject to the risk and expense of
organizing the Partnerships, offering the Units, and paying the Partnerships'
ordinary administrative expenses. Further, the General Partner, an affiliate of
DWR, will provide ongoing services to the Partnerships, which include operating
the Partnerships, monitoring the activity of each Trading Advisor, and
administering the redemption and Exchanges of Units; the General Partner also
has financial obligations as the general partner of the Partnerships. A
significant portion of the brokerage fees paid to DWR by each Partnership will
be paid by DWR to its employees and to MS & Co. (which is an affiliate of DWR,
the General Partner and MSDW) and any other Additional Sellers, for providing
continuing assistance to Limited Partners to whom they have sold Units. Such DWR
employees and Additional Sellers who provide continuing advice to Limited
Partners as to when and whether to make additional investments or redeem or
exchange Units may have a conflict of interest by reason of their receipt of a
portion of the brokerage fees paid to DWR by the Partnerships. In addition, any
employee of DWR or any Additional Seller effecting a Non-Series Exchange will
immediately commence receiving a monthly gross sales credit on the Units
purchased, even though they may not have been entitled to a gross sales credit
at that time with respect to the units redeemed from the other commodity pool
for which the General Partner serves as a General Partner. Thus, such DWR
employees and Additional Sellers have a conflict of interest by reason of the
possibility of receiving a monthly gross sales credit at an earlier date than
otherwise may have been the case.
The General Partner will review the brokerage arrangements at least
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
costs, expenses, and risk borne, by DWR and the General Partner. See "The
Commodity Brokers" and "Fiduciary Responsibility."
DWR and the General Partner may, from time to time, be subject to
conflicting demands in respect of their obligations to the Partnerships and
other commodity pools and accounts. Certain pools may generate larger brokerage
commissions, resulting in increased payments to DWR employees as described
above. Since DWR employees may receive greater compensation from the sale of
units of one pool over another, such employees are subject to a conflict of
interest in providing advice to Limited Partners.
ACCOUNTS OF AFFILIATES OF THE GENERAL PARTNER, THE TRADING ADVISORS, AND THE
COMMODITY BROKERS
While the General Partner does not trade futures interests for its own
account (other than indirectly as a consequence of its position as general
partner of commodity pools), certain officers, directors and employees of the
General Partner and the Commodity Brokers, and their affiliates, principals,
officers, directors and employees, may trade futures interests for their own
proprietary accounts. The records of such trading will not be available to
Limited Partners. In addition, CFI is a large futures commission merchant,
handling substantial customer business in physical commodities and futures
interests, and is a clearing member of all of the major commodity exchanges in
the United States. Thus, CFI 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 or CFI, or customers or
correspondents of CFI. Such persons might also compete with a Partnership in
bidding on purchases or sales of futures interests without knowing that such
Partnership is also bidding. It is possible that transactions for the officers,
directors, affiliates, employees, customers and correspondents of the Commodity
Brokers, a Trading Advisor or the General Partner might be effected when similar
trades for one or more Partnerships are not executed or are executed at less
favorable prices. In addition, certain of the officers and directors of the
General Partner (who are also employees of and are compensated by DWR) may
individually receive from DWR compensation and bonuses based on various factors,
including brokerage fees generated by the Partnerships. See "The General
Partner" and "The Commodity Brokers."
The Limited Partnership Agreements provide that, except as described
therein or in this 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
Partnerships. No commodity broker for the Partnerships 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.
24
<PAGE>
MANAGEMENT OF OTHER ACCOUNTS BY THE TRADING ADVISORS
Each Management Agreement allows the Trading Advisor to manage futures
interests accounts in addition to the Partnership's account. Each Trading
Advisor and its principals and affiliates may at any time be trading their own
proprietary accounts, advising accounts for other commodity pools and/or
individual customers, and operating other commodity pools, and will continue
such activities in the future. A Trading Advisor may also operate more than one
trading program in its management of accounts, some of which programs may not be
used in trading for a Partnership. Such other trading programs have in the past
and may in the future experience significantly different performance results
than the programs used in trading for a Partnership. Each Trading Advisor is
required to aggregate futures interests positions in other accounts managed by
it with futures interests positions in the applicable Partnership's account for
speculative position limit purposes. Such aggregation of positions could require
the applicable Trading Advisor to liquidate or modify positions for all such
accounts, and such liquidation or modification may adversely affect such
Partnership. A Trading Advisor may have a conflict of interest in rendering
advice because its compensation for managing some other accounts may exceed its
compensation for managing the Partnership's account, and therefore may provide
an incentive to favor such other accounts. Moreover, if a Trading Advisor makes
trading decisions for such accounts and a Partnership's account at or about the
same time, the Partnership may be competing with such other accounts for the
same or similar positions. While the records of the accounts of the Trading
Advisors and their principals and accounts managed by them will not be made
available to Limited Partners, each Management Agreement permits the General
Partner access to such records in order to determine that the Partnership's
account is traded fairly. Each Management Agreement also provides that the
Trading Advisor will deal with the Partnership in a fiduciary capacity to the
extent recognized by applicable law and will not enter into transactions where
it knowingly or deliberately favors itself or another client over the
Partnership.
CUSTOMER AGREEMENTS WITH THE COMMODITY BROKERS
Each Partnership has opened a separate trading account with each of the
Commodity Brokers for its Trading Advisor pursuant to the Partnership's Customer
Agreement with each Commodity Broker. Under the Customer Agreements, all funds,
futures interests and securities positions and credits carried for the
Partnership are held as security for such Partnership's obligations to the
Commodity Brokers; the margins required to initiate or maintain open positions
will be as established by the Commodity Brokers from time to time; and the
Commodity Brokers may close out positions, purchase futures interests, or cancel
orders at any time they deem necessary for their protection, without the consent
of the Partnership. Each Partnership also has agreed to indemnify and defend the
Commodity Brokers and their stockholders, employees, officers, directors and
affiliates against certain liabilities incurred by them by reason of acting as
such Partnership's commodity broker. Each Commodity Broker, the General Partner
or the Limited Partners of a Partnership by majority vote may terminate the
brokerage relationship and close the Partnership's futures interests account at
a Commodity Broker upon 60 days' prior written notice and under certain other
circumstances. If so terminated, the Partnership would have to negotiate a new
customer agreement with a commodity broker upon terms and conditions, including
brokerage commission rates, which cannot now be determined.
OTHER COMMODITY POOLS
The General Partner is or has been the general partner for 30 other
commodity pools. DWR is the non-clearing commodity broker for 29 of such pools
and several other commodity pools. Each may in the future establish and/or be
the general partner or commodity broker for additional commodity pools, and any
such pool may be said to be in competition with the Partnerships in that any one
or more of such pools might compete with the Partnerships for the execution of
trades.
FIDUCIARY RESPONSIBILITY
Investors should be aware that the General Partner has a fiduciary duty
under the Partnership Act to the Limited Partners of each Partnership to
exercise good faith and fairness in all dealings affecting such Partnership. The
General Partner's fiduciary duty to the Limited Partners under each Limited
Partnership Agreement is in accordance with the fiduciary duty owed to limited
partners by a general partner under Delaware law. The Limited Partnership
Agreements prohibit the Limited Partners from limiting, by any means, the
fiduciary duty of the General Partner owed to the Limited Partners under
statutory or common law. In the event that a Limited Partner believes that the
General Partner has violated its responsibility, such Limited Partner may seek
legal relief for himself and all other similarly situated Limited Partners or on
behalf of the Partnership under the Partnership Act, the CEAct, applicable
federal and state securities laws and other applicable laws to recover
25
<PAGE>
damages from, or to require an accounting by, the General Partner. The Trading
Advisor for each Partnership also has a fiduciary duty under applicable law to
that Partnership.
The Limited Partnership Agreements, the Customer Agreements, the Selling
Agreement and the Management Agreements generally provide that the General
Partner, the Commodity Brokers, DWR (as selling agent), any Additional Seller,
the Trading Advisors and their "affiliates" (as defined in each Limited
Partnership Agreement) shall not be liable to a 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, the Commodity Brokers, DWR (as selling agent), any Additional Seller,
or the Trading Advisor, as applicable, determines, in good faith, to be in the
best interests of the Partnership, unless such act, omission, conduct, or
activity of or by the General Partner, the Commodity Brokers, DWR (as selling
agent), any Additional Seller, the Trading Advisor or their affiliates, as
applicable, constituted misconduct or negligence.
Under the Limited Partnership Agreements, the Customer Agreements, the
Selling Agreement, and the Management Agreements, each Partnership has generally
agreed to indemnify, defend, and hold harmless the General Partner, the
Commodity Brokers, DWR (as selling agent), any Additional Seller, the Trading
Advisor for such Partnership, and their respective 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 acts, omissions,
conduct, or activities 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, the
Commodity Brokers, DWR (as selling agent), any Additional Seller, or the Trading
Advisor, as applicable, has determined, in good faith, that the act, omission,
conduct, or activity giving rise to the claim for indemnification was in or not
opposed to the best interests of the Partnership, and (2) the act, omission,
conduct, or activity that was the basis for such loss, liability, damage, cost,
or expense was not the result of misconduct or negligence. Payment of any
indemnity to such person by a Partnership would reduce the Net Assets of such
Partnership. The General Partner does not carry insurance covering such
potential losses and it is not contemplated that the Partnerships will carry
liability insurance covering such potential losses or indemnification exposure.
Notwithstanding the foregoing, in any action brought by a Limited Partner
in the right of a Partnership, the General Partner or any affiliate thereof may
only be indemnified to the extent and subject to the conditions specified in the
Partnership Act (which presently permits indemnification of any partner to the
extent provided in the Limited Partnership Agreement, as described in the
immediately preceding paragraph). Also, no indemnification of the General
Partner, the Commodity Brokers, DWR (as selling agent), any Additional Seller,
the Trading Advisors, or their affiliates by a Partnership shall be permitted
for losses, liabilities, or expenses arising from or out of alleged violations
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 they were offered or sold Units,
with respect to indemnification for securities laws violations, before seeking
court approval for indemnification. Note that, with respect to indemnification
for liabilities arising under the 1933 Act for directors, officers or
controlling persons of a Partnership or the General Partner, it is the opinion
of the SEC that such indemnification is against public policy, as expressed in
the 1933 Act, 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 DWR and CFI) 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 CEAct will be determined by the
CFTC on a case-by-case basis.
26
<PAGE>
DESCRIPTION OF CHARGES
CHARGES TO EACH PARTNERSHIP
Each Partnership is subject to substantial charges, all of which are
described in detail below. The charges described below are the same for each
Partnership, and represent all of the fees and compensation to be paid by the
Partnerships to the Trading Advisors, DWR and CFI.
<TABLE>
<CAPTION>
ENTITY FORM OF COMPENSATION AMOUNT OF COMPENSATION
- ------------------------------ ------------------------------ ---------------------------------------
<S> <C> <C>
The Trading Advisor........... Monthly Management Fee. A flat-rate monthly fee of 1/12 of 2%
of the Partnership's Net Assets on the
first day of each month (a 2% annual
rate).
Monthly Incentive Fee. 20% of the Trading Profits experienced
by the Partnership as of the end of
each calendar month.
DWR........................... Monthly Brokerage Fee. A flat-rate monthly fee of 1/12 of 7%
of the Partnership's Net Assets (a 7%
annual rate) as of the first day of
each month. Such fee covers brokerage
commissions, transaction fees and
costs, and ordinary administrative and
offering expenses.
Commodity Brokers............. Financial benefit to DWR and The aggregate of (i) the flat-rate
CFI or their affiliates from brokerage fee payable by the
interest earned on the Partnership, as described above, and
Partnership's assets in excess (ii) net excess interest and
of the interest paid to the compensating balance benefits to DWR
Partnership and from and CFI or their affiliates (after
compensating balance treatment crediting the Partnership with
in connection with the interest) will not exceed 14% annually
designation of a bank or banks of the Partnership's average month-end
in which the Partnership's Net Assets during a calendar year.
assets are deposited.
</TABLE>
1. THE TRADING ADVISOR
(a) Monthly Management Fee. Each Partnership will pay its Trading Advisor a
monthly management fee equal to 1/12 of 2% (a 2% annual rate) of such
Partnership's Net Assets as of the first day of each month, whether or not the
Partnership is profitable.
For example, if the Net Assets of a Partnership equaled $30,000,000 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 $600,000 ( 1/12 of
2% of $30,000,000 per month, or $50,000, times 12).
If during any month a Partnership does not conduct business operations or
suspends trading or, as a result of an act or failure to act by its Trading
Advisor, is otherwise unable to utilize the trading advice of such Trading
Advisor on any of the trading days of that period for any reason, the management
fee described above will be prorated based on the ratio that the number of
trading days in the month in which a Partnership engaged in trading operations
or utilized the trading advice of the Trading Advisor bears to the total number
of trading days in the month. If a Management Agreement is terminated on a date
other than the end of a calendar month, the management fee described above will
be determined as if such date were the end of a month, but such fee will be
prorated based on the ratio by which the number of trading days in the month
through the date of termination bears to the total number of trading days in the
month.
(b) Incentive Fee. Each Partnership will pay its Trading Advisor a monthly
incentive fee equal to 20% of Trading Profits experienced by the Partnership as
of the end of each calendar month. "Trading Profits" is defined to mean net
futures interests trading profits (realized and unrealized) earned on a
Partnership's Net Assets, decreased by monthly management fees, brokerage fees,
and any transaction fees and costs not included in the brokerage fees (under the
current Customer Agreements with the Commodity Brokers, the brokerage fees
include all transaction fees and costs); with such Trading Profits and items of
decrease determined from the end of the last calendar month in which an
incentive fee was earned by the Trading Advisor or, if no incentive fee
27
<PAGE>
has been earned previously by the Trading Advisor, from the date that the
Partnership commenced trading, to the end of the month as of which such
incentive fee calculation is being made. Extraordinary expenses of the
Partnership, if any, will not be deducted in determining Trading Profits. No
incentive fees will be paid on interest earned by any Partnership.
If any payment of incentive fees is made to a Trading Advisor on account of
Trading Profits and such Trading Advisor thereafter fails to earn Trading
Profits or experiences losses for any subsequent incentive period, the Trading
Advisor will be entitled to retain such amounts of incentive fees previously
paid to the Trading Advisor in respect of such Trading Profits. However, no
subsequent incentive fees will be payable to the Trading Advisor until the
Partnership has again earned Trading Profits; provided, however, that if the
Partnership's Net Assets are reduced or increased because of redemptions or
additions that occur at the end of or subsequent to an incentive period in which
the Trading Advisor experiences a futures interests trading loss, the trading
loss for that incentive period which must be recovered before the Trading
Advisor will be deemed to experience Trading Profits will be equal to the amount
determined by (x) dividing the Partnership's Net Assets after such increase or
decrease by the Partnership's Net Assets immediately before such increase or
decrease, and (y) multiplying that fraction by the amount of the unrecovered
futures interests trading loss experienced in the month prior to such increase
or decrease. In the event that the Partnership experiences a futures interests
trading loss in more than one month without the payment of an intervening
incentive fee and the Partnership's Net Assets are increased or reduced in more
than one such month because of redemptions or additions, then an adjustment to
the trading loss for each such month will be made in accordance with the formula
described above and such increased or reduced amount of futures interests
trading loss will be carried forward and used to offset subsequent futures
interests trading profits.
Thus, for example, if a Trading Advisor earned Trading Profits of
$5,000,000 for the period ended September 30, 1998, the Trading Advisor would
receive an incentive fee of $1,000,000 for that period. If, however, the Trading
Advisor experiences realized and/or unrealized trading losses, or fees offset
trading profits, so as to result in a $500,000 loss for the period ended October
31, 1998, no incentive fee will be paid to the Trading Advisor for that period.
If the Trading Advisor is to earn an incentive fee for the following period
ending November 30, 1998, the Trading Advisor will have to earn Trading Profits
exceeding $500,000 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., September 30), and not from the immediately preceding period.
For the period ended November 30, 1998, Trading Profits would be equal to the
amount of profits in excess of $500,000. The Trading Advisor would receive an
incentive fee for such period equal to 20% of such Trading Profits. (The
foregoing example assumes no redemptions or additional purchases of Units during
the periods in question, which would require adjustments as described above.)
2. COMMODITY BROKERS
(a) Brokerage Fees. Commodity brokerage fees for futures interests trades
are often 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
will not pay commodity brokerage commissions on a per-trade basis, but rather
will pay DWR a monthly flat-rate brokerage fee based on their Net Assets. This
fee will be 1/12 of 7% of the Partnership's Net Assets as of the first day of
each month (a 7% annual rate). DWR will receive such brokerage fees,
irrespective of the number of trades executed on a Partnership's behalf.
From the flat-rate brokerage fees received by it, DWR will pay or reimburse
the Partnerships for all fees and costs of CFI for executing trades by the
Partnerships, including floor brokerage fees, exchange fees, clearinghouse fees,
NFA fees, "give up" fees, any taxes (other than income taxes), any third party
clearing costs incurred by CFI, costs associated with taking delivery of futures
interests, and fees for execution of forward contract transactions. DWR will
also pay, from the flat-rate brokerage fee received from each Partnership, the
ordinary administrative and 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.
Continuing Offering expenses include the cost of legal, accounting and auditing
fees, printing costs, solicitation and marketing costs and other related fees
and expenses.
28
<PAGE>
Such payments to DWR are compensation, in part, for the risks of organizing
the Partnerships and conducting the initial and continuing offerings.
Specifically, DWR will pay all of the costs incurred in connection with the
organization of the Partnerships and the Initial Offering of Units (estimated to
be $1,000,000 in the aggregate), and will pay the costs of the Continuing
Offering. The Partnerships will not reimburse DWR for any such organization and
offering costs, and while DWR may recoup such costs from the brokerage fees paid
by each Partnership, the Partnerships will not be liable for any such costs at
any time. Additionally, the General Partner, an affiliate of DWR, provides
ongoing services to the Partnerships, which include evaluating, retaining,
monitoring and terminating Trading Advisors for the Partnerships and
administering the redemption and exchange of Units. Such fee also enables DWR to
compensate its employees, MS & Co. and any other Additional Sellers who provide
continuing services to Limited Partners to whom they have sold Units. See "The
Commodity Brokers--Brokerage Arrangements" and "Plan of Distribution."
While each Partnership pays a flat-rate brokerage fee, rather than
"roundturn commissions" on each trade, it is estimated, based upon each Trading
Advisor's historical trading, that such flat-rate brokerage fees would translate
into roundturn commissions ranging from approximately $35-50 for each
Partnership. NO REPRESENTATION OR WARRANTY IS MADE AS TO THE ACCURACY OF THE
FOREGOING ESTIMATE, AS IT IS ENTIRELY DEPENDENT ON THE NUMBER OF TRANSACTIONS
EFFECTED BY THE TRADING ADVISOR FOR EACH PARTNERSHIP.
(b) Financial Benefits. DWR and CFI may benefit from the interest crediting
arrangements and possible compensating balance treatment in connection with its
designation of a bank or banks in which the Partnerships' assets are deposited.
See "Investment Programs, Use of Proceeds and Trading Policies."
3. 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.
4. EXPENSE LIMITATIONS
No increase in any of the management, incentive or brokerage fees payable
by a Partnership 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 in such Partnership 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
describes the redemption and voting rights of Limited Partners; and (iii)
Limited Partners redeeming Units at the first Redemption Date following such
notice will not be subject to any redemption charges. Notwithstanding the
foregoing, in accordance with guidelines applied by certain state securities
regulators (see "Glossary--Blue Sky Glossary"), each Partnership's fees and
expenses are subject to the following limits: (a) the aggregate of (i) the
management fees payable by the Partnership, 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 incentive fee payable by the Partnership to a Trading Advisor
shall not exceed 15% of the Partnership's Trading Profits, provided that such
incentive fee 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 (e.g., if such fees and expenses are limited to 3% of Net
Assets, the maximum incentive fee payable may be increased to 21%); (c) if the
Partnership were to pay roundturn brokerage commissions, such brokerage
commissions (excluding transaction fees and costs) payable by the Partnership to
any commodity broker for the Partnership 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 for the Partnership, (ii) any transaction fees and costs
payable by the Partnership, and (iii) the net excess interest and compensating
balance benefits to any commodity broker for the Partnership (after crediting
the Partnership with interest) shall not exceed 14% annually of the
Partnership's average month-end Net Assets during such calendar year. The
General Partner or an affiliate thereof will pay any fees and expenses in excess
of any such limits.
29
<PAGE>
REDEMPTION CHARGES TO LIMITED PARTNERS
Persons who have been Limited Partners in a Charter Series Partnership for
more than six months may redeem all or part of their Units at any month-end in
the manner described in this Prospectus.
Subject to certain exceptions, Units redeemed on or prior to the last day
of the twelfth month after such Units were purchased will be subject to a
redemption charge equal to 2% of the Net Asset Value of a Unit on the Redemption
Date (as defined below). 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 of a Unit on the Redemption Date. 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. The foregoing redemption charges will be paid to
DWR. For a more detailed discussion, including exceptions to such charges, see
"Redemptions."
BREAK-EVEN ANALYSIS
Based upon the Net Asset Value per Unit of $10 at the Initial Closing, each
Partnership must earn estimated net trading profits (after taking into account
estimated interest income based upon current rates of 5%) of 4.2% of its average
annual Net Assets in order to offset Partnership expenses, and 6.2% to offset
Partnership expenses and the 2% redemption charge if Units are redeemed at the
end of the first year of investment. This assumes that a Trading Advisor's gross
profits equal expenses and interest income is greater than the redemption fee,
such that no incentive fees are earned by the Trading Advisor.
30
<PAGE>
Based upon the Net Asset Value per Unit of $10 at the Initial Closing, each
Partnership must earn estimated net trading profits of $0.62 per Unit in order
for a Limited Partner to recoup its initial investment upon redemption of a Unit
at the end of one year after payment by a Partnership of its expenses and
payment of the 2% redemption charge (as calculated below).
<TABLE>
<CAPTION>
CHARTER CHARTER CHARTER
GRAHAM MILLBURN WELTON
------- ------- -------
<S> <C> <C> <C>
$ $ $
Selling Price per Unit(1).................................................. 10.00 10.00 10.00
Management Fee(2).......................................................... .20 .20 .20
Brokerage Fee(3)........................................................... .70 .70 .70
Less Interest Income(4).................................................... (.48) (.48) (.48)
Redemption Fee(5).......................................................... .20 .20 .20
Incentive Fee(6)........................................................... -- -- --
Amount of Trading Income Required for a Limited Partner to Recoup its
Investment at the End of One Year........................................ .62 .62 .62
Percentage of Selling Price per Unit....................................... 6.2% 6.2% 6.2%
</TABLE>
- ------------
Notes
(1) Units are offered for sale at the Initial Closing at $10 per Unit. Units
that remain unsold following the Initial Closing will be offered for sale at
Monthly Closings held as of the last day of each month at a purchase price
equal to 100% of the Net Asset Value of the Unit at the close of business as
of the date of the Monthly Closing.
(2) Monthly management fees are equal to 1/12 of 2% (a 2% annual rate) of Net
Assets on the first day of each month.
(3) The brokerage fee is a flat-rate monthly fee of 1/12 of 7% (a 7% annual
rate) of Net Assets as of the first day of the month. Such fee covers all
brokerage fees and transaction fees and costs (including "give up" and
transfer fees).
(4) DWR will credit each Partnership with interest income at month-end at the
rate earned by DWR on its U.S. Treasury bill investments with customer
segregated funds as if 100% of each Partnership's average daily funds
(including cash and securities) held in such Partnership's account with DWR
during the month were invested in U.S. Treasury bills at such rate. In
addition, DWR will credit each Partnership with 100% of the interest income
DWR receives from CFI with respect to such Partnership's assets deposited as
margin with CFI. For purposes of the break-even calculation, it was
estimated that approximately 80% of each Partnership's average daily funds
maintained in trading accounts will be on deposit with DWR and earn interest
income at a rate of approximately 5%, and that approximately 20% of each
Partnership's average daily funds maintained in trading accounts will be on
deposit with CFI and generate interest income at a rate of approximately 4%.
(5) Units redeemed at the end of one year from the date of purchase are subject
to a 2% redemption charge.
(6) Incentive fees are assumed to be zero because (i) interest income is greater
than the redemption fee and (ii) each Trading Advisor's trading profits
equal expenses.
The General Partner will furnish to each Limited Partner a monthly
statement describing the performance of each Partnership and setting forth,
among other things, aggregate management and incentive fees, brokerage fees, and
extraordinary expenses, if any, incurred or accrued by each Partnership during
the month and certain other information concerning the Net Asset Value of a Unit
of each Partnership. See "The Limited Partnership Agreements--Reports to Limited
Partners."
31
<PAGE>
INVESTMENT PROGRAMS, USE OF PROCEEDS AND TRADING POLICIES
Each Partnership was formed to engage primarily in the speculative trading
of futures and forward contracts, options on futures contracts and on physical
commodities, and other commodity interests, including foreign currencies,
financial instruments, precious and industrial metals, energy products, and
agriculturals (collectively, "futures interests"). The entire proceeds of the
Initial Offering and Continuing Offering received by each Partnership from the
sale of its Units and the continuing capital contributions of the General
Partner to each Partnership will be deposited in separate commodity trading
accounts established by DWR and CFI for the Trading Advisors for each
Partnership. All of the funds in a Partnership's trading accounts will be used
to engage in futures interests trading pursuant to instructions provided by the
Trading Advisor. DWR will transfer Partnership funds to CFI to margin futures
interests trades effected with and through CFI as clearing broker and foreign
currency forward counterparty for each Partnership. Each Partnership's margin
commitments with respect to its U.S. commodity futures positions are anticipated
to range between 10% and 40% of Net Assets, although in certain circumstances, a
Partnership's margin levels could deviate substantially from that range in the
future. See "Risk Factors--Risks Relating to Futures Interests Trading and the
Futures Interests Markets--Futures Interests Trading is Highly Leveraged." The
Partnerships' assets held by DWR and CFI will be segregated or secured in
accordance with the CEAct and CFTC regulations. The Partnerships' trading on
various United States futures exchanges is subject to CFTC regulation and the
rules of the applicable exchanges. The Partnerships' trading on foreign futures
exchanges is subject to regulation by foreign regulatory authorities and the
rules of the applicable exchange. The Partnerships may each trade different
types of futures interests, on both domestic and foreign markets. The
Partnerships may trade on the following foreign futures exchanges: the Deutsche
Terminborse, the Hong Kong Futures Exchange Ltd., the International Petroleum
Exchange of London, the Italian Derivatives Market, the London International
Financial Futures Exchange Ltd., the London Metals Exchange, the Marche a Terme
International de France, the London Securities and Derivatives Exchange, the
MEFF Renta Fija, the MEFF Renta Variable, the Montreal Exchange, the Singapore
International Monetary Exchange, the New Zealand Futures and Options Exchange,
the Swiss Options and Financial Futures Exchange A.G., the Sydney Futures
Exchange, the Tokyo Grain Exchange, the Tokyo International Futures Exchange,
the Tokyo Stock Exchange and the Winnipeg Commodity Exchange. From time to time
the Partnerships may trade on other foreign exchanges. From time to time in
connection with foreign futures and options contracts, the Partnerships' assets
may be deposited in accounts with non-United States banks and foreign brokers
which are segregated on the books of such banks or brokers for the benefit of
CFI customers. All such non-United States banks and foreign brokers will be
qualified depositories pursuant to relevant CFTC Advisories. Such non-United
States 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. The protections provided by such
foreign regulatory authorities may differ significantly from those provided by
United States regulators. See "Risk Factors--Risks Relating to Futures Interests
Trading and the Futures Interests Markets--Special Risks Associated with Forward
Trading" and "--Special Risks Associated with Trading on Foreign Exchanges."
The Trading Advisor for each Partnership is obligated to invest in
accordance with the trading policies applicable to such Partnership. These
trading policies provide, among other things, that a Trading Advisor may commit
as margin up to, but no more than, a certain percentage of funds under
management.
DWR will credit each Partnership with interest income at each month-end at
the rate earned by DWR on its U.S. Treasury bill investments with customer
segregated funds as if 100% of each Partnership's average daily funds (including
cash and securities) held in such Partnership's account with DWR during the
month were invested in U.S. Treasury bills at such rate. In addition, DWR will
credit each Partnership with 100% of the interest income DWR receives from CFI
with respect to such Partnership's assets deposited as margin with CFI. It is
anticipated that approximately 80% of each Partnership's average daily funds
maintained in trading accounts will be on deposit with DWR and that
approximately 20% of each Partnership's average daily funds maintained in
trading accounts will be on deposit with CFI, although such percentages will
vary from time to time. DWR and CFI will retain any interest earned in excess of
the interest paid by DWR to the Partnerships. To the extent that the assets of
each Partnership are held in non-interest-bearing bank accounts, DWR and CFI or
their affiliates may benefit from compensating balance treatment in connection
with their designation of a bank or banks in which the Partnerships' assets are
deposited, i.e., DWR and CFI or their affiliates may receive favorable loan
rates from such bank or banks by reason of such deposits. While it is
anticipated that such compensating balance benefits will exceed the interest
credited to each Partnership, it is estimated that they should not exceed 4% of
each Partnership's annual average Net Assets after such credits. To the extent
that
32
<PAGE>
such excess interest and compensating balance benefits to DWR and CFI or their
affiliates exceed the interest DWR is obligated to credit to the Partnerships,
they will not be shared with the Partnerships. Notwithstanding the foregoing,
the aggregate of (i) brokerage fees payable by a Partnership, and (ii) the net
excess interest and compensating balance benefits to DWR and CFI or their
affiliates (after crediting the Partnership with interest as described above)
cannot exceed 14% annually of a Partnership's average month-end Net Assets
during each calendar year.
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.
INVESTMENT PROGRAMS OF EACH CHARTER SERIES PARTNERSHIP
The Charter Series, a series of related managed futures funds, offers the
investor a choice of managed futures funds, each with a different Trading
Advisor and trading approach. The Charter Series presently consists of three
Delaware limited partnerships organized pursuant to the form of Limited
Partnership Agreement attached hereto as Exhibit A. Demeter is the general
partner and commodity pool operator ("CPO") of each Partnership. See "The
General Partner."
The investment objective of each Partnership is capital appreciation of its
assets through speculative trading in futures interests.
The selection of the Trading Advisor for each Partnership was based on a
review of each Trading Advisor's trading programs, experience and trading
performance, including the level of volatility in performance experienced by
each Trading Advisor in the past. Although these factors are obtained from past
trading performance, the General Partner believes such factors have some value
in evaluating the potential trading success of a Trading Advisor; however,
future performance may be completely different. See "Risk Factors" and "The
Futures, Options and Forwards Markets." THE GENERAL PARTNER IS NOT PREDICTING OR
GUARANTEEING ANY LEVEL OF PERFORMANCE OR RISK BY ANY PARTNERSHIP. PAST
PERFORMANCE IS NOT NECESSARILY INDICATIVE OF FUTURE RESULTS.
MORGAN STANLEY DEAN WITTER CHARTER GRAHAM L.P.
The Trading Advisor for Morgan Stanley Dean Witter Charter Graham L. P.
("Charter Graham") is Graham Capital Management, L.P. ("GCM").
GCM is a Delaware limited partnership formed in 1994 and is registered as a
commodity trading advisor ("CTA") and CPO with the CFTC and is a member of the
NFA in such capacities. The assets of Charter Graham will initially be traded
pursuant to GCM's Global Diversified Program at 1.5 times the leverage it
normally applies for such program. Margin requirements over time normally are
expected to average about 15% to 20% of equity for accounts traded pursuant to
the Global Diversified Program; thus, margin requirements for Charter Graham
over time are expected to average about 20% to 30% of Charter Graham's Net
Assets. The Global Diversified Program has been traded since July 1994, and
relies primarily on computerized trading models to participate in approximately
70 global markets. Subject to the prior approval of the General Partner, GCM
may, at any time, trade some or all of the Partnership's assets among one or
more of GCM's other programs and/or GCM's discretionary trading approach, and at
an increased or reduced rate of leverage. As of July 31, 1998, GCM was managing
approximately $330 million of client assets pursuant to the Global Diversified
Program (notional funds included) and approximately $465 million in all of its
programs (notional funds included).
A full description of GCM, its principals and trading programs is included
in "The Trading Advisors--Morgan Stanley Dean Witter Charter Graham L.P." Read
"The Trading Advisors" carefully before you decide to invest. See "Risk
Factors--Risks Relating to the Partnerships and the Offering of Units--Past
Performance Not Necessarily Indicative of Future Results."
MORGAN STANLEY DEAN WITTER CHARTER MILLBURN L.P.
The Trading Advisor for Morgan Stanley Dean Witter Charter Millburn L.P.
("Charter Millburn") is Millburn Ridgefield Corporation ("MRC").
MRC is a Delaware corporation formed in 1982 and is registered as a CTA and
CPO with the CFTC and is a member of the NFA in such capacities. The assets of
Charter Millburn will initially be traded pursuant to MRC's Diversified
Portfolio, which has been traded since February 1971, and which trades a
portfolio of approximately 50 markets in the following sectors: currencies,
precious and industrial metals, debt instruments, stock indices, agricultural
commodities and energy. Subject to the prior approval of the General Partner,
MRC may, at any time, trade some or all of the Partnership's assets among one or
more of MRC's other
33
<PAGE>
programs. As of July 31, 1998, MRC was managing approximately $394 million of
client assets pursuant to the Diversified Portfolio (notional funds excluded)
and approximately $700 million in all of its programs (notional funds excluded).
A full description of MRC, its principals and trading programs is included
in "The Trading Advisors--Morgan Stanley Dean Witter Charter Millburn L.P." Read
"The Trading Advisors" carefully before you decide to invest. See "Risk
Factors--Risks Relating to the Partnerships and the Offering of Units--Past
Performance Not Necessarily Indicative of Future Results."
MORGAN STANLEY DEAN WITTER CHARTER WELTON L.P.
The Trading Advisor for Morgan Stanley Dean Witter Charter Welton L.P.
("Charter Welton") is Welton Investment Corporation ("WIC").
WIC is a Delaware corporation which was merged from a California
corporation which was originally formed in 1988, and is registered as a CTA and
CPO with the CFTC and is a member of the NFA in such capacities. The assets of
Charter Welton will initially be traded pursuant to WIC's Diversified Portfolio,
which has been traded since April 1992, and which relies primarily on exposure
to a wide spectrum of futures markets. Subject to the prior approval of the
General Partner, WIC may, at any time, trade some or all of the Partnership's
assets among one or more of WIC's other programs and portfolios. As of July 31,
1998, WIC was managing approximately $137 million (notional funds excluded) of
client assets pursuant to its Diversified Portfolio and approximately $163
million (notional funds excluded) in all of its programs.
A full description of WIC, its principals and trading programs and
portfolios is included in "The Trading Advisors--Morgan Stanley Dean Witter
Charter Welton L.P." Read "The Trading Advisors" carefully before you decide to
invest. See "Risk Factors--Risks Relating to the Partnerships and the Offering
of Units--Past Performance Not Necessarily Indicative of Future Results."
Each Partnership conducts its business separately and independent of the
other Partnerships.
ADDITIONAL PARTNERSHIPS
In the future, additional partnerships may be added to the Charter Series
and units of limited partnership interest of such partnerships may be offered
pursuant to an updated version of, or supplement to, this Prospectus. Such
partnerships will each have a different Trading Advisor and may have
substantially different trading approaches or fee structures. A Limited Partner
should carefully review such updated version of or supplement to this Prospectus
describing any such partnership before making the decision to purchase units of
any such partnership.
TRADING POLICIES
Each Partnership requires its Trading Advisor to manage the Partnership's
funds in accordance with trading policies set forth in its Limited Partnership
Agreement. The trading policies for each Partnership are as follows:
1. The Trading Advisor will trade only in those futures interests that
have been approved by the General Partner. The Partnership normally will not
establish new positions in a futures interest for any one contract month or
option if such additional positions would result in a net long or short
position for that futures interest requiring as margin or premium more than
15% of the Partnership's Net Assets.
2. The Partnership will not acquire additional positions in any futures
interest if such additional positions would result in the aggregate net long
or short positions for all futures interests requiring as margin or premium
for all outstanding positions more than 66 2/3% of the Partnership's Net
Assets. Under certain market conditions, such as an abrupt increase in
margins required by a commodity exchange or its clearinghouse or an
inability to liquidate open positions because of daily price fluctuation
limits, or both, the Partnership may be required to commit as margin amounts
in excess of the foregoing limit. In such event, the Trading Advisor will
reduce its open positions to comply with the foregoing limit before
initiating new positions.
3. 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.
34
<PAGE>
4. The Trading Advisor will not generally take a position after the
first notice day in any futures interest during the delivery month of that
futures interest, except to match trades to close out a position on the
interbank foreign currency or other forward markets or liquidate trades in a
limit market.
5. 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."
6. The Partnership will not under any circumstances lend money to
affiliates 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.
7. The Partnership will not permit "churning" of the Partnership's
assets.
8. The Partnership will not purchase, sell, or trade securities (except
securities approved by the CFTC for investment of customer funds). The
Partnership may, however, trade in futures contracts on securities and
securities indexes, options on such futures contracts, and other commodity
options.
Material changes to the Trading Policies described above may be made only
with the prior written approval of Limited Partners owning more than 50% of
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.
The Trading Policies above are applicable to the three Partnerships
offering Units hereby. In the future, new partnerships added to the Charter
Series may have substantially different trading policies. There is no obligation
on the part of any new partnership of the Charter Series to conform its trading
policies to those set forth above.
CAPITALIZATION
The following table sets forth the capitalization of each Partnership as of
the date of this Prospectus and the pro forma capitalization of each Partnership
adjusted to reflect (i) the proceeds (at the initial offering price of $10 per
Unit) from the sale during the Initial Offering Period of the minimum number of
Units of each Partnership (400,000) and the maximum number of Units of each
Partnership (3,000,000) offered by this Prospectus, and (ii) the capital
contribution required of the General Partner based on such capitalization of
each Partnership. There will be no difference insofar as sharing of profits and
losses are concerned between Units of Limited Partnership Interest and Units of
General Partnership Interest.
<TABLE>
<CAPTION>
PRO FORMA(1)
--------------------------------
SALE OF SALE OF
OUTSTANDING MINIMUM UNITS MAXIMUM UNITS
----------- ------------- -------------
<S> <C> <C> <C>
$ $ $
Charter Graham
Limited Partnership Interest (2)........ 10 4,000,000 30,000,000
General Partnership Interest (3)........ 10 41,000 304,000
Charter Millburn
Limited Partnership Interest (2)........ 10 4,000,000 30,000,000
General Partnership Interest (3)........ 10 41,000 304,000
Charter Welton
Limited Partnership Interest (2)........ 10 4,000,000 30,000,000
General Partnership Interest (3)........ 10 41,000 304,000
</TABLE>
- ------------
(1) The pro forma amounts shown assume that all Units are sold at the initial
offering price of $10 per Unit. Subsequent to the Initial Closing, unsold
Units will be offered on a continuing basis at Monthly Closings for sale at
a price equal to 100% of the Net Asset Value of a Unit as of the close of
business on the date of
35
<PAGE>
such Monthly Closing. The actual proceeds from such sale will depend upon
the Net Asset Value per Unit at the time of sale.
(2) The $10 Limited Partnership Interests shown as outstanding represent the
interests of Mark J. Hawley (President and a Director of the General
Partner) acquired by him as the initial Limited Partner of each Partnership;
each such interest was acquired in order to permit each Partnership to be
organized as a limited partnership under the Partnership Act. At the Initial
Closing, each such interest will be redeemed and $10 will be returned to the
initial Limited Partner.
(3) The $10 General Partnership Interests shown as outstanding reflect the
initial capital contribution to each Partnership by the General Partner to
permit each Partnership to be organized as a limited partnership under the
Partnership Act. The General Partner has agreed to contribute to each
Partnership, in $1,000 increments at each Closing, an additional 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 (including the General Partner's contribution) and (b)
$25,000. Such additional contributions by the General Partner need not
exceed the amount described above and shall be evidenced by Units of General
Partnership Interest, each of which will have a Net Asset Value per Unit
equal to that of each Partnership's Net Asset Value per Unit at the date of
such Closing. Under certain conditions and where modification will not
adversely affect the interests of Limited Partners, the General Partner's
minimum investment requirements may be modified by the General Partner at
its option without notice to or the consent of the Limited Partners.
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 CPO ("Demeter" or the "General Partner"). Effective in 1977, the
General Partner became registered with the CFTC as a CPO and is currently a
member of the NFA 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, DWR and MS & Co. are wholly-owned
subsidiaries of Morgan Stanley Dean Witter & Co. ("MSDW"), which is a
publicly-owned company. MSDW, DWR, and the General Partner each may be deemed to
be a "parent" and "promoter" of the Partnerships within the meaning of the
federal securities laws.
The General Partner is or has been the general partner and CPO for 30 other
commodity pools--Dean Witter Reynolds Commodity Partners ("Commodity Partners"),
Columbia Futures Fund ("Columbia"), Dean Witter Cornerstone Fund I ("Cornerstone
I"), Dean Witter Cornerstone Fund II ("Cornerstone II"), Dean Witter Cornerstone
Fund III ("Cornerstone III"), Dean Witter Cornerstone Fund IV ("Cornerstone
IV"), Dean Witter Diversified Futures Fund Limited Partnership ("Diversified"),
Dean Witter Multi-Market Portfolio, L.P. (formerly Dean Witter Principal
Guaranteed Fund L.P.) ("Multi-Market"), Dean Witter Diversified Futures Fund II
L.P. ("Diversified II"), Dean Witter Principal Guaranteed Fund II L.P.
("Principal Guaranteed Fund II"), Dean Witter Principal Guaranteed Fund III L.P.
("Principal Guaranteed Fund III"), Dean Witter Principal Plus Fund L.P.
(including Dean Witter Principal Plus Fund Management L.P., an affiliated pool,
"Principal Plus"), Dean Witter Diversified Futures Fund III L.P. ("Diversified
III"), Dean Witter Portfolio Strategy Fund L.P. (formerly Dean Witter Principal
Secured Futures Fund L.P.) ("Portfolio Strategy"), Dean Witter Spectrum Select
L.P. (formerly Dean Witter Select Futures Fund L.P.) ("Spectrum Select"), Dean
Witter Global Perspective Portfolio L.P. ("Global"), Dean Witter World Currency
Fund L.P. ("World Currency"), DWFCM International Access Fund L.P. ("IAF"), Dean
Witter Spectrum Strategic L.P. ("Spectrum Strategic"), Dean Witter Spectrum
Global Balanced L.P. (formerly Dean Witter Spectrum Balanced L.P.) ("Spectrum
Global Balanced"), Dean Witter Spectrum Technical L.P. ("Spectrum Technical"),
DWR Chesapeake L.P. ("Chesapeake"), DWR/JWH Futures Fund L.P. ("DWR/JWH"),
Morgan Stanley Tangible Asset Fund L.P. ("MSTAF"), and DWR/Market Street Futures
Fund L.P. ("Market Street"), plus four other commodity pools which are exempt
from certain disclosure requirements pursuant to CFTC Rule 4.7. The General
Partner has served in such capacities since the inception of Commodity Partners
in February 1981 (until its termination in December 1988), February 1985 for
Columbia, the inception of Cornerstone I in December 1983 (until its termination
in December 1991), the inception of Cornerstone II and Cornerstone III in
December 1983, the inception of Cornerstone IV in December 1986, the inception
of Diversified in November 1987, the inception of Multi-Market in April 1988,
the inception of Diversified II in September 1988, the inception of Principal
Guaranteed Fund II in October 1988, the inception of Principal Guaranteed Fund
III in October 1988, the inception of Principal Plus in August 1989, the
inception of Diversified III in May 1990, the inception of Portfolio Strategy in
August 1990, the inception of Spectrum Select in March 1991, the inception of
Global in November 1991, the inception of World Currency in
36
<PAGE>
December 1992, the inception of IAF in October 1993, the inception of each of
Spectrum Strategic, Spectrum Global Balanced and Spectrum Technical in April
1994, the inception of Chesapeake in August 1994, the inception of DWR/JWH in
November 1995, the inception of MSTAF in July 1997, and the inception of Market
Street in January 1998. As of July 31, 1998, the General Partner had, in the
aggregate, approximately $1.3 billion in net assets under management, making it
one of the largest operators of managed futures funds in the United States. As
of July 31, 1998, there were approximately 100,000 investors in the commodity
pools managed by Demeter.
The responsibilities of the General Partner are described under "Fiduciary
Responsibility" and "The Limited Partnership Agreements--Management of
Partnership Affairs." The General Partner receives no compensation for its
services to the Partnerships (however, the General Partner shares office space,
equipment and staff with DWR, which receives brokerage fees from the
Partnerships, as described under "Description of Charges--Charges to Each
Partnership--2. Commodity Brokers,"). Under each Limited Partnership Agreement,
the General Partner is required to maintain its net worth at an amount not less
than 10% of the total contributions to each Partnership by all the Partners
thereof (including the General Partner's contribution) and to any other limited
partnership for which it acts as a general partner by all partners. In addition
to its current capitalization and exclusive of its anticipated investment in the
Partnerships, the General Partner will increase its net worth from time to time
as may be required as additional Limited Partners are admitted to the
Partnerships or otherwise. MSDW has contributed to the General Partner
additional 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. Under certain conditions and where modifications will not adversely affect
the interests of Limited Partners, 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. See "Capitalization."
In this connection, as reflected, respectively, in MSDW's 1997 Annual
Report and Form 10-Q for the quarter ended May 31, 1998, MSDW had total
shareholders' equity of $13,956 million and total assets of $302,287 million as
of November 30, 1997 (audited), and total shareholders' equity of $13,825
million and total assets of $380,665 million as of May 31, 1998 (unaudited).
Additional financial information regarding MSDW is included in the financial
statements filed as part of such Annual Report and Form 10-Q. MSDW will provide
to investors, upon request, copies of its most recent Forms 10-K, 10-Q and 8-K,
as filed from time to time with the SEC. Such reports will be available for
review or copying at the offices of the SEC, 450 Fifth Street, N.W., Room 1024,
Judiciary Plaza, Washington, D.C. 20549 or will be available at no charge by
writing to MSDW at 1585 Broadway, New York, New York 10036 (Attn: Investor
Relations).
DIRECTORS AND OFFICERS OF THE GENERAL PARTNER
Richard M. DeMartini, age 45, is the Chairman of the Board and a Director
of the General Partner. Mr. DeMartini is also Chairman of the Board and a
Director of Dean Witter Futures & Currency Management Inc. ("DWFCM"). Mr.
DeMartini is president and chief operating officer of DWR's Individual Asset
Management Group. He was named to this position in May of 1997 and is
responsible for Dean Witter InterCapital, Van Kampen American Capital, insurance
services, managed futures, unit trust, investment consulting services, Dean
Witter Realty, and NOVUS Financial Corporation. Mr. DeMartini is a member of the
MSDW management committee, a director of the InterCapital funds, a trustee of
the TCW/DW funds and a trustee of the Van Kampen American Capital and Morgan
Stanley retail funds. Mr. DeMartini has been with DWR his entire career, joining
the firm in 1975 as an financial advisor. He served as a branch manager,
regional director, and national sales director, before being appointed president
and chief operating officer of the Dean Witter Consumer Markets. In 1988 he was
named president and chief operating officer of Sears' Consumer Banking Division
and in January 1989 he became president and chief operating officer of Dean
Witter Capital. Mr. DeMartini has served as chairman of the board of the Nasdaq
Stock Market, Inc. and vice chairman of the board of the National Association of
Securities Dealers, Inc. A native of San Francisco, Mr. DeMartini holds a
bachelor's degree in marketing from San Diego State University.
Mark J. Hawley, age 55, is President and a Director of the General Partner.
Mr. Hawley is also President and a Director of DWFCM. Mr. Hawley joined DWR in
February 1989 as Senior Vice President and is currently the Executive Vice
President and Director of DWR's Product Management for Individual Asset
Management. In this capacity, Mr. Hawley is responsible for directing the
activities of the firm's Managed Futures, Insurance, and Unit Investment Trust
Business. From 1978 to 1989, Mr. Hawley was a member of the senior management
team at Heinold Asset Management, Inc., a CPO, and was responsible for a variety
of projects in public futures funds. From 1972 to 1978, Mr. Hawley was a Vice
President in charge of institutional block trading for the Mid-West at Kuhn Loeb
& Company.
37
<PAGE>
Lawrence Volpe, age 51, is a Director of the General Partner and DWFCM. Mr.
Volpe joined DWR as a Senior Vice President and Controller in September 1983. In
May 1998 Mr. Volpe began taking on special assignments for DWR and relinquishing
certain day-to-day responsibilities. From July 1979 to September 1983, he was
associated with E.F. Hutton & Company Inc. and prior to his departure, held the
positions of First Vice President and Assistant Controller. From 1970 to July
1979, he served as audit manager in the financial services division of Arthur
Andersen & Co.
Joseph G. Siniscalchi, age 53, is a Director of the General Partner. Mr.
Siniscalchi joined DWR in July 1984 as a First Vice President, Director of
General Accounting. He is currently Senior Vice President and Controller of the
Financial Markets Division of DWR. From February 1980 to July 1984, Mr.
Siniscalchi was Director of Internal Audit at Lehman Brothers Kuhn Loeb, Inc.
Edward C. Oelsner III, age 56, is a Director of the General Partner. Mr.
Oelsner is currently an Executive Vice President and head of the Product
Development Group at Dean Witter InterCapital Inc., an affiliate of DWR. Mr.
Oelsner joined DWR in 1981 as a Managing Director in DWR's Investment Banking
Department specializing in coverage of regulated industries and, subsequently,
served as head of the DWR Retail Products Group. Prior to joining DWR, 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. Mr.
Oelsner joined DWR in March 1981 as a Managing Director in the Corporate Finance
Department. He currently manages DWR's Retail Products Group within the
Corporate Finance Department. While Mr. Oelsner has extensive experience in the
securities industry, he has no experience in futures interests trading.
Robert E. Murray, age 37, is a Director of the General Partner. Mr. Murray
is also a Director of DWFCM. Mr. Murray is currently a Senior Vice President of
DWR's Managed Futures Department and is the Senior Administrative Officer of
DWFCM. Mr. Murray began his career at DWR 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 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.
Lewis A. Raibley, III, age 36, is Vice President and Chief Financial
Officer of the General Partner. Mr. Raibley is currently Senior Vice President
and Controller in the Individual Asset Management Group of MSDW. From July 1997
to May 1998, Mr. Raibley served as Senior Vice President and Director in the
Internal Reporting Department of MSDW 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. ("DWD"). He has been with DWD and
its affiliates since June 1986.
The General Partner and its officers and directors may, from time to time,
trade futures interests for their own proprietary accounts. The records of
trading in such accounts will not be made available to Limited Partners for
inspection.
The General Partner has agreed to make capital contributions to each
Partnership as needed 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. The General Partner and its principals are not obligated to
purchase Units but may do so.
DESCRIPTION AND PERFORMANCE INFORMATION OF COMMODITY POOLS OPERATED BY THE
GENERAL PARTNER
The following table sets forth summary information for the 24 other
commodity pools (other than the four pools exempt from disclosure under CFTC
Rule 4.7) operated to date by Demeter, fourteen of which employ one trading
advisor and ten of which employ more than one trading advisor, for which Demeter
serves as general partner. In the context of a pool with only one trading
advisor, Demeter performs general monitoring of the trading advisor and
administrative services. Generally, in the context of pools with more than one
trading advisor, in addition to providing general monitoring and administrative
services, Demeter provides asset allocation strategies in the selection and
replacement of trading advisors as well as in the allocation of assets to such
advisors.
While each of these commodity pools has essentially the same objective
(appreciation of assets through speculative trading), the structure (including
fees and interest income arrangements) and performance of these pools varies
widely. For example, certain pools employ only one trading advisor while others
employ more
38
<PAGE>
than one trading advisor (several pools employ two to four trading advisors and
some have employed more than ten trading advisors at the same time). Certain
pools are so-called "principal protection pools," offering an assurance of
principal return at a date certain. The performance records of these pools
include several pools that have traded unprofitably, including four pools that
have terminated trading due to losses; other pools that have not incurred
losses, but have not achieved significant profits; and certain pools that have
performed well over time.
All summary performance information is current as of July 31, 1998.
Performance information is set forth for the most recent five full years of each
pool, or in the event that a pool has been trading for less than five years,
performance information is set forth from the inception of trading. Rate of
return information prior to January 1, 1993 has not been included for pools that
have been trading for more than five years in accordance with CFTC regulations.
In reviewing the following summary performance information, prospective
investors should understand that (i) such performance is calculated on the
accrual basis in accordance with generally accepted accounting principles and is
"net" of all fees and charges, and (ii) 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 HEREIN AND THE
PARTNERSHIPS. THERE CAN BE NO ASSURANCE THAT THE PARTNERSHIPS WILL PERFORM IN A
MANNER COMPARABLE TO ANY OF THE COMMODITY POOLS DESCRIBED BELOW OR THAT THE
PARTNERSHIPS WOULD HAVE DONE SO IN THE PAST. INVESTORS 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.
------------------------
Prospective investors should note that the performance records of the
commodity pools operated by the General Partner are set forth in summary form
herein. A more detailed presentation of such performance information will be
provided to any prospective investor upon request and without charge.
------------------------
PAST PERFORMANCE IS NOT NECESSARILY INDICATIVE OF FUTURE RESULTS
39
<PAGE>
DEMETER MANAGEMENT CORPORATION
CAPSULE SUMMARY OF PERFORMANCE INFORMATION REGARDING COMMODITY POOLS OPERATED
(EXCEPT AS OTHERWISE INDICATED, BEGINNING JANUARY 1, 1993 THROUGH JULY 31, 1998
<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>
$ $ $ %
<CAPTION>
PUBLICLY-OFFERED FUNDS WITH ONE ADVISOR WITHOUT "PRINCIPAL PROTECTION"
<S> <C> <C> <C> <C> <C> <C>
DWR 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 10,066,174 3,102.31 216.56
DW Diversified Futures Fund L.P.(11) Apr-88 N/A 206,815,107 116,617,857 930.32 268.87
DW Multi-Market Portfolio L.265) Sep-88 N/A 252,526,000 9,265,490 1,047.69 4.77
DW Diversifed Futures Fund II L.P. Jan-89 N/A 13,210,576 9,834,005 2,453.94 145.39
DW Diversifed Futures Fund III L.P. Nov-90 N/A 126,815,755 59,520,967 1,542.55 54.26
DW Portfolio Strategy Fund L.P.(11) Feb-91 N/A 143,522,564 117,321,818 2,211.30 121.13
DWFCM International Access Fund L.P. Mar-94 N/A 68,115,440 41,189,146 1,346.03 34.60
DW Spectrum Global Balanced L.P. Nov-94 N/A 38,459,672 35,587,528 14.11 41.10
Morgan Stanley Tangible Asset Fund Jan-98 N/A 40,943,079 32,131,454 7.85 (21.50)
<CAPTION>
PUBLICLY-OFFERED FUNDS WITH MORE THAN ONE ADVISOR WITHOUT "PRINCIPAL PROTECTION"
<S> <C> <C> <C> <C> <C> <C>
DW Cornerstone Fund I(11) Jan-85 Dec-91 19,122,276 281,303 456.80 (53.15)
DW Cornerstone Fund II(11) Jan-85 N/A 65,634,484 30,038,471 3,836.58 293.50
DW Cornerstone Fund III(11) Jan-85 N/A 137,132,763 40,582,587 3,111.49 219.13
DW Cornerstone Fund IV(11) May-87 N/A 168,001,173 124,621,995 4,903.84 402.96
DW Spectrum Select L.P. Aug-91 N/A 209,210,780 158,597,376 20.43 104.30
DW Global Perspective Portfolio L.P. Mar-92 N/A 67,424,535 17,285,057 871.96 (12.80)
DW World Currency Fund L.P. Apr-93 N/A 114,945,830 28,911,706 1,001.69 0.17
DW Spectrum Strategic L.P. Nov-94 N/A 82,796,118 50,215,608 8.46 (15.40)
DW Spectrum Technical L.P. Nov-94 N/A 215,855,927 208,613,659 14.19 41.90
<CAPTION>
PUBLICLY-OFFERED FUNDS WITH ONE ADVISOR WITH "PRINCIPAL PROTECTION"
<S> <C> <C> <C> <C> <C> <C>
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.(11) Feb-90 N/A 109,013,535 50,039,306 1,771.44 77.14
<CAPTION>
PUBLICLY-OFFERED FUNDS WITH MORE THAN ONE ADVISOR WITH "PRINCIPAL PROTECTION"
<S> <C> <C> <C> <C> <C> <C>
DW Principal Guaranteed Fund II L.P. Mar-89 Mar-96 162,203,303 4,966,449 1,056.55 5.66
<CAPTION>
PRIVATELY-OFFERED FUNDS WITH ONE ADVISOR WITHOUT "PRINCIPAL PROTECTION"
<S> <C> <C> <C> <C> <C> <C>
DWR Chesapeake L.P. Nov-94 N/A 19,935,096 20,601,482 2,049.61 104.96
DWR/JWH Futures Fund L.P. Feb-96 N/A 26,435,024 21,997,333 1,078.98 7.90
<CAPTION>
WORST WORST PEAK- COMPOUND ANNUAL RATES OF RETURN(10)
MONTHLY % TO-VALLEY ----------------------------------------------------
FUND TYPE/FUND(1) DRAWDOWN(8) DRAWDOWN(9) 1998 1997 1996 1995
- -------------------------------------- ------------ ------------ --------- --------- ---------- ---------
<S> <C> <C> <C> <C> <C> <C>
% % % % % %
<CAPTION>
PUBLICLY-OFFERED FUNDS WITH ONE ADVISOR WITHOUT "PRINCIPAL PROTECTION"
<S> <C> <C> <C> <C> <C> <C>
DWR Commodity Partners (34.48) (64.23)
7/88 4/86-12/88
Columbia Futures Fund(11) (17.54) (42.58) 9.59 22.60 19.09 28.21
4/86 7/83-9/85 (7 months)
DW Diversified Futures Fund L.P.(11) (12.85) (24.86) (8.84) 11.96 (2.66) (4.56)
5/90 5/95-6/96 (7 months)
DW Multi-Market Portfolio L.265) (13.26) (29.84) (8.23) 13.28 (6.76) (6.37)
2/96 5/95-6/96 (7 months)
DW Diversifed Futures Fund II L.P. (13.41) (25.62) (8.59) 11.28 (4.83) (2.90)
8/89 5/95-6/96 (7 months)
DW Diversifed Futures Fund III L.P. (13.62) (27.00) (8.84) 12.29 (4.73) (4.02)
1/92 5/95-6/96 (7 months)
DW Portfolio Strategy Fund L.P.(11) (14.40) (25.65) (6.83)
1/92 1/92-4/92 (7 months)
DWFCM International Access Fund L.P. (12.87) (22.84) (9.19) 26.22 3.97 21.88
1/95 8/94-1/95 (7 months)
DW Spectrum Global Balanced L.P. (7.92) (10.64) 2.62 18.23 (3.65) 22.79
2/96 2/96-5/96 (7 months)
Morgan Stanley Tangible Asset Fund (6.87) (17.18) (21.50)
5/98 2/98-6/98 (7 months)
<CAPTION>
PUBLICLY-OFFERED FUNDS WITH MORE THAN ONE ADVISOR WITHOUT "PRINCIPAL PROTECTION"
<S> <C> <C> <C> <C> <C> <C>
DW Cornerstone Fund I(11) (20.88) (64.47)
8/91 4/86-8/91
DW Cornerstone Fund II(11) (11.74) (32.70) 3.00 18.05 11.47 26.50
9/89 7/88-10/89 (7 months)
DW Cornerstone Fund III(11) (18.28) (32.35) 3.94 10.24 8.24 27.50
2/89 2/89-10/89 (7 months)
DW Cornerstone Fund IV(11) (21.04) (45.21) 10.56 38.41 12.97 22.96
9/89 7/89-9/89 (7 months)
DW Spectrum Select L.P. (13.72) (26.77) (2.01) 6.22 5.27 23.62
1/92 6/95-8/96 (7 months)
DW Global Perspective Portfolio L.P. (8.55) (40.90) (9.85) 11.16 9.26 16.76
2/96 8/93-1/95 (7 months)
DW World Currency Fund L.P. (9.68) (46.04) 0.79 39.35 12.97 2.02
5/95 8/93-1/95 (7 months)
DW Spectrum Strategic L.P. (11.06) (32.10) (21.01) 0.37 (3.53) 10.49
4/98 4/97-7/98 (7 months)
DW Spectrum Technical L.P. (6.39) (8.27) (3.01) 7.49 18.35 17.59
2/96 3/97-5/97 (7 months)
<CAPTION>
PUBLICLY-OFFERED FUNDS WITH ONE ADVISOR WITH "PRINCIPAL PROTECTION"
<S> <C> <C> <C> <C> <C> <C>
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.(11) (7.48) (13.08) 3.74 15.39 (5.28) 17.98
2/96 2/96-5/96 (7 months)
<CAPTION>
PUBLICLY-OFFERED FUNDS WITH MORE THAN ONE ADVISOR WITH "PRINCIPAL PROTECTION"
<S> <C> <C> <C> <C> <C> <C>
DW Principal Guaranteed Fund II L.P. (5.62) (14.69) 1.00 7.30
1/91 8/89-4/92
<CAPTION>
PRIVATELY-OFFERED FUNDS WITH ONE ADVISOR WITHOUT "PRINCIPAL PROTECTION"
<S> <C> <C> <C> <C> <C> <C>
DWR Chesapeake L.P. (16.14) (17.80) 19.32 15.38 15.23 15.80
7/96 5/96-7/96 (7 months)
DWR/JWH Futures Fund L.P. (8.49) (19.66) (19.66) 13.66 18.17
5/97 1/98-7/98 (7 months) (11 months)
<CAPTION>
FUND TYPE/FUND(1) 1994 1993
- -------------------------------------- ---------- ---------
% %
<CAPTION>
PUBLICLY-OFFERED FUNDS WITH ONE ADVISOR WITHOUT "PRINCIPAL PROTECTION"
<S> <C> <C>
DWR Commodity Partners
Columbia Futures Fund(11) (5.75) 14.36
DW Diversified Futures Fund L.P.(11) 7.68 6.65
DW Multi-Market Portfolio L.265) 2.66 8.65
DW Diversifed Futures Fund II L.P. 5.41 7.35
DW Diversifed Futures Fund III L.P. 5.89 7.58
DW Portfolio Strategy Fund L.P.(11)
DWFCM International Access Fund L.P. (7.32)
(10 months)
DW Spectrum Global Balanced L.P. (1.70)
(2 months)
Morgan Stanley Tangible Asset Fund
<CAPTION>
PUBLICLY-OFFERED FUNDS WITH MORE THAN ONE ADVISOR WITHOUT "PRINCIPAL PROTECTION"
<S> <C> <C>
DW Cornerstone Fund I(11)
DW Cornerstone Fund II(11) (8.93) 7.81
DW Cornerstone Fund III(11) (10.04) (4.78)
DW Cornerstone Fund IV(11) (14.27) (9.12)
DW Spectrum Select L.P. (5.12) 41.62
DW Global Perspective Portfolio L.P. (31.62) (4.67)
DW World Currency Fund L.P. (25.13) (17.35)
(9 months)
DW Spectrum Strategic L.P. 0.10
(2 months)
DW Spectrum Technical L.P. (2.20)
(2 months)
<CAPTION>
PUBLICLY-OFFERED FUNDS WITH ONE ADVISOR WITH "PRINCIPAL PROTECTION"
<S> <C> <C>
DW Principal Guaranteed Fund III L.P. 1.08 5.37
DW Principal Plus Fund L.P.(11) (8.61) 11.55
<CAPTION>
PUBLICLY-OFFERED FUNDS WITH MORE THAN ONE ADVISOR WITH "PRINCIPAL PROTECTION"
<S> <C> <C>
DW Principal Guaranteed Fund II L.P. (8.12) 9.74
<CAPTION>
PRIVATELY-OFFERED FUNDS WITH ONE ADVISOR WITHOUT "PRINCIPAL PROTECTION"
<S> <C> <C>
DWR Chesapeake L.P. 11.57
(2 months)
DWR/JWH Futures Fund L.P.
</TABLE>
PAST PERFORMANCE IS NOT NECESSARILY INDICATIVE OF FUTURE RESULTS
40
<PAGE>
FOOTNOTES TO DEMETER MANAGEMENT CORPORATION PERFORMANCE INFORMATION
1. Each pool is identified by certain of the following classifications. Funds
that are "publicly-offered" are pools offered to the public pursuant to
registration in accordance with the requirements of the Securities Act of
1933, as amended. The General Partner also serves as general partner and/or
commodity pool operator to seven "privately-offered" funds, which are pools
offered in private placements exempt from registration pursuant to Section
4(2) of the Securities Act of 1933, as amended, and Rule 506 thereunder.
Performance information for four of such privately-offered funds is not
provided, consistent with CFTC Rule 4.7, and a fifth fund had not commenced
trading as of July 31, 1998. Funds with more than one advisor are pools the
assets of which are managed by more than one commodity trading advisor but
are not "multi-advisor pools" within the meaning of CFTC Rule 4.10(d)(2).
(The CFTC defines a multi-advisor pool as one in which no advisor is
allocated or intended to be allocated more than 25% of the pool's assets
available for trading.) Funds with "principal protection" are pools with an
investment feature whereby investors are guaranteed to receive back at least
the amount that they originally invested at a date certain in the future
(generally 5 to 7 years after the date of subscription). Funds without
"principal protection" are pools in which there is no guarantee of an
investor's investment. None of the privately-offered pools has a principal
protection feature.
2. "Start Date" is the month and year in which the pool commenced operations.
3. "Close Date" is the month and year in which the pool liquidated its assets
and ceased to do business.
4. "Aggregate Subscriptions" is the aggregate of all amounts ever contributed
to the pool, including investments which were subsequently redeemed by
investors.
5. "Current Total Net Asset Value" is the net asset value of the pool as of
July 31, 1998, 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 the Current Total Net Asset Value
divided by the total number of units outstanding as of July 31, 1998, or, in
the case of liquidated pools, the net asset value per unit on the date of
liquidation.
7. "Cumulative Return Since Inception" is the percentage increase or decrease
in the net asset value of a unit from inception through July 31, 1998, or,
in the case of liquidated pools, from inception through the date of
liquidation.
8. "Drawdown" means losses experienced by the relevant pool over the specified
period and is calculated on a rate of return basis, i.e., 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. "Peak-to-Valley
Drawdown" represents the greatest percentage decline from any month-end net
asset value per unit which occurs without such month-end net asset value per
unit being equaled or exceeded as of a subsequent month-end. For example, if
the net asset value per unit of a particular pool 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, whereas if the net asset value per unit had increased by $2 in
March, the January-February drawdown would have ended as of the end of
February at the $2 level. 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 in respect of each year 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 1998,
"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 was changed
to a publicly-offered fund with one advisor. 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. Multi-Market, formerly named Dean Witter Principal Guaranteed
Fund L.P., 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. Portfolio Strategy, formerly named
Dean Witter Principal Secured Futures Fund L.P., 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.
Spectrum Global Balanced was formerly named Spectrum Balanced. Spectrum
Select was formerly named Select Futures Fund; each unit of Select Futures
Fund was converted into 100 units of Spectrum Select on April 30, 1998, with
a corresponding revaluation of net asset value per unit from $2,008.20 to
$20.08. 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
through 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 returns for the
years 1993 and 1994. The performance record of Principal Plus includes the
performance of Dean Witter Principal Plus Fund Management L.P., an
affiliated pool.
41
<PAGE>
THE TRADING ADVISORS/MONEY MANAGERS
INTRODUCTION
A Partnership's ability to succeed depends largely on the success of the
trading approaches utilized by its trading advisor (each, a "Trading Advisor" or
"Money Manager," and collectively, the "Trading Advisors" or "Money Managers").
Over time, the Trading Advisor selected for a Partnership may change and a
Trading Advisor may make substantial modifications to its trading program
regarding the markets to be traded, the weights to be applied to such markets,
and the methods of execution employed. However, a Trading Advisor may not
materially alter the systematic approach of a trading program without the prior
written consent of the General Partner. The following is a brief description of
general approaches used in trading futures interests, followed by specific
information relating to the Trading Advisor of each Partnership.
A Trading Advisor's registration with the CFTC or its membership in the NFA
should not be taken as an indication that any such agency has recommended or
approved the Trading Advisor.
The Trading Advisors and their principals have no affiliation with any
futures commission merchant, introducing broker or principal thereof, and do not
and will not participate in brokerage commissions, directly or indirectly.
GENERAL DESCRIPTION OF TRADING APPROACHES
SYSTEMATIC AND DISCRETIONARY. Trading advisors may be classified as either
systematic or discretionary.
A systematic trader will generally rely to some degree on judgmental
decisions concerning, for example, what markets to follow and futures interests
to trade, when to liquidate a position in a contract which is about to expire
and how large a position to take in a particular futures interest. However,
although these judgmental decisions may have a substantial effect on a
systematic Trading Advisor's performance, his primary reliance is on trading
programs or models which generate trading signals. The systems utilized to
generate trading signals are changed from time to time (although generally
infrequently), but the trading instructions generated by the systems being used
are followed without significant additional analysis or interpretation. On the
other hand, while discretionary traders may utilize market charts, computer
programs and compilations of quantifiable fundamental information to assist them
in making trading decisions, they make trading decisions on the basis of their
own judgment and trading experience, not on the basis of trading signals
generated by any program or model.
Each approach involves certain inherent risks. Systematic traders may fail
to capitalize on market trends which their systems would otherwise have
exploited due to judgmental decisions made by them in the context of applying
their generally mechanical trading systems. Discretionary traders, on the other
hand, may decide to make trades which would not have been signaled by a trading
system and which result in substantial losses. Furthermore, any trading system
or trader may suffer substantial losses by misjudging the market. Systematic
traders tend to rely more on computerized programs than do discretionary
traders, and some consider the prospect of disciplined trading, which largely
removes the emotion of the individual trader from the trading process,
advantageous. In addition, due to their use of computers, systematic traders are
generally able to incorporate more data into a particular trading decision than
can discretionary traders. However, when fundamental factors dominate the
market, trading systems may suffer rapid and severe losses due to their
inability to respond to such factors until the reversal of trading signals, by
which time a precipitous price change may already be in progress, preventing
liquidation at anything but substantial losses.
TECHNICAL AND FUNDAMENTAL ANALYSIS. In addition to being distinguished from
one another by the criterion of whether they trade systematically or on the
basis of their discretionary evaluations of the markets, Trading Advisors are
also distinguished as relying on either "technical" or "fundamental" analysis,
or on a combination of the two. Systematic traders tend to rely on technical
analysis, because the data relevant to such analysis is more susceptible to
being isolated and quantified to the extent necessary to be successfully
incorporated into a program or mathematical model than is most "fundamental"
information, but there is no inconsistency in attempting to trade systematically
on the basis of fundamental analysis. The fundamental information which can be
evaluated by a formalized trading system is, however, limited to some extent in
that it generally must be quantifiable in order to be processed by such a
system.
Technical analysis is not based on anticipated supply and demand factors;
instead, it is based on the theory that the study of the futures markets
themselves will provide a means of anticipating prices in the future. Technical
analysis operates on the theory that market prices at any given point in time
reflect all known factors affecting the supply and demand for a particular
commodity. Consequently, technical analysis focuses not on
42
<PAGE>
evaluating those factors directly but on an analysis of market prices
themselves, theorizing that a detailed analysis of, among other things, actual
daily, weekly and monthly price fluctuations, volume variations and changes in
open interest is the most effective means of attempting to predict the future
course of price movements.
Fundamental analysis, in contrast, is based on the study of factors
external to the trading markets that affect the supply and demand of a
particular commodity in an attempt to predict future price levels. Such factors
might include weather, the economy of a particular country, government policies,
domestic and foreign political and economic events, and changing trade
prospects. Fundamental analysis theorizes that by monitoring relevant supply and
demand factors for a particular commodity, a state of current or potential
disequilibrium of market conditions may be identified that has yet to be
reflected in the price level of that commodity. Fundamental analysis assumes
that markets are imperfect, that information is not instantaneously assimilated
or disseminated and that econometric models can be constructed that generate
equilibrium prices that may indicate that current prices are inconsistent with
underlying economic conditions and will, accordingly, change in the future.
TREND-FOLLOWING. "Trend-following" Trading Advisors gear their trading
approaches towards positioning themselves to take advantage of major price
movements, as opposed to traders who seek to achieve overall profitability by
making numerous small profits on short-term trades, or through arbitrage
techniques. "Trend-following" Trading Advisors assume that most of their trades
will be unprofitable. Their objective is to make a few large profits, more than
offsetting their more numerous but smaller losses, from capitalizing on major
trends. Consequently, during periods when no major price trends develop in a
market, a "trend-following" Trading Advisor is likely to incur substantial
losses.
RISK CONTROL TECHNIQUES. As will be apparent from the following
descriptions of the respective Trading Advisors' trading programs, an important
aspect of any speculative futures strategy relates to the control of losses, not
only the ability to identify profitable trades. Unless it is possible to avoid
major drawdowns, it is very difficult to achieve long-term profitability.
Trading Advisors often adopt fairly rigid "risk management" or "money
management" principles. Such principles typically restrict the size of positions
which will be taken, as well as establishing "stop-loss" points at which losing
positions must be liquidated. It is important for prospective investors to
recognize that no risk control technique is "fail safe" and cannot, in fact,
assure that major drawdowns will be avoided. Not only do estimates of market
volatility themselves require judgmental input, but market illiquidity also can
make it impossible for an account to liquidate a position against which the
market is moving strongly, whatever risk management principles are utilized.
Similarly, unless a "trend-following" Trading Advisor trades profitably, the
losses incurred in the course of taking an initial position in a futures
interest can quickly cumulate into a major drawdown. A Trading Advisor's risk
management principles should, accordingly, be seen more as a discipline applied
to its trading in highly speculative markets, rather than as an effective
protection against loss.
Not only are some methods proprietary and confidential, but they are also
continually evolving. Prospective investors and Limited Partners will generally
not be informed of a change in a Trading Advisor's trading approach, unless the
General Partner is informed of such change and considers such change to be
material.
In addition to the continually changing character of trading methods, the
futures interests markets themselves are continually changing. Each Trading
Advisor may, in its sole discretion, elect to trade certain futures interests to
the exclusion of others in its programs, depending upon the Trading Advisor's
view of the markets.
THE TRADING ADVISORS/MONEY MANAGERS
The following contains the biographies of the principals and brief
summaries of trading programs of the Trading Advisor initially selected, and
other trading programs which may be employed in the future, for each
Partnership. The success of each Partnership is dependent upon the success of
its Trading Advisor in its trading for the Partnership. In terms of attempting
to reach an investment decision regarding the purchase of Units in any
Partnership, however, it is difficult to know how to assess Trading Advisor
descriptions, as trading methods are proprietary and confidential. Over time the
Trading Advisor selected for a Partnership may change, and a Trading Advisor may
make substantial modifications to its trading programs.
The following descriptions of the Trading Advisors, their respective
trading programs and their respective principals are general and are not
intended to be exhaustive. No attempt has been or could be made to provide a
43
<PAGE>
precise description of any Trading Advisor's trading program. Furthermore,
certain Trading Advisors may have chosen to refer to specific aspects of their
trading programs, which aspects may also be applicable to other Trading Advisors
which did not choose to make specific reference to these aspects of their own
trading approaches. As a consequence, contrasts in the following descriptions
may not, in fact, indicate a substantive difference between the different
approaches involved. The General Partner believes that the following
descriptions may be of interest to prospective investors. However, investors
must be aware of the inherent limitations of such descriptions.
FUTURES INTERESTS TRADING IS SPECULATIVE AND VOLATILE AND INVOLVES A HIGH
DEGREE OF RISK. THERE CAN BE NO ASSURANCE THAT ANY TRADING ADVISOR WILL TRADE
PROFITABLY OR AVOID SUBSTANTIAL LOSSES.
MORGAN STANLEY DEAN WITTER CHARTER GRAHAM L.P.
The Trading Advisor for Charter Graham is Graham Capital Management, L.P.
("GCM"). GCM is a Delaware limited partnership which was organized in May 1994.
GCM's main business address is Stamford Harbor Park, 333 Ludlow Street,
Stamford, Connecticut 06902. GCM has been registered with the CFTC as a CPO and
CTA since July 1994 and is a member of the NFA in such capacities. GCM is not
affiliated with the General Partner, the Commodity Brokers, or any other Trading
Advisor.
Certain key personnel of GCM are as follows:
Mr. Kenneth G. Tropin is the President, the founder, and a principal of
GCM. As President of GCM, Mr. Tropin is responsible for the investment
management strategies of the organization. He has developed GCM's trading
programs.
Prior to organizing GCM, Mr. Tropin served as President, Chief Executive
Officer and as a Director of John W. Henry & Co. Inc. ("JWH") from March 1989 to
September 1993. Mr. Tropin was formerly Senior Vice President and Director of
Managed Futures and Precious Metals at DWR. He joined DWR from Shearson in
February 1982 to run DWR's Managed Futures Department, and in October 1984 Mr.
Tropin assumed responsibility for Dean Witter Precious Metals as well. In
November 1984, Mr. Tropin was appointed President of Demeter.
In February 1986, Mr. Tropin was instrumental in the foundation of the
Managed Futures Trade Association ("MFTA"), a non-profit managed futures
industry association. Mr. Tropin was elected Chairman of the MFTA in March 1986
and held this position until 1991. In June 1987, Mr. Tropin was appointed
President of DWFCM, an affiliate of DWR. As President and Chief Executive
Officer of JWH, Mr. Tropin was responsible for the management and administration
of JWH as well as the management of its trading activities. In addition to his
responsibilities as President and Chief Executive Officer of JWH, Mr. Tropin was
President and Chief Executive Officer of JWH Investment Advisory Services Inc.
and was also the Chairman of Global Capital Management, a British Virgin Islands
company. Mr. Tropin also served as Chairman of the Managed Funds Association in
1991 and 1992, the successor organization to the Managed Futures Trade
Association and the National Association of Futures Trading Advisors.
Mr. Tropin is the President and sole shareholder of KGT, Inc., a Delaware
corporation that is the general partner of GCM. Mr. Tropin also is the principal
investor in KGT Investment Partners L.P., a Delaware limited partnership that is
the limited partner of GCM and of which KGT, Inc. is also a general partner.
Mr. Thomas Schneider is an Executive Vice President, the Chief Trader, and
a principal of GCM. Mr. Schneider is responsible for managing GCM's trading
operations, including order execution, policies and procedures, and maintaining
relationships with independent executing brokers and FCMs.
Mr. Schneider graduated from the University of Notre Dame in 1983 with a
BBA in Finance, and received his MBA from the University of Texas at Austin.
From June 1985 through September 1993, Mr. Schneider was employed by ELM
Financial, Inc. ("ELM"), a commodity trading advisor in Dallas, Texas. While
employed at ELM, Mr. Schneider held positions of increasing responsibility and
was ultimately Chief Trader, Vice President and principal of ELM, responsible
for 24 hour trading execution, compliance and accounting. In January 1994, Mr.
Schneider began working as Chief Trader for Chang Crowell Management
Corporation, a commodity trading advisor in Norwalk, Connecticut. He was
responsible for streamlining operations for more efficient order execution, and
for maintaining and developing relationships with over 15 FCMs on a global
basis. In addition to his responsibilities as Chief Trader, Mr. Schneider serves
on the Board of the New York Futures
44
<PAGE>
Exchange, has served on the MFA's Trading and Markets committee, and has been an
NFA arbitrator since 1989.
Mr. Robert Griffith is a Senior Vice President, the Chief Technology
Officer, and a principal of GCM, and is responsible for the management of all
technology resources. Mr. Griffith is in charge of the day-to-day administration
of GCM's trading systems and the management of its database of price information
on more than 100 markets. Mr. Griffith assists Mr. Tropin in numerous research
initiatives as well as various administrative responsibilities. Prior to joining
GCM, Mr. Griffith's Veridical Methods, Inc. provided computer programming and
consulting services to such firms as GE Capital, Lehman Brothers and Morgan
Guaranty Trust. He received his BBA in Management Information systems from the
University of Iowa.
Mr. Thomas K. Sullivan is a Vice President, the Director of Research, and a
principal of GCM. Mr. Sullivan is responsible for GCM's research activities,
including portfolio management, asset allocation, trading system development, as
well as policies and procedures. Prior to joining GCM in March 1997, Mr.
Sullivan was a Senior Portfolio Manager for RXR, Inc. and a member of the firm's
Management Team. He also served on RXR's Investment Policy Committee. Mr.
Sullivan directed the investment and research activity for the firm and was
responsible for portfolio management and strategy implementation. Before joining
RXR in 1988, Mr. Sullivan worked as a trading floor specialist for Floor Broker
Associates and Freeburg Futures, members of the New York Commodity Exchange. Mr.
Sullivan graduated from Miami University of Ohio in 1983 with a BS in economics
and international business.
Mr. Anthony Bryla, C.P.A., is a Vice President, the Controller, and a
principal of GCM, and is responsible for the management of all accounting and
finance activities at GCM. Mr. Bryla is in charge of the daily and monthly
performance reporting, company accounting, treasury functions, as well as
policies and procedures. Prior to joining GCM in September 1995, Mr. Bryla was
an Assistant Accounting Manager at OMR Systems Corp., where he provided
back-office and accounting services for such clients as Merrill Lynch and Chase
Manhattan Bank, and held positions of increasing responsibility since February
1989. Mr. Bryla is a member of the New Jersey Society of C.P.A.'s and graduated
from Rutgers University with a BA in Business Administration in 1982.
Mr. Paul Sedlack is a Vice President, the General Counsel, and a principal
of GCM, and is responsible for legal and compliance matters. Mr. Sedlack began
his career at the law firm of Coudert Brothers in New York in 1986 and was
resident in Coudert's Singapore office from 1988 to 1989. Prior to joining GCM
in June 1998, Mr. Sedlack was a partner at the law firm of McDermott, Will &
Emery in New York, focusing on securities and commodities laws pertaining to the
investment management and related industries. Mr. Sedlack received a J.D. from
Cornell Law School and an MBA in Finance and BS in Engineering from State
University of New York at Buffalo.
Mr. Kevin O'Connor is a Vice President, Senior Trader, and principal of
GCM. Mr. O'Connor is a senior member of the trading staff responsible for
executing trades in accordance with GCM's five systems, and works closely with
Mr. Schneider in managing the firm's daily trading operations. Prior to joining
GCM, from June 1992 until June 1995, Mr. O'Connor was a Vice President and
Controller for Luck Trading Company, a commodity trading advisor in New York
City. From January 1981 until June 1992, Mr. O'Connor was a Controller and
Senior Trader for Futures Investment Company, a commodity trading advisor based
in Greenwich, CT. Mr. O'Connor graduated from Providence College in 1980 with a
BS in Accounting.
Dr. Shawn X. Deng is a quantitative research analyst and works in
conjunction with other members of GCM's research staff on investment strategies,
technology, and software development. Prior to joining GCM in October 1996, Dr.
Deng was a senior software engineer at AutoLogic Information Technology, Inc.,
where he implemented client/server management and software release systems.
Before he joined AutoLogic, he worked at Online Environs, Inc., where he
developed state-of-the-art three-dimensional network browsers. Dr. Deng received
his M.Sc. and Ph.D. in mechanical engineering in 1996 from Harvard University,
specializing in solid mechanics and finite element analysis. While at Harvard,
he was the principal investigator of a research grant for the optimal design,
fracture analysis and fatigue life assessment of Boeing 737 aircraft fuselages,
and was awarded the DAS Fellowship and the Golden McKay Scholarship. Before
attending Harvard, he was co-founder and vice president of Global Computer
Consulting Company, Xian, China, which provided traffic, human resource and
financial management systems for the city of Xian. Dr. Deng received his B.Eng.
in 1987 and M.Eng. in 1990 from Xian Jiaotong University, China, and was the
valedictorian of his class.
Dr. Brian Aldershof is a quantitative research analyst with significant
expertise in mathematics and statistics. Prior to joining GCM in May 1997, Dr.
Aldershof was a professor of mathematics at Lafayette College
45
<PAGE>
in Easton, PA. Dr. Aldershof's research interests center on non-linear
stochastic systems, especially genetic algorithms. Dr. Aldershof received his MS
(1990) and Ph.D. (1991) in Statistics from the University of North Carolina at
Chapel Hill, where he was a Pogue Fellow. His research in graduate school
concerned estimating functionals of probability density functions. During this
time, he was a consultant for the RAND Corporation, the Center for Naval
Analyses, and the Environmental Protection Agency. Dr. Aldershof received his
A.B. (1985) from Middlebury College, where he completed a double major in
Mathematics and Psychology.
Mr. Robert G. Christian, Jr. is a quantitative research analyst with
significant experience in non-price based and short-term trading systems. Prior
to joining GCM in August 1998, Mr. Christian was associated with Stonebrook
Capital Management, Inc., where he focused on research and trading, from July
1997 to August 1998. From June 1995 to August 1998, he also managed his own
private trading firm, Modoc Capital Management. From August 1990 to June 1995,
Mr. Christian was a Vice President, global technical strategist and proprietary
trader for Chase Manhattan Futures Corporation based in New York. Mr. Christian
received an M.B.A. in finance from the Stern School of Business at New York
University in 1990 and a B.A.S. in Biology and Economics from Stanford
University in 1985.
Mr. Timothy C. Lee is a quantitative research analyst with significant
experience in non-price based and short-term trading systems. Prior to joining
GCM in August 1998, Mr. Lee directed non-price based trading and research at
Stonebrook Capital Management, Inc. from June 1993 to August 1998. From March
1992 to May 1993, Mr. Lee was a quantitative research analyst and proprietary
trader for Investment Management Services, Inc., an introducing broker
affiliated with Moore Capital Management, Inc. From September 1991 to March
1992, Mr. Lee was a quantitative research analyst and proprietary trader for
Moore Capital Management, Inc. From September 1988 to September 1991, Mr. Lee
was a proprietary trader and quantitative research analyst for Niederhoffer
Investments. Mr. Lee received a B.S. in Operations Research from Columbia
University in 1990.
During the five years preceding the date of this Prospectus, there have
been no material administrative, civil or criminal actions, including actions
pending, on appeal or concluded, against GCM or its principals.
GCM and its principals may, from time to time, trade futures interests
contracts for their own proprietary accounts. Such trades may or may not be in
accordance with the GCM trading programs described below.
Systematic Trading Approach
GCM primarily relies on technical rather than fundamental information as
the basis for its trading decisions. GCM believes that it can over time
successfully anticipate market events using its quantitative mathematical models
to determine its trading activities, as opposed to attempting to properly
forecast price trends using subjective analysis of supply and demand. The
primary objective of the trading systems is to establish positions in markets
where the price action of a particular market signals the computerized systems
used by GCM that a potential trend in prices is occurring. The systems are
designed to mathematically analyze the recent trading characteristics of each
market and statistically compare such characteristics to the long term
historical trading pattern of the particular market. As a result of this
analysis, the program will utilize proprietary risk management and trade filter
strategies which are intended to enable the system to benefit from sustained
price trends while protecting the account from unacceptable levels of risk and
volatility exposure.
GCM generally uses multiple trading systems in managing capital for most
clients. These strategies are similar in philosophy but can have significant
differences in terms of methodology. GCM expects all of its investment
strategies to experience favorable results over time, and believes that the
historical analysis of utilizing multiple trading systems indicates that
diversifying the management of an investor's capital between the methodologies
will enhance performance while reducing volatility and risk.
Discretionary Trading Group
In February 1998, GCM established the Discretionary Trading Group ("DTG")
to trade proprietary capital using a discretionary trading approach. This group
generally utilizes fundamental information as well as certain technical data as
the basis for its trading strategies. Unlike GCM's computerized trading programs
which are wholly based on mathematical models, the discretionary traders rely on
their personal judgment to determine which markets to trade, when to enter or
exit a position and when to take a profit or loss. Their trading decisions may
be based on a fundamental view of the market which can be of either a long or
short term time horizon, information flow, technical research, and many other
factors. The DTG participates in the global macro markets including foreign
exchange, fixed income, futures and cash markets.
46
<PAGE>
The DTG's performance results will, in general, not be correlated to GCM's
other trading programs or other discretionary traders. Each member of the DTG
has had several years of experience in discretionary trading prior to joining
GCM and has demonstrated historically the ability to generate significant
returns with low relative risk.
The GCM Trading Programs
GCM will initially trade 100% of Charter Graham's assets pursuant to its
Global Diversified Program, as described below, at 1.5 times the leverage it
normally applies for such program. Margin requirements over time normally are
expected to average about 15% to 20% of equity for accounts traded pursuant to
the Global Diversified Program; thus, margin requirements for Charter Graham
over time are expected to average about 20% to 30% of Charter Graham's Net
Assets. Increased leverage will alter risk exposure and may lead to greater
profits and losses and trading volatility. See "Risk Factors--Risks Relating to
Future Interests Trading and the Futures Interests Markets--Futures Interests
Trading is Highly Leveraged." Subject to the prior approval of the General
Partner, GCM may, at any time, trade a portion of the Partnership's assets among
one or more of GCM's other programs and/or GCM's discretionary trading approach,
and at an increased or reduced rate of leverage.
Markets traded by GCM pursuant to its various programs are described below.
Each GCM trading program generally entails a consistent approach to all markets
traded by that program. GCM conducts ongoing research regarding expanding the
number of markets each program trades to further the objective of portfolio
diversification. Particular futures interests markets may be added to, or
deleted from, a program at any time without notice. Portfolios may be rebalanced
with respect to the weighting of existing markets at any time without notice.
Additions, deletions and rebalancing decisions with respect to each program are
made based on a variety of factors, including performance, risk, volatility,
correlation, liquidity and price action, each of which factors may change at any
time.
Global Diversified Program
The Global Diversified Program ("GDP") utilizes multiple computerized
trading models which are designed to participate in the potential profit
opportunities of approximately 70 global markets. This program features broad
diversification in both financial and non-financial markets.
The strategies which are utilized are primarily long term in nature and are
intended to generate significant returns over time with low relative risk and
volatility characteristics. The computer models on a daily basis analyze the
recent price action, the relative strength, and the risk characteristics of each
market and compare statistically the quantitative results of this data to years
of historical data on each market.
The GDP will normally have approximately 29% weighting in futures contracts
based on short term and long term global interest rates (including U.S. and
foreign bonds, notes and Eurodollars), 35% in currency forwards (including major
and minor currencies), 7% in stock index futures (including all major indices),
15% in agricultural futures (including grains, meats and softs), 10% in metal
futures (including gold, aluminum and copper), and 4% in energy futures
(including crude oil and natural gas). The actual weighting and leverage used in
each market will change over time due to liquidity, price action, and risk
considerations.
GCM rebalances the weighting of each market in the portfolio on a monthly
basis so as to maintain, on a volatility and risk adjusted basis, consistent
exposure to each market over time.
International Financial Program
The International Financial Program ("IFP") uses multiple proprietary
trading systems to manage clients' capital. Unlike GCM's other programs, which
emphasize broad participation in markets such as agriculture, metals, energy,
livestock, and soft commodities, the IFP concentrates its trading activities in
foreign exchange, global interest rates, and stock indices (including the
contracts mentioned for these markets under the GDP description above). Although
less diversified than GCM's other programs, the IFP emphasizes those financial
markets that have historically provided the most consistent profit opportunities
to GCM. As a result, the performance of the IFP may vary significantly from
GCM's other programs. Additionally, the IFP utilizes a moderately higher degree
of leverage than the GDP and may, as a result, experience greater returns and a
higher degree of volatility.
Graham Global FX Program
The Graham Global FX Program ("GGFX") was developed to meet the investment
objectives of institutional clients who wish to participate in the foreign
exchange markets utilizing the trading strategies of GCM.
47
<PAGE>
This program uses a lower degree of leverage than the GDP and may, as a result,
experience more conservative returns and a lower degree of volatility.
The GGFX utilizes GCM's computerized models in approximately 20
cross-currency relationships including cross rates in both major and minor world
currencies. Virtually all of the program's trading is conducted in 24 interbank
currency markets. The program will normally maintain positions in approximately
half the markets it follows, and its overall leverage will average from 2:1 to
3:1.
The GGFX is designed for investors who want specific exposure to systematic
currency trading. The GGFX is also used by financial institutions who want to
out-source a portion of their proprietary trading. GCM can tailor the leverage
and risk/reward objectives of the GGFX to meet the needs of each client.
Graham Selective Trading Program
The Graham Selective Trading Program ("GST") was developed in 1997 and
utilizes a completely different trading system than other GCM programs. The GST
uses a mathematical model to identify certain price patterns which have very
specific characteristics indicating that there is a high probability that a
significant directional move will occur. Although the system does not trade
against the market trend, it is not a true trend-following system inasmuch as it
will only participate in very specific types of market moves which meet the very
restrictive criteria of the model. As a result, it may frequently not
participate in market trends in which virtually all trend-following systems
would have a position. The program trades in approximately 57 markets with
approximate weighting of 35% in foreign exchange, 30% in global interest rates,
5% in stock index futures, 16% agricultural futures, 11% in metal futures, and
3% in energy futures. Due to the extremely selective criteria of the GST model,
the program will normally maintain a neutral position in approximately 60% to
80% of the markets in the portfolio.
Natural Resource Program
The Natural Resource Program ("NRP") participates only in potential profit
opportunities of production-type commodities. The trading approach is primarily
based on the philosophy that production commodities, unlike financial futures,
are mean-reverting over time. In GCM's opinion, when commodities such as grains
become very expensive relative to their cost of production and their long term
historical price level, these markets will eventually experience mean-reversion.
Under this scenario, they eventually return to their "normal" price, or even a
discount to this level, due to increased production caused by attractive price
levels for producers. Conversely, when a commodity becomes very cheap relative
to its production cost and long term price history, eventually this commodity
will rise in value to its normal price, and potentially a premium over this
price, as production diminishes due to low profitability levels for producers.
GCM believes that the mean reversion process will normally occur over
several years in each market as producers increase production to take advantage
of prices which are high by historical standards or, alternatively, cut
production when prices become too cheap to generate a profit for a producer.
These cyclical patterns vary in time and magnitude; however, they can provide
excellent profit potential for trading strategies which GCM has specifically
designed in an effort to take advantage of market valuations which are
unsustainable over time.
The NRP will participate in several sectors of production-type markets,
including grains, livestock, energy, soft commodities, base and precious metals.
One of the most significant advantages of the NRP is its lack of performance
correlation to other types of managed futures programs or traditional asset
classes.
Past Performance of GCM
Set forth below in Capsules A, B, C, D and E is the past performance
history of GCM for client accounts. Capsule A-1 is a pro forma of an account
from Capsule A, adjusted for the increased leverage to be employed by GCM for
Charter Graham, and also adjusted for the brokerage, management, and incentive
fees to be applied to Charter Graham. The footnotes following Capsule E are an
integral part of each Capsule.
INVESTORS 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 GCM OR CHARTER GRAHAM
IN THE FUTURE, SINCE PAST PERFORMANCE IS NOT A GUARANTEE OF FUTURE RESULTS.
THERE CAN BE NO ASSURANCE THAT GCM OR THE PARTNERSHIP WILL MAKE ANY PROFITS AT
ALL OR WILL BE
48
<PAGE>
ABLE TO AVOID INCURRING SUBSTANTIAL LOSSES. INVESTORS 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 FUTURES INTEREST TRADING.
CAPSULE A
GRAHAM CAPITAL MANAGEMENT, L.P.
GLOBAL DIVERSIFIED PROGRAM
Name of CTA: Graham Capital Management, L.P.
Name of program: Global Diversified Program
Inception of trading by CTA: July 1994
Inception of trading in program: July 1994
Number of open accounts: 14
Aggregate assets overall: $465,000,000
Aggregate assets in program: $329,608,000
Largest monthly drawdown: (8.58)% - (6/98)
Worst peak-to-valley drawdown: (17.56)% - (4/98-7/98)
1998 year-to-date return (7 months): (9.85)%
1997 annual return: 4.97%
1996 annual return: 14.14%
1995 annual return: 23.20%
1994 annual return (6 months): (3.73)%
CAPSULE A-1
GRAHAM CAPITAL MANAGEMENT, L.P.
PRO FORMA OF AN ACCOUNT FROM CAPSULE A
GLOBAL DIVERSIFIED PROGRAM
Largest monthly drawdown: (11.19)% - (2/96)
Worst peak-to-valley drawdown: (19.69% - (4/98-7/98)
1998 year-to-date return (7 months): (10.72)%
1997 annual return: 6.51%
1996 annual return: 20.80%
1995 annual return: 32.82%
1994 annual return (6 months): (5.30)%
CAPSULE B
GRAHAM CAPITAL MANAGEMENT, L.P.
INTERNATIONAL FINANCIAL PROGRAM
Name of CTA: Graham Capital Management, L.P.
Name of program: International Financial Program
Inception of trading by CTA: July 1994
Inception of trading in program: January 1996
Number of open accounts: 1
Aggregate assets overall: $465,000,000
Aggregate assets in program: $4,633,000
Largest monthly drawdown: (7.93)% - (6/98)
Worst peak-to-valley drawdown: (17.16)% - (4/98-7/98)
1998 year-to-date return (7 months): (12.45)%
1997 annual return: 5.14%
1996 annual return: 13.98%
PAST PERFORMANCE IS NOT NECESSARILY INDICATIVE OF FUTURE RESULTS
49
<PAGE>
CAPSULE C
GRAHAM CAPITAL MANAGEMENT, L.P.
NATURAL RESOURCE PROGRAM
Name of CTA: Graham Capital Management, L.P.
Name of program: Natural Resource Program
Inception of trading by CTA: July 1994
Inception of trading in program: September 1996
Number of open accounts: 3
Aggregate assets overall: $465,000,000
Aggregate assets in program: $36,313,000
Largest monthly drawdown: (5.72)% - (10/97)
Worst peak-to-valley drawdown: (17.54)% - (1/97-11/97)
1998 year-to-date return (7 months): 8.53%
1997 annual return: (16.30)%
1996 annual return (4 months): 2.73%
CAPSULE D
GRAHAM CAPITAL MANAGEMENT, L.P.
GLOBAL FX PROGRAM
Name of CTA: Graham Capital Management, L.P.
Name of program: Global FX Program
Inception of trading by CTA: July 1994
Inception of trading in program: May 1997
Number of open accounts: 5
Aggregate assets overall: $465,000,000
Aggregate assets in program: $25,306,000
Largest monthly drawdown: (3.58)% - (2/98)
Worst peak-to-valley drawdown: (8.01)% - (12/97-7/98)
1998 year-to-date return (7 months): (6.31)%
1997 annual return (8 months): 4.52%
CAPSULE E
GRAHAM CAPITAL MANAGEMENT, L.P.
SELECTIVE TRADING PROGRAM
Name of CTA: Graham Capital Management, L.P.
Name of program: Graham Selective Trading Program
Inception of trading by CTA: July 1994
Inception of trading in program: September 1997
Number of open accounts: 1
Aggregate assets overall: $465,000,000
Aggregate assets in program: $48,016,000
Largest monthly drawdown: (3.0)% - (6/98)
Worst peak-to-valley drawdown: (4.65%) - (3/98-7/98)
1998 year-to-date return (7 months): (2.04)%
1997 annual return (4 months): 2.11%
PAST PERFORMANCE IS NOT NECESSARILY INDICATIVE OF FUTURE RESULTS
Footnotes to GCM Capsules A, B, C, D and E Performance Summaries
"Inception of trading by CTA" is the date on which GCM began trading client
accounts.
"Inception of trading in program" is the date on which GCM began trading
client accounts pursuant to the program shown.
"Number of open accounts" is the number of accounts directed by GCM
pursuant to the program shown as of July 31, 1998.
50
<PAGE>
"Aggregate assets overall" is the aggregate amount of assets in accounts
under the management of GCM as of July 31, 1998, and includes client and
proprietary funds and notional equity. Notional equity represents the additional
amount of equity that exceeds the amount of equity actually committed to GCM for
management.
"Aggregate assets in program" is the aggregate amount of assets in the
program specified as of July 31, 1998, and includes client and proprietary funds
and notional equity.
"Largest monthly drawdown" is the largest loss experienced in the program
in any calendar month during the most recent five calendar years and
year-to-date expressed as a percentage of the total equity in the program and
includes the month and year of such drawdown.
"Worst peak-to-valley drawdown" means the greatest cumulative percentage
decline in month-end net asset value due to losses sustained 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.
"Annual and year-to-date return" is computed on a compounded monthly basis
assuming reinvestment of accrued profits. Rate of Return is computed by
reference to total equity in the program. These numbers represent the composite
performance of all accounts in the program, not the performance of any specific
account.
Footnotes to GCM Capsule A-1 Pro Forma Performance Summary
Capsule A-1 above reflects pro forma rates of return, which are the result
of the General Partner making certain pro forma adjustments to the actual past
performance record of a client account managed pursuant to the GDP, the trading
program to be employed for Charter Graham by GCM. The pro forma adjustments are
an attempt approximately to reflect the brokerage, management and incentive
fees, and interest income, and the degree of leverage to be applied for Charter
Graham, as opposed to the fees, expenses, and interest income and leverage
applicable to the account.
CAPSULE A-1 MUST BE READ IN CONJUNCTION WITH THE DESCRIPTION OF GCM AND ITS
TRADING PROGRAMS ABOVE. FURTHERMORE, PROSPECTIVE INVESTORS MUST BE AWARE THAT
PRO FORMA RATES OF RETURN HAVE CERTAIN 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 NEW 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, LEVERAGE, AND OTHER FACTORS APPLICABLE TO CHARTER GRAHAM AS COMPARED TO
GCM'S ACTUAL TRADING; AND (B) THERE ARE DIFFERENT MEANS BY WHICH THE PRO FORMA
ADJUSTMENTS COULD HAVE BEEN MADE. INVESTORS SHOULD ESPECIALLY NOTE THAT GCM HAS
NEVER TRADED AT THE FEE STRUCTURE APPLICABLE TO CHARTER GRAHAM. AS OF THE DATE
OF THIS PROSPECTUS, CHARTER GRAHAM HAS NOT BEGUN TRADING.
WHILE THE GENERAL PARTNER BELIEVES THAT THE INFORMATION SET FORTH IN
CAPSULE A-1 IS RELEVANT TO EVALUATING AN INVESTMENT IN CHARTER GRAHAM, NO
REPRESENTATION IS OR COULD BE MADE THAT THE TABLE PRESENTS WHAT THE RESULTS OF
CHARTER GRAHAM WOULD HAVE BEEN IN THE PAST OR ARE LIKELY TO BE IN THE FUTURE.
PAST RESULTS ARE NOT A GUARANTEE OF FUTURE RESULTS.
MORGAN STANLEY DEAN WITTER CHARTER MILLBURN L.P.
The Trading Advisor for Charter Millburn is Millburn Ridgefield Corporation
("MRC"). MRC is a Delaware Corporation which was organized in May 1982. MRC's
main business address is 411 West Putnam Avenue, Greenwich, Connecticut 06830.
MRC has been registered with the CFTC as a CTA since July 1982 and as a CPO
since September 1984 and is a member of the NFA in such capacities. MRC is not
affiliated with the General Partner, the Commodity Brokers, or any other Trading
Advisor.
The principals of MRC are as follows:
Mr. Harvey Beker is President, Co-Chief Executive Officer and a Director of
MRC and The Millburn Corporation, and a partner of ShareInVest Research L.P. He
received a Bachelor of Arts degree in economics from New York University in 1974
and a Master of Business Administration degree in finance from NYU in
51
<PAGE>
1975. From June 1975 to July 1977, Mr. Beker was employed by Loeb Rhoades, Inc.
where he developed and traded silver arbitrage strategies. From July 1977 to
June 1978, Mr. Beker was a futures trader at Clayton Brokerage Co. of St. Louis.
Mr. Beker has been employed by The Millburn Corporation since June 1978. During
his tenure at Millburn, he has been instrumental in the development of the
research, trading and operations areas. Mr. Beker became a principal of the firm
in 1982.
Mr. George E. Crapple is Co-Chief Executive Officer, Vice-Chairman and a
Director of MRC, Vice-Chairman and a Director of The Millburn Corporation and a
partner of ShareInVest Research L.P. In 1966 he graduated with honors from the
University of Wisconsin where his field of concentration was economics and he
was elected to Phi Beta Kappa. In 1969 he graduated from Harvard Law School,
magna cum laude, where he was a member of the Harvard Law Review. He was a
lawyer with Sidley & Austin, Chicago, Illinois, from 1969 until April 1, 1983,
and a partner since 1975, specializing in commodities, securities, corporate and
tax law. He was first associated with MRC in 1976 and joined MRC on April 1,
1983 on a full-time basis. Mr. Crapple is a member of the Board of Directors,
Executive and Appeals Committees and a former Chairman of the Eastern Regional
Business Conduct Committee of the NFA, Vice-Chairman of the Board of Directors
and a member of the Executive Committee of the Managed Funds Association, a
member of the Financial Products Advisory Committee of the CFTC and a former
member of the Board of Directors of the Futures Industry Association.
Mr. Mark B. Fitzsimmons is a Senior Vice-President of MRC and The Millburn
Corporation and a partner of ShareInVest Research L.P. His responsibilities
include both marketing and investment strategy. He graduated summa cum laude
from the University of Bridgeport, Connecticut in 1970 with a B.S. in economics.
His graduate work was done at the University of Virginia, where he received a
certificate of candidacy for a Ph.D. in economics in 1973. He joined Millburn
Ridgefield in January 1990 from Morgan Stanley & Co. Incorporated, where he was
a principal and manager of institutional foreign exchange sales and was involved
in strategic trading for the firm. From 1977 to 1987 he was with Chemical Bank
New York Corporation, first as a Senior Economist in Chemical's Foreign Exchange
Advisory Service and later as a Vice-President and Manager of Chemical's
Corporate Trading Group. While at Chemical he also traded both foreign exchange
and fixed income products. From 1973 to 1977 Mr. Fitzsimmons was employed by the
Federal Reserve Bank of New York, dividing his time between the International
Research Department and the Foreign Exchange Department.
Mr. Barry Goodman is Executive Vice-President, Director of Trading and
Co-Director of Research of MRC and The Millburn Corporation and a partner of
ShareInVest Research L.P. His responsibilities include overseeing the firm's
trading operation and managing its trading relationships, as well as the design
and implementation of trading systems. He graduated magna cum laude from Harpur
College of the State University of New York in 1979 with a B.A. in economics.
From 1980 through late 1982 he was a commodity trader for E. F. Hutton & Co.,
Inc. At Hutton he also designed and maintained various technical indicators and
coordinated research projects pertaining to the futures markets. He joined MRC
in 1982 as Assistant Director of Trading.
Mr. Dennis B. Newton is a Senior Vice-President of MRC. His primary
responsibilities are in administration and marketing. Prior to joining MRC in
September 1991, Mr. Newton was President of Phoenix Asset Management, Inc., a
registered commodity pool operator from April 1990 to August 1991. Prior to his
employment with Phoenix, Mr. Newton was a Director of Managed Futures with
Prudential-Bache Securities Inc. from September 1987 to March 1990. Mr. Newton
joined Prudential-Bache from Heinold Asset Management, Inc., where he was a
member of the senior management team. Heinold was a pioneer and one of the
largest sponsors of funds utilizing futures and currency forward trading.
Mr. Grant N. Smith is Executive Vice-President and Co-Director of Research
of MRC and The Millburn Corporation and a partner of ShareInVest Research L.P.
He is responsible for the design, testing and implementation of quantitative
trading strategies, as well as for planning and overseeing the computerized
decision-support systems of the firm. He received a B.S. degree from the
Massachusetts Institute of Technology in 1974 and an M.S. degree from M.I.T. in
1975. While at M.I.T. he held several teaching and research positions in the
computer science field and participated in various projects relating to database
management. He joined MRC in 1975.
Malcolm H. Wiener is the founder and non-executive Chairman of MRC, The
Millburn Corporation and ShareInVest Research L.P., serves as an adviser to
these entities, and is a major investor in funds managed by MRC and ShareInVest
Research L.P. He does not, however, have investment or operational authority or
responsibility for any of these entities or supervisory authority over their
officers or employees. Mr. Wiener is also a Director of MRC and The Millburn
Corporation. Mr. Wiener graduated magna cum laude from Harvard College in 1957,
where his field of concentration was economics and he was elected to Phi Beta
Kappa. From 1957 to 1960 he served as an officer in the United States Navy. Mr.
Wiener graduated from Harvard Law School
52
<PAGE>
in 1963 and practiced law in New York City, specializing in corporate law and
financial transactions, until 1973. Mr. Wiener began research on and the trading
of futures contracts pursuant to systematic trading methods and money management
principles in 1971 and the management on a full time basis of private funds in
this area in 1973. He is the author of numerous papers on the history of trade
and is a member of the Council on Foreign Relations. He serves on the boards or
visiting committees of various non-profit institutions, including the Kennedy
School of Government and the Wiener Center for Social Policy at Harvard
University, the Harvard Art Museums, the Metropolitan Museum of Art in New York,
the Museum of Fine Arts in Boston, the American School of Classical Studies in
Athens, and the Council on Economic Priorities in New York.
During the five years preceding the date of this Prospectus, there have
been no material administrative, civil or criminal actions, including actions
pending, on appeal or concluded, against MRC or its principals.
MRC and its principals may, from time to time, trade futures interests
contracts for their own proprietary accounts. Such trades may or may not be in
accordance with the MRC trading programs described below.
The objective of MRC's trading method is to participate in all major
sustained price moves in the markets traded. MRC regards its approach as
long-term in nature. MRC will make trading decisions pursuant to its trading
method which includes technical trend analysis (and certain non-trend-following
technical systems) and the money management principles described below, which
may be revised from time to time. Given trends in price of sufficient duration
and magnitude, these trading systems may be profitable even though more than
half of all individual trades are unprofitable. A period of time without such
trends, however, may result in substantial losses. MRC has a substantial ongoing
research effort to improve its currency and futures trading method and to apply
its quantitative analysis expertise to new financial products.
MRC considers its methodology to be an exercise in risk control. It
includes systems applicable to each market traded individually and money
management principles applicable to a portfolio as a whole.
The first step in the methodology is developing intermediate to long-term
trading systems which generate long or short (buy or sell) decisions in a
particular market based on the direction of the price trend in the market.
Trading is limited to markets which MRC believes are sufficiently liquid in
respect of the amount of trading contemplated. MRC has developed hundreds of
trading systems using classes of quantitative models and classes of data such as
price, volume and interest rates. The full range of systems will be tested in
each market against five, ten or fifteen years of historical data to simulate
the results each system would have achieved in the market had it been used to
make trading decisions during the simulation period.
The performance of all systems in the market are ranked, and three or four
systems are selected which make decisions in different ways at different times.
This multi-system approach ensures that the total risk intended to be taken in a
market pursuant to trend-following strategies is spread over several different
strategies. For example, if four systems are used to trade crude oil, the
maximum position would be traded if all four were long or short. If two were
long and two short, they would cancel each other out and a flat position in
crude oil would be signaled. The effect of the multi-system approach is that in
periods where the technical picture is unclear, the systems disagree and
positions will be light or flat, but when all systems agree on the trend,
maximum positions will be traded.
In certain markets, MRC also uses short-term systems based on intra-day
tick data. Minute-by-minute prices are used to identify "quiet" as opposed to
"noisy" periods, and trades may be implemented with or counter to the short-term
trend, depending on conditions.
In certain markets, MRC also uses an options strategy which focuses on
options' implied volatility. When volatility is low, the probability of
trend-following directional signals being profitable increases, and trades are
implemented by buying at the money or slightly out of the money options. The
nature of options results in an increase in leverage as a position becomes
profitable and a decrease in leverage as a position becomes unprofitable.
The volatility overlay is also a part of individual market risk management.
This system measures the risk in the portfolio's position in a market, again,
for example, crude oil, by analyzing the current and past volatility of the
position. The volatility overlay signals a decrease in position size when risk
increases and an increase in position size when risk decreases. Risk is a
function of both price level and price volatility. For example, a 100,000 barrel
crude oil position is worth more and is, therefore, more risky with oil at $30
than with oil at $10. Similarly, if prices were moving in a 5% range daily, oil
is more risky than if prices were moving in a 1% range daily. The volatility
overlay maintains overall portfolio risk and distribution of risk across markets
within designated ranges. It is applied to all three systematic strategies
described in the three preceding paragraphs. A
53
<PAGE>
secondary benefit of the volatility overlay can be timely taking of profits,
since markets tend to become more volatile after a profitable trend has been
long underway, and the volatility underlay often signals position reductions
before trend reversals.
The second category of risk control involves money management principles
applicable to the portfolio as a whole, rather than to individual markets. The
first principle is portfolio diversification, which further improves the quality
of profits by reducing volatility. In any currency and futures portfolio, MRC
will select markets and assign them weightings to achieve broad diversification.
Factors considered include profitability, liquidity, market depth, correlation
of losing periods, and MRC's trading experience. MRC seeks a portfolio where
returns from trading various markets are not highly correlated; returns are not
all positive or negative at the same time.
Additional money management principles applicable to the portfolio as a
whole include: limiting the assets committed as margin, generally within a range
of 15% to 30% (22.5% to 45% for accounts traded at 150% of standard leverage) of
an account's net assets at exchange minimum margins (including imputed margins
on forward positions), although the amount committed to margin at any time may
be substantially higher; prohibiting pyramiding (that is, using unrealized
profits in a particular market as margin for additional positions in the same
market); and changing the equity utilized for trading by an account solely on a
controlled periodic basis rather than as an automatic consequence of an increase
in equity resulting from trading profits.
The final risk control money management principle is careful control of
leverage or portfolio size. This is determined by simulating the entire
portfolio -- all markets, all systems, all risk control overlays, the exact
weightings of the markets in the portfolio, and the proposed level of leverage
- -- over the past five or ten years to determine the worst case experienced by
the portfolio in the simulation period. The worst case is measured from a daily
high in portfolio assets to the subsequent daily low, whether that occurs days,
weeks or months after the daily high (a peak-to-trough drawdown). If the
drawdown is considered too severe, the leverage or portfolio size is reduced.
Decisions whether to trade a particular market will be based upon various
factors, including the liquidity of the market, its significance in terms of the
desired degrees of concentration and diversification, and its profit potential,
both historically and at a given time. These decisions will require the exercise
of judgment. The decision not to trade certain markets for certain periods, or
to reduce the size of a position in a particular market, may result at times in
missing significant profit opportunities.
The money management principles, computer assisted research into historical
trading data, and experience of the principals of MRC are factors upon which
decisions concerning the percentage of assets to be used for each market traded
and the size of positions taken or maintained will be based. From time to time
decisions to increase, decrease, cover or reverse a futures, forward or option
position may be made which are not signaled by the systematic technical trading
systems. Such decisions also require the exercise of judgment and may include
consideration of the volatility of the particular market; the pattern of price
movement, both inter-day and intra-day; open interest; volume of trading;
changes in spread relationships between various forward contracts; and overall
portfolio balance and risk exposure.
With respect to the execution of trades, MRC may rely to an extent on the
judgment of others, including dealers, bank traders and floor brokers. No
assurance is given that it will be possible to execute trades regularly at or
near the desired buy or sell point.
Although MRC adjusts the leverage at which it trades different portfolios
to reflect the number of markets traded and the weightings of the various
markets, it does not at the present time utilize different systems or methods
depending on the markets traded in a portfolio. Whether MRC is trading the
Diversified, World Resource, Currency or Global portfolio, the same models are
used in the same markets at the present time.
The trading method, systems and money management principles to be utilized
by MRC are proprietary and confidential and vary over time. The foregoing
description is general and is not intended to be complete. While MRC believes
the description of its strategies may be of interest to prospective investors,
prospective investors must be aware of the inherent limitations on any such
description.
The MRC Trading Programs
The MRC trading portfolios do not utilize different trading systems or
programs. The portfolios may include all or some of the markets MRC trades, and
the weightings among the markets and the leverage employed will differ by
portfolio. The same trading systems will be used to trade a market in all
portfolios which include the market. There can be no assurance as to which
markets will be included in each MRC trading
54
<PAGE>
portfolio over time. Such markets may be changed without notice, in the
discretion of MRC. Moreover, MRC does not maintain open positions in all
portfolio markets at all times. At certain times, MRC may entirely withdraw from
one or more such markets.
Portfolio markets and allocations among markets are under continuous
review, on the basis of both systematic and discretionary analysis, and are
adjusted from time to time in response to specific market changes (e.g., the
consolidation of European currencies), MRC's judgment of the prospects for
successful systematic trading in a market, or MRC's interpretations of economic
factors affecting the domestic and global economies and the potential
opportunities that could arise.
MRC will initially trade 100% of Charter Millburn's assets pursuant to its
Diversified Portfolio, as described below. Subject to the prior approval of the
General Partner, MRC may, at any time, trade some or all of the Partnership's
assets among one or more of MRC's other programs.
Diversified Portfolio
MRC trades a broadly diversified portfolio of approximately 50 markets in
the following six sectors: currencies, precious and industrial metals, debt
instruments, stock indices, agricultural commodities and energy. The Diversified
Portfolio program has approximately 40% weighting in currencies, 20% in interest
rates, 11% in softs and agricultural commodities, 10% in stock indices, 10% in
energy products, and 8% in metals. MRC trades its Diversified Portfolio at
standard leverage and at 150% of standard leverage.
The Diversified Portfolio markets currently include: agricultural
commodities (including coffee, corn, cotton and sugar); metals (including
aluminum, copper and gold); energy (including crude oil, gas oil, heating oil,
natural gas and unleaded gas); currencies (forwards and options), including (i)
major currencies (including British Pound, Deutsche Mark, French Franc, Japanese
Yen and Swiss Franc); (ii) secondary currencies (including Danish Krone, Dollar
Index, European Currency Unit and Norwegian Krone); (iii) crosses (including
Canadian Dollar--Japanese Yen, Swiss Franc--Japanese Yen, Deutsche Mark--Italian
Lira, Deutsche Mark--Japanese Yen, Deutsche Mark--Swiss Franc and Deutsche
Mark--Norwegian Krone); (iv) exotic currencies (including Hungarian Forint,
Polish Zolty, Turkish Lira, Korean Won, Mexican Peso, Singapore Dollar, Taiwan
Dollar and South African Rand); (v) interest rates (futures and options)
(including Australian Bonds, Eurodollars, Euro Yen, French Bond, German Bond,
Italian Bond, Spanish Bond, Tokyo Yen Bond, U.S. Treasury Bond, and U.S.
Treasury Note); and (vi) stock indices (including Australian All Ordinaries,
Hong Kong Hang Sang, Nikkei, S&P 500 and Topic Index).
Currency Portfolio
MRC trades approximately 20 different currencies in its Currency Portfolio,
including "cross-rate" positions (positions in two different currencies other
than the United States dollar). MRC -- which had managed financially-oriented
accounts since 1979 -- began managing currency-only accounts in November 1989.
MRC trades its Currency Portfolio at standard leverage and at 150% of standard
leverage.
Global Portfolio
The Global Portfolio includes the currency markets as well as futures and
options contracts on U.S. and non-U.S. interest rates and stock indices as well
as precious and industrial metals. MRC trades its Global portfolio at standard
leverage and at 150% of standard leverage.
World Resource Portfolio
The World Resource Portfolio is a variation of the Diversified Portfolio,
but with a reduced emphasis on currency markets. MRC began trading the World
Resource Portfolio on a non-proprietary basis in September 1995.
Past Performance of MRC
Set forth below in Capsules A, B, C, D, E, F, G and H is the past
performance history of MRC and its principals for client accounts. Capsule A-1
is a pro forma of Capsule A, adjusted for the brokerage, management, and
incentive fees to be applied to Charter Millburn. The footnotes following
Capsule H are an integral part of each Capsule.
55
<PAGE>
INVESTORS 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 MRC OR CHARTER MILLBURN
IN THE FUTURE, SINCE PAST PERFORMANCE IS NOT A GUARANTEE OF FUTURE RESULTS.
THERE CAN BE NO ASSURANCE THAT MRC OR THE PARTNERSHIP WILL MAKE ANY PROFITS AT
ALL OR WILL BE ABLE TO AVOID INCURRING SUBSTANTIAL LOSSES. INVESTORS 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 FUTURES INTEREST TRADING.
CAPSULE A
MILLBURN RIDGEFIELD CORPORATION
DIVERSIFIED PORTFOLIO
Name of CTA: Millburn Ridgefield Corporation
Name of program: Diversified Portfolio
Inception of trading by CTA: February 1971
Inception of trading in program: February 1971
Number of open accounts: 22
Aggregate assets overall: $700,006,514
Aggregate assets in program: $394,086,690
Largest monthly drawdown (past 5 years): (11.50)% - (2/96)
Largest monthly drawdown (since 1977): 18.30% - (9/86)
Worst peak-to-valley drawdown (past 5 years): (12.93)% - (1/96 -
5/96)
Worst peak-to-valley drawdown (since 1977): (32.50)% -
(3/86-12/86)
Accounts closed with positive net performance (past 5 years): 1
Accounts closed with positive net performance (since 1977): 13
Accounts closed with negative net performance (past 5 years): 0
Accounts closed with negative net performance (since 1977): 0
<TABLE>
<S> <C>
1998 year-to-date return (7 months): (4.86)% 1987 annual return: 35.02%
1997 annual return: 12.61% 1986 annual return: (19.36)%
1996 annual return: 17.33% 1985 annual return: 23.44%
1995 annual return: 32.82% 1984 annual return: 21.72%
1994 annual return: 11.78% 1983 annual return: (9.44)%
1993 annual return: 10.90% 1982 annual return: 29.09%
1992 annual return: 17.30% 1981 annual return: 38.50%
1991 annual return: 4.44% 1980 annual return: 66.53%
1990 annual return: 53.01% 1979 annual return: 57.18%
1989 annual return: (0.94)% 1978 annual return: 18.92%
1988 annual return: 2.70% 1977 annual return: 7.12%
</TABLE>
PAST PERFORMANCE IS NOT NECESSARILY INDICATIVE OF FUTURE RESULTS
56
<PAGE>
CAPSULE A-1
MILLBURN RIDGEFIELD CORPORATION
PRO FORMA OF CAPSULE A
DIVERSIFIED PORTFOLIO
Largest monthly drawdown (past 5 years): (12.48)% - (2/96)
Largest monthly drawdown (since 1977): (22.82)% - (4/78)
Worst peak-to-valley drawdown: (past five years): (14.92)% -
(8/97 - 4/98)
Worst peak-to-valley drawdown (since 1977): (32.84)% -
(4/86-12/86)
<TABLE>
<S> <C>
1998 year-to-date return (7 months): (7.31)% 1987 annual return: 38.89%
1997 annual return: 6.90% 1986 annual return: (18.27)%
1996 annual return: 13.32% 1985 annual return: 27.32%
1995 annual return: 25.68% 1984 annual return: 26.75%
1994 annual return: 8.61% 1983 annual return: (7.10)%
1993 annual return: 7.73% 1982 annual return: 32.75%
1992 annual return: 11.70% 1981 annual return: 41.90%
1991 annual return: 3.38% 1980 annual return: 73.21%
1990 annual return: 53.42% 1979 annual return: 67.85%
1989 annual return: (4.25)% 1978 annual return: 22.89%
1988 annual return: 2.85% 1977 annual return: 9.09%
</TABLE>
CAPSULE B
MILLBURN RIDGEFIELD CORPORATION
DIVERSIFIED PORTFOLIO--HIGH LEVERAGE
Name of CTA: Millburn Ridgefield Corporation
Name of program: Diversified Portfolio--High Leverage
Inception of trading by CTA: February 1971
Inception of trading in program: April 1998
Number of open accounts: 3
Aggregate assets overall: $700,006,514
Aggregate assets in program: $36,000,000
Largest monthly drawdown: (9.21)% - (7/98)
Worst peak-to-valley drawdown: (11.51)% - (4/98 - 7/98)
1998 year-to-date return (4 months): (11.51)%
CAPSULE C
MILLBURN RIDGEFIELD CORPORATION
DIVERSIFIED PORTFOLIO--2X LEVERAGE
Name of CTA: Millburn Ridgefield Corporation
Name of program: Diversified Portfolio-2X Leverage
Inception of trading by CTA: February 1971
Inception of trading in program: April 1998
Number of open accounts: 1
Aggregate assets overall: $700,006,514
Aggregate assets in program: $3,000,000
Largest monthly drawdown: (12.39)% - (7/98)
Worst peak-to-valley drawdown: (16.05)% - (4/98 - 7/98)
1998 year-to-date return (4 months): (16.05)%
PAST PERFORMANCE IS NOT NECESSARILY INDICATIVE OF FUTURE RESULTS
57
<PAGE>
CAPSULE D
MILLBURN RIDGEFIELD CORPORATION
CURRENCY PORTFOLIO
Name of CTA: Millburn Ridgefield Corporation
Name of program: Currency Portfolio
Inception of trading by CTA: February 1971
Inception of trading in program: November 1989
Number of open accounts: 7
Aggregate assets overall: $700,006,514
Aggregate assets in program: $63,288,312
Largest monthly drawdown: (12.03)% - (8/93)
Worst peak-to-valley drawdown: (33.06)% - (9/92-1/95)
1998 year-to-date return (7 months): (5.30)%
1997 annual return: 20.86%
1996 annual return: 11.29%
1995 annual return: 18.88%
1994 annual return: (7.90%)
1993 annual return: (13.00%)
CAPSULE E
MILLBURN RIDGEFIELD CORPORATION
CURRENCY PORTFOLIO - HIGH LEVERAGE
Name of CTA: Millburn Ridgefield Corporation
Name of program: Currency Portfolio - High Leverage
Inception of trading by CTA: February 1971
Inception of trading in program: July 1993
Number of open accounts: 1
Aggregate assets overall: $700,006,514
Aggregate assets in program: $11,000,000
Largest monthly drawdown: (13.10)% - (8/93)
Worst peak-to-valley drawdown: (29.75)% - (7/93-1/95)
1998 year-to-date return (7 months): (15.22)%
1997 annual return: 27.99%
1996 annual return: 16.36%
1995 annual return: 25.15%
1994 annual return: (21.29)%
1993 annual return (6 months): (11.10)%
PAST PERFORMANCE IS NOT NECESSARILY INDICATIVE OF FUTURE RESULTS
58
<PAGE>
CAPSULE F
MILLBURN RIDGEFIELD CORPORATION
GLOBAL PORTFOLIO
Name of CTA: Millburn Ridgefield Corporation
Name of program: Global Portfolio
Inception of trading by CTA: February 1971
Inception of trading in program: November 1989
Number of open accounts: 4
Aggregate assets overall: $700,006,514
Aggregate assets in program: $68,000,000
Largest monthly drawdown: (10.54)% - (1/94)
Worst peak-to-valley drawdown: (13.74)% - (6/94 - 1/95)
1998 year-to-date return (7 months): (11.65)%
1997 annual return: 13.65%
1996 annual return: 11.38%
1995 annual return: 25.76%
1994 annual return: (5.24)%
1993 annual return: 9.10%
CAPSULE G
MILLBURN RIDGEFIELD CORPORATION
GLOBAL PORTFOLIO - HIGH LEVERAGE
Name of CTA: Millburn Ridgefield Corporation
Name of program: Global Portfolio - High Leverage
Inception of trading by CTA: February 1971
Inception of trading in program: July 1993
Number of open accounts: 0
Aggregate assets overall: $700,006,514
Aggregate assets in program: $0
Largest monthly drawdown: (13.23)% - (1/94)
Worst peak-to-valley drawdown: (20.05)% - (6/94 - 1/95)
1997 annual return: 11.82%
1996 annual return: 11.15%
1995 annual return: 32.15%
1994 annual return: (9.03%)
1993 annual return (6 months): 9.34%
CAPSULE H
MILLBURN RIDGEFIELD CORPORATION
WORLD RESOURCE PORTFOLIO
Name of CTA: Millburn Ridgefield Corporation
Name of program: World Resource Portfolio
Inception of trading by CTA: February 1971
Inception of trading in program: September 1995
Number of open accounts: 7
Aggregate assets overall: $700,006,514
Aggregate assets in program: $129,000,000
Largest monthly drawdown: (12.28)% - (2/96)
Worst peak-to-valley drawdown: (15.26)% - (2/97 - 8/97)
1998 year-to-date return (7 months): (2.76)%
1997 annual return: 1.88%
1996 annual return: 8.33%
1995 annual return (4 months): 7.28%
PAST PERFORMANCE IS NOT NECESSARILY INDICATIVE OF FUTURE RESULTS
59
<PAGE>
Footnotes to MRC Capsules A, B, C, D, E, F, G and H Performance Summaries
"Inception of trading by CTA" is the date on which MRC began trading client
accounts.
"Inception of trading in program" is the date on which MRC began trading
client accounts pursuant to the program shown.
"Number of open accounts" is the number of accounts directed by MRC
pursuant to the program shown as of July 31, 1998.
"Aggregate assets overall" is the aggregate amount of assets in
non-proprietary accounts under the management of MRC as of July 31, 1998.
"Aggregate assets in program" is the aggregate amount of assets in the
program specified as of July 31, 1998.
"Largest monthly drawdown" is the largest loss experienced by a single
account in the program in any calendar month during the most recent five
calendar years and year-to-date (and from 1977 to date in the case of Capsule A)
expressed as a percentage of the total equity in the account and includes the
month and year of such drawdown.
"Worst peak-to-valley drawdown" is the largest calendar month to calendar
month loss experienced by a single account in the program (regardless of whether
it is continuous) during the most recent five calendar years and year-to-date
(and from 1977 to date in the case of Capsule A) expressed as a percentage of
total equity in the account and includes the months and years in which it
occurred. For example, a worst peak-to-valley drawdown in an account of
"(10)%-(1/95 - 8/95)" means that the peak-to-valley drawdown was 10% and lasted
from January 1995 to August 1995.
"Annual and year-to-date return" is computed on a compounded monthly basis
assuming reinvestment of accrued profits. Rate of Return is computed by
reference to total equity in the program. These numbers represent the composite
performance of all accounts in the program, not the performance of any specific
account.
Footnotes to MRC Capsule A-1 Pro Forma Performance Summary
Capsule A-1 above reflects pro forma rates of return, which are the result
of the General Partner making certain pro forma adjustments to the actual past
performance record of client accounts managed pursuant to the Diversified
Portfolio, the trading program to be employed for Charter Millburn by MRC. The
pro forma adjustments are an attempt approximately to reflect the brokerage,
management and incentive fees, and interest income, as opposed to the fees,
expenses, and interest income applicable to the various accounts included in
Capsule A above.
CAPSULE A-1 MUST BE READ IN CONJUNCTION WITH THE DESCRIPTION OF MRC AND ITS
TRADING PROGRAMS ABOVE. FURTHERMORE, PROSPECTIVE INVESTORS MUST BE AWARE THAT
PRO FORMA RATES OF RETURN HAVE CERTAIN 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 NEW 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, LEVERAGE, AND OTHER FACTORS APPLICABLE TO CHARTER MILLBURN AS COMPARED
TO MRC'S ACTUAL TRADING; AND (B) THERE ARE DIFFERENT MEANS BY WHICH THE PRO
FORMA ADJUSTMENTS COULD HAVE BEEN MADE. INVESTORS SHOULD ESPECIALLY NOTE THAT
MRC HAS NEVER TRADED AT THE FEE STRUCTURE APPLICABLE TO CHARTER MILLBURN. AS OF
THE DATE OF THIS PROSPECTUS, CHARTER MILLBURN HAS NOT BEGUN TRADING.
WHILE THE GENERAL PARTNER BELIEVES THAT THE INFORMATION SET FORTH IN
CAPSULE A-1 IS RELEVANT TO EVALUATING AN INVESTMENT IN CHARTER MILLBURN, NO
REPRESENTATION IS OR COULD BE MADE THAT THE TABLE PRESENTS WHAT THE RESULTS OF
CHARTER MILLBURN WOULD HAVE BEEN IN THE PAST OR ARE LIKELY TO BE IN THE FUTURE.
PAST RESULTS ARE NOT A GUARANTEE OF FUTURE RESULTS.
60
<PAGE>
MORGAN STANLEY DEAN WITTER CHARTER WELTON L.P.
The Trading Advisor for Charter Welton is Welton Investment Corporation
("WIC"). "WIC" is a Delaware corporation which was merged from a California
corporation originally formed in 1988. WIC's main business address is The
Eastwood Building, San Carlos between 5th and 6th, P.O. Box 6147, Carmel,
California 93921-6147. WIC has been registered with the CFTC as a CPO and CTA
since January 1989, and is a member of the NFA in such capacities. WIC is not
affiliated with the General Partner, the Commodity Brokers or any other Trading
Advisor.
The principals of WIC are as follows:
Dr. Patrick L. Welton is the Chief Executive Officer and Chairman of WIC.
Dr. Welton developed the mathematical analysis techniques and systems software
employed by WIC in its trading and portfolio management. From 1978 to 1982, Dr.
Welton earned Bachelor's Degrees from the University of Wisconsin, completing a
portion of his undergraduate studies at Harvard University. From 1982 to 1986,
he attended the UCLA School of Medicine, where he completed graduate biophysics
and medical studies and earned an MD degree. From 1986 to 1990, he was a
postgraduate physician at the Stanford University Medical Center. In addition to
his full-time management of WIC, Dr. Welton is a principal of Welton Global
Funds Management Corporation, a Director of Axios Data Analysis Systems
Corporation, a non-practicing shareholder in Peninsula Radiation Oncology
Specialists, Inc., and a volunteer Clinical Professor of Medicine at Stanford
University School of Medicine. He has engaged in futures and equities market
research since 1981 and has traded futures for his own account since 1983.
During the past five years, Dr. Welton has spoken at domestic and international
conferences, authored articles, participated in panel presentations on numerous
trading and risk management issues, and served on committees for the Managed
Funds Association ("MFA") and NFA. He is currently serving on the Board of
Directors of the NFA. He is registered as an Associated Person with the NFA.
Ms. Annette L. Welton is a co-founder of WIC, a Director, Chief Operational
Officer and Chief Financial Officer. Ms. Welton participated in the early
development of the systems software employed by WIC in its trading and portfolio
management methods and, since 1988, Ms. Welton has continued to participate in
the research committee in the review process and the monitoring of trading for
the company's clients. She also serves as a principal of Welton Global Funds
Management Corporation, a CPO affiliated with WIC. Ms. Welton earned a Bachelor
of Science Degree in 1984 from the University of California at Los Angeles.
Since 1992, Ms. Welton has participated in the MFA Public Relations and Trading
and Markets Committees and is currently a member of the Trading and Markets
Committee. She has served on the NFA's Nominating Committee in the CTA category
and has authored and co-authored several articles published in various
alternative investment trade publications. She is registered as an Associated
Person with the NFA.
Mr. Jerry M. Harris is the Senior Vice President of WIC. He received a
Bachelor of Science Degree in 1973 in Aerospace Engineering at the University of
Virginia. In May of 1983, he earned a Masters Degree in Information Systems from
the University of Southern California. From 1984 through 1988, he was Vice
President and Chief Operating Officer of Cresta Commodity Management, Inc. in
San Diego, California. Beginning 1989 through 1990, he was Vice President of
Marketing at Commodities Corporation in Princeton, New Jersey. From November
1988 through 1997, he was also employed as a pilot with Delta Airlines. Mr.
Harris is responsible for business development efforts and industry
representation, as well as participating in strategic planning for WIC. Mr.
Harris is a member of the Alternative Investments Management Association and
serves on its International Development Committee as well as the Institutional
Money Management Advisory Committee of the New York Mercantile Exchange. He
frequently is a featured speaker to institutional and private investor groups on
the topic of integrating skill-based alternative investment strategies to
diversify investment portfolios. He has been associated with WIC since 1993 and
is registered as an Associated Person with the NFA.
During the five years preceding the date of this Prospectus, there have
been no material administrative, civil or criminal actions, including actions
pending, on appeal or concluded, against WIC or its principals.
WIC and its principals trade futures options and securities for their own
accounts and provide management services to other clients. Investments made on
behalf of WIC, its principals, and its clients, as well as any policies related
thereto, will remain confidential. In the course of such trading, WIC or its
principals may take positions in their own accounts which are in the same market
and in the same direction as positions advocated for clients. In a case where
WIC or its principals place the same trade orders for their accounts as they do
for their clients in a single block order with a brokerage firm, the brokerage
firm shall allocate the trade fill prices assigned to each account in a manner
consistent with that firm's policy. This equalizes the likelihood of WIC or its
principals receiving a superior or inferior price compared to any of their
clients or, in the case of a partial fill
61
<PAGE>
of a block order, equalizes the likelihood of WIC or its principals receiving a
trade that some customers will not receive or vice versa.
WIC Investment Philosophy and Technology
WIC is committed to achieving attractive rates of return while successfully
managing risk. This is accomplished through the consistent application of the
firm's primary trading principles:
O Market diversification
O Style diversification
O Portfolio allocation and management
O Full trade monitoring and market participant structure analysis
O Formal monitoring and review systems
These principles are the basis to pursue strong rates of return with
controlled volatility and with low correlation to other managed futures
programs, hedge funds, and other alternative investment strategies, as well as
to traditional fixed-income and equity investments.
WIC considers its portfolios and programs to be in a constant cycle of
review and improvement, centered on a stable process for improving their long
term success. This paradigm for performance improvement involves all divisions
of the firm. The continuous process involves regular review and analysis of all:
actual trading activity; all new and existing global markets with the goal of
increasing market diversification; of all potential strategic approaches to
various market conditions with the goal of increasing strategic diversification,
and hence, effective diversification; trading costs and execution methods; and
portfolio management models and techniques to best integrate all of the above.
This process implicitly recognizes that adaptation is essential in approaching
the global markets and that adaptation is best implemented at even the most
primary model levels.
To implement these models, WIC has developed an advanced decision support
platform capable of real-time analysis of markets and combinations of markets
around the world. This tool allows the implementation of WIC trading strategies
independently or in complementary combinations across diverse global markets.
Ongoing research and development continues to be WIC's largest single commitment
of resources and is conducted within its performance improvement paradigm to
improve the level, consistency, and quality of performance in its offered
portfolios and programs.
Although the trading of WIC portfolios is guided by the consistent
application of proprietary mathematical systems, there will always remain
investment decisions requiring the discretion and judgment of WIC. These
include, but are not limited to, contract month selection, analysis of portfolio
balance, and capital requirements. In addition, WIC may, in its sole discretion,
choose not to implement certain trades if they are judged to carry unacceptable
risk to an account. WIC will reinvest trading profits unless withdrawn by the
client. WIC may also stop trading certain markets should they become, in WIC's
judgment, too illiquid or volatile to trade or their movement too correlated
with other portfolio elements. Assets committed to meet minimum exchange margin
for all positions usually remain between 5% and 20% of the trading size of the
total account equity. These levels may from time to time be greater or less than
this range. All investments including WIC managed portfolios and programs
involve the risk of loss.
WIC Investment Programs and Portfolios
WIC offers two distinct categories of investment products to institutional,
fund, corporate, and qualified individual clients. The first category ("Absolute
Return Portfolios") is a select group of diversified investment portfolios each
utilizing diversified trading styles and quantitative investment models across
the global futures, options, and currency markets. These are designed to achieve
attractive absolute rates of return with low correlation to the returns of
traditional asset classes and even other skill-based alternative strategies. The
second category ("Customized Return Enhancement Programs") includes two
inherently customized investment programs designed to improve returns relative
to accepted global investment performance benchmarks such as a client's current
portfolio return, an equity index or a fixed income index or note. All of WIC's
programs and portfolios employ the same diverse set of multiple trading
strategies, including non-price directional, limited price dependency, and price
directional models, in an attempt to profitably participate in a variety of
market conditions. Such models include statistical arbitrage, volatility,
convergence and marketing
62
<PAGE>
timing approaches employing options, futures, and currencies. As noted above,
WIC considers these trading strategies, markets and weighting of markets to be
subject to the same process of constant review and improvement in an attempt to
improve the long term success of the programs and portfolios offered. A brief
description of these investment programs and portfolios follows.
Absolute Return Portfolios
WIC offers clients three different managed futures portfolios. These
portfolios have the goals of achieving attractive rates of appreciation from
diversified sources of investment returns while continually managing risk. Each
portfolio employs the same diverse set of investment styles applied to different
market and instrument sets. These portfolios seek to achieve investment style,
timing, and market diversification unavailable from traditional managed
investments. Specific portfolios include: Diversified Portfolio; Global
Financials and Metals Portfolio; and Global Financials Portfolio.
Each portfolio provides broad diversification through various selected
domestic and global interest rate, currency, equity index, precious and base
metal, agricultural, and petroleum product markets and trades these markets
using futures, options and forward contract instruments. Clients may shape their
allocations to market sectors through the various portfolios offered by WIC.
Diversified Portfolio
The Diversified Portfolio manages clients' assets through exposure to the
widest spectrum of futures markets spanning all major market sectors. Investing
in the Diversified Portfolio will provide a balanced exposure across various
selected domestic and global interest rates, currency, equity index, precious
and base metal, agricultural, and petroleum product markets. Multiple trading
strategies are employed in an attempt to profitably participate in a variety of
market conditions. This emphasis on market and methodological diversification
epitomizes WIC's core principles in advising on client assets in the global
marketplace.
The Diversified Portfolio trades in over 75 global futures, options, and
forwards markets. The Diversified Portfolio has approximately 22% weighting in
global interest rate futures, 22% in currencies, 22% in stock index futures, 10%
in agricultural futures, 14% in metal futures, and 10% in energy futures.
WIC will initially trade 100% of Charter Welton's assets pursuant to its
Diversified Portfolio, as described above. Subject to the prior approval of the
General Partner, WIC may, at any time, trade some or all of the Partnership's
assets among one or more of WIC's other programs and portfolios.
Global Financials and Metals Portfolio
The Global Financials and Metals Portfolio manages client assets in a broad
selection of world financial markets including interest rate, currency, equity
index, metal, and petroleum product markets. Appreciation of assets is attempted
through capturing the potential movements in these markets and in their
synthetic intermarket relationships with multiple trading strategies.
Global Financials Portfolio
The Global Financials Portfolio manages client assets in a more focused
selection of pure financial markets exclusively confined to interest rates,
currencies and equity indices. Appreciation of assets is attempted through
capturing the potential movements in these markets and their synthetic
intermarket relationships with multiple trading strategies.
Customized Return Enhancement Programs
WIC works closely with its clients to create low leverage return
enhancement programs which are designed to provide a supplemental relative rate
of return, based upon a preselected benchmark measure matched to the needs of
the client. These programs include: Benchmark Linked Return Enhancement Program
and Fixed Income Return Enhancement Program.
Benchmark Linked Return Enhancement Program
The Benchmark Linked Return Enhancement Program is an inherently customized
management product tailored to attempt to exceed the specific investment
benchmark objectives of the client. Assets will be managed in an adaptable
overlay structure to participate in a simultaneous combination of passive and
63
<PAGE>
coordinated active investment strategies driven by specific client needs and
timing. In general, clients will have the flexibility to alter their benchmark
and enhancement objectives independently on an ongoing basis.
The benchmark is selected by the client. This performance benchmark may be
the client's current investment portfolio, an equity index, a fixed income index
or any combination. The return enhancement targeted by the client would be
measured above this benchmark and would normally be set up with a predefined
risk exposure target.
Fixed Income Return Enhancement Program
The Fixed Income Return Enhancement Program offers institutional clients a
diversified enhancement to short term fixed income yields. This was developed to
meet the growing institutional demand for products offering real rates of return
comparable with equity allocations but maintaining many of the characteristics
of fixed income allocations such as low dispersion of return and principal
safety. It enables fixed income oriented clients to participate in a tailor-made
structure that minimizes principal risk and fluctuations through permitting the
client a higher yield opportunity without the requirement of extending
maturities beyond two to four years. A client can simultaneously lower duration
risk, increase credit quality, and improve liquidity while potentially achieving
higher returns at lower levels of risk. This program employs computerized
monitoring and risk control as it seeks to provide some of the upside potential
of managed futures while maintaining the income stability and principal
protection of short term government notes.
Past Performance of WIC
Set forth below in Capsules A, B, C, and D is the past performance history
of WIC and its principals for client accounts. Capsule A-1 is a pro forma of
Capsule A, adjusted for the brokerage, management, and incentive fees to be
applied to Charter Welton. The footnotes following Capsule D are an integral
part of each Capsule.
INVESTORS ARE CAUTIONED THAT THE 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 WIC OR CHARTER WELTON IN THE
FUTURE, SINCE PAST RESULTS ARE NOT A GUARANTEE OF FUTURE RESULTS. THERE CAN BE
NO ASSURANCE THAT WIC OR THE PARTNERSHIP WILL MAKE ANY PROFITS AT ALL, OR WILL
BE ABLE TO AVOID INCURRING SUBSTANTIAL LOSSES. INVESTORS 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.
64
<PAGE>
CAPSULE A
WELTON INVESTMENT CORPORATION
DIVERSIFIED PORTFOLIO
Name of CTA: Welton Investment Corporation
Name of program: Diversified Portfolio
Inception of trading by CTA: February 1989
Inception of trading in program: April 1992
Number of open accounts: 47
Aggregate assets overall (excluding notional): $163,000,000
Aggregate assets overall (including notional): $246,000,000
Aggregate assets in program (excluding notional): $137,000,000
Aggregate assets in program (including notional): $220,000,000
Largest monthly drawdown (past 5 years): (15.94)% - (2/96)
Largest monthly drawdown (since inception): (15.94)% - (2/96)
Worst peak-to-valley drawdown (past 5 years): (25.96)% - (1/96 - 8/96)
Worst peak-to-valley drawdown (since inception): (25.96)% -(1/96 - 8/96)
Accounts closed with positive net performance (past 5 years): 17
Accounts closed with positive net performance (since inception): 22
Accounts closed with negative net performance (past 5 years): 15
Accounts closed with negative net pereformance (since inception): 16
1998 year-to-date return (7 months): 8.10%
1997 annual return: 23.62%
1996 annual return: 7.17%
1995 annual return: 36.35%
1994 annual return: 2.38%
1993 annual return: 47.90%
1992 annual return (9 months): (4.29)%
CAPSULE A-1
WELTON INVESTMENT CORPORATION
PRO FORMA OF CAPSULE A
DIVERSIFIED PORTFOLIO
Largest monthly drawdown (past 5 years): (16.74)% - (2/96)
Largest monthly drawdown (since inception): (16.74)% - (2/96)
Worst peak-to-valley drawdown (past 5 years): (26.60)% - (2/96-8/96)
Worst peak-to-valley drawdown (since inception): (26.60)% - (2/96-8/96)
1998 year-to-date return (7 months): 7.97%
1997 annual return: 19.24%
1996 annual return: 5.76%
1995 annual return: 37.68%
1994 annual return: 1.26%
1993 annual return: 47.03%
1992 annual return (9 months): (3.72)%
PAST PERFORMANCE IS NOT NECESSARILY INDICATIVE OF FUTURE RESULTS
65
<PAGE>
CAPSULE B
WELTON INVESTMENT CORPORATION
GLOBAL FINANCIALS AND METALS PORTFOLIO
Name of CTA: Welton Investment Corporation
Name of program: Global Financials and Metals Portfolio
Inception of trading by CTA: February 1989
Inception of trading in program: April 1992
Number of open accounts: 2
Aggregate assets overall (excluding notional): $163,000,000
Aggregate assets overall (including notional): $246,000,000
Aggregate assets in program (excluding notional): $22,000,000
Aggregate assets in program (including notional): $22,000,000
Largest monthly drawdown: (15.72)% - (2/96)
Worst peak-to-valley drawdown: (30.89)% - (12/93 - 9/94)
1998 year-to-date return (7 months): 10.02%
1997 annual return: 19.18%
1996 annual return: 10.12%
1995 annual return: 48.90%
1994 annual return: (23.34)%
1993 annual return: 70.38%
CAPSULE C
WELTON INVESTMENT CORPORATION
GLOBAL FINANCIALS PORTFOLIO
Name of CTA: Welton Investment Corporation
Name of program: Global Financials Portfolio
Inception of trading by CTA: February 1989
Inception of trading in program: November 1994
Number of open accounts: 3
Aggregate assets overall (excluding notional): $163,000,000
Aggregate assets overall (including notional): $246,000,000
Aggregate assets in program (excluding notional): $4,000,000
Aggregate assets in program (including notional): $4,000,000
Largest monthly drawdown: (15.70)% - (2/96)
Worst peak-to-valley drawdown: (30.20)% - (1/96 - 8/96)
1998 year-to-date return (7 months): 12.72%
1997 annual return: 14.35%
1996 annual return: 7.05%
1995 annual return: 49.67%
1994 period return (2 months): 3.73%
PAST PERFORMANCE IS NOT NECESSARILY INDICATIVE OF FUTURE RESULTS
66
<PAGE>
CAPSULE D
WELTON INVESTMENT CORPORATION
TRADING PROGRAMS NO LONGER OFFERED
As of July 31, 1998
<TABLE>
<C> <S>
February 1989 Date advisor began trading client accounts
$163,000,000 Total assets under management by the advisor representing actual funds
$246,000,000 Total assets under management by the advisor representing nominal funds
</TABLE>
<TABLE>
<CAPTION>
- ---------------------------------------------------------------------------------------------------------------------------
INTERNATIONAL INTEREST
EQUITY LINKED PORTFOLIO CUSTOM RATE
TRADING PROGRAM ENHANCEMENT PRODUCT GLOBAL FINANCIAL ACCOUNTS PORTFOLIO
- ---------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Date Program Began Trading Oct-93 Mar-94 Mar-92
Actual Funds Managed Closed Closed Closed
Oct-94 Oct-94 Mar-96
Nominal Funds Managed -- -- --
Open Accounts 0 0 0
Closed Accounts 2 6 33
Accounts Closed at a Profit 1 0 9
Accounts Closed at a Loss 1 6 24
Annual Rates of Return
1993 7.36% -- 70.00%
1994 (4.21)% (22.89)% (26.68)%
1995 -- -- 56.49%
1996 -- -- (14.87)%
1997 -- -- --
YTD through July-98 -- -- --
Largest Single Monthly
Drawdown 1 (1.79)% (7.15)% (14.47)%
Date of Drawdown Jul-94 Oct-94 Feb-96
Largest Peak-to-Valley
Drawdown 2 (6.55)% (25.12)% (32.40)%
Date of Peak Mar-94 Mar-94 Dec-93
Date of Valley Oct-94 Oct-94 Jan-95
<CAPTION>
- ---------------------------------------------------------------------------------------------------------------------------
QUANTITATIVE FOREIGN WORLD
TRADING PROGRAM NONFINANCIAL PORTFOLIO EXCHANGE PORTFOLIO CURRENCY PORTFOLIO
- ---------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Date Program Began Trading Mar-94 Jun-94 Apr-92
Actual Funds Managed Closed Closed Closed
Aug-95 Feb-95 Feb-94
Nominal Funds Managed -- -- --
Open Accounts 0 0 0
Closed Accounts 4 2 4
Accounts Closed at a Profit 2 0 1
Accounts Closed at a Loss 2 2 3
Annual Rates of Return
1993 -- -- (18.90)%
1994 44.13% (13.66)% (2.99)%
1995 (16.38)% (2.94)% --
1996 -- -- --
1997 -- -- --
YTD through July-98 -- -- --
Largest Single Monthly
Drawdown 1 (8.99)% (14.68)% (8.80)%
Date of Drawdown Mar-95 Nov-94 Jan-93
Largest Peak-to-Valley
Drawdown 2 (19.03)% (17.58)% (23.21)%
Date of Peak Feb-95 Oct-94 Nov-92
Date of Valley Aug-95 Feb-95 Feb-94
<CAPTION>
- -----------------------------------------
WORLD
EQUITY
INDEX
TRADING PROGRAM PORTFOLIO
- -----------------------------------------
<S> <C>
Date Program Began Trading May-94
Actual Funds Managed Closed
Jun-96
Nominal Funds Managed --
Open Accounts 0
Closed Accounts 11
Accounts Closed at a Profit 1
Accounts Closed at a Loss 10
PAST PERFORMANCE IS NOT NECESSARILY INDICATIVE OF FUTURE RESULTS
</TABLE>
<TABLE>
<CAPTION>
- -----------------------------------------
Annual Rates of Return
<S> <C>
1993
1994 (15.97)%
1995 4.99%
1996 (14.82)%
1997 --
YTD through July-98 --
Largest Single Monthly
Drawdown 1 (9.71)%
Date of Drawdown Jun-96
Largest Peak-to-Valley
Drawdown 2 (25.18)%
Date of Peak May-94
Date of Valley Jan-96
- ------------------------------------------
</TABLE>
PAST PERFORMANCE IS NOT NECESSARILY INDICATIVE OF FUTURE RESULTS
Footnotes to WIC Capsules A, B, C and D Performance Summaries
"Inception of trading by CTA" is the date on which WIC began trading client
accounts.
"Inception of trading in program" is the date on which WIC began trading
client accounts pursuant to the program shown.
"Number of open accounts" is the number of accounts directed by WIC
pursuant to the program shown as of July 31, 1998.
"Aggregate assets overall" is the aggregate amount of assets in
non-proprietary accounts under the management of WIC as of July 31, 1998.
"Aggregate assets in program" is the aggregate amount of assets in the
program specified as of July 31, 1998.
"Drawdown" means losses experienced by the trading program over a specified
period. "Largest monthly drawdown" means greatest percentage decline in net
asset value due to losses sustained by the trading program from the beginning to
the end of a calendar month during the most recent five calendar years (and from
inception to date in the case of Capsule A).
"Worst peak-to-valley drawdown" means greatest cumulative percentage
decline in month-end net asset value of the trading program due to losses
sustained during a period in which the initial month-end net asset value of the
trading program is not equaled or exceed by a subsequent month-end net asset
value of the trading program during the most recent five calendar years (and
from inception to date in the case of Capsule A).
"Annual and year-to-date return" presented in the composite performance
capsules are calculated based on the "Fully-Funded-Subset" method as prescribed
by the CFTC. These rates of return are derived by dividing the sum of the net
performance, i.e., the aggregate of net performance for each of the accounts
qualifying for inclusion in the Fully-Funded Subset, by the sum of the Actual
Funds-based beginning NAVs for the Fully-Funded Subset. Returns are then
compounded to arrive at the year-to-date rate of return. Note, 1998 year-to-date
returns were approximated.
67
<PAGE>
Footnotes to WIC Capsule A-1 Pro Forma Performance Summary
Capsule A-1 above reflects pro forma rates of return, which are the result
of the General Partner making certain pro forma adjustments to the past
performance record of client accounts managed pursuant to the Diversified
Portfolio, the trading program to be employed for Charter Welton by WIC. The pro
forma adjustments are an attempt approximately to reflect the brokerage,
management and incentive fees, and interest income, as opposed to the fees,
expenses, and interest income applicable to the various accounts included in
Capsule A above.
CAPSULE A-1 MUST BE READ IN CONJUNCTION WITH THE DESCRIPTION OF WIC AND ITS
TRADING PROGRAMS ABOVE. FURTHERMORE, PROSPECTIVE INVESTORS MUST BE AWARE THAT
PRO FORMA RATES OF RETURN HAVE CERTAIN 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 NEW 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, LEVERAGE, AND OTHER FACTORS APPLICABLE TO CHARTER WELTON AS COMPARED TO
WIC'S ACTUAL TRADING; AND (B) THERE ARE DIFFERENT MEANS BY WHICH THE PRO FORMA
ADJUSTMENTS COULD HAVE BEEN MADE. INVESTORS SHOULD ESPECIALLY NOTE THAT WIC HAS
NEVER TRADED AT THE FEE STRUCTURE APPLICABLE TO CHARTER WELTON. AS OF THE DATE
OF THIS PROSPECTUS, CHARTER WELTON HAS NOT BEGUN TRADING.
WHILE THE GENERAL PARTNER BELIEVES THAT THE INFORMATION SET FORTH IN
CAPSULE A-1 IS RELEVANT TO EVALUATING AN INVESTMENT IN CHARTER WELTON, NO
REPRESENTATION IS OR COULD BE MADE THAT THE TABLE PRESENTS WHAT THE RESULTS OF
CHARTER WELTON WOULD HAVE BEEN IN THE PAST OR ARE LIKELY TO BE IN THE FUTURE.
PAST RESULTS ARE NOT A GUARANTEE OF FUTURE RESULTS.
68
<PAGE>
THE MANAGEMENT AGREEMENTS
Each Trading Advisor has entered into a Management Agreement with a
Partnership and the General Partner, which provides that the Trading Advisor
will have sole authority and responsibility, except in certain limited
situations, for directing the investment and reinvestment in futures interests
of the Partnership's assets. See "Investment Programs, Use of Proceeds and
Trading Policies--Investment Programs of Each Charter Series Partnership."
TERM
The Management Agreement with each Trading Advisor has a term of three
years and will not expire until October 31, 2001, with annual renewals
thereafter. Unless otherwise terminated upon written notice from the Trading
Advisor at least 30 days prior to the expiration of the Management Agreement,
each agreement shall be automatically renewed for additional one year terms.
The Management Agreement with each Partnership will terminate if the
Partnership terminates. Each Management Agreement may also be terminated by the
Partnership, without penalty, at any time upon prior written notice to the
Trading Advisor. In addition, each Management Agreement may be terminated by the
Partnership or the Trading Advisor at any time without penalty under certain
other circumstances specified therein.
No assurance is given that a Partnership will be able to retain the
services of a Trading Advisor once its Management Agreement with such person is
terminated, or, if such services are available, that they will be available on
the same or similar terms as those of the Management Agreement. The compensation
payable by each Partnership to a Trading Advisor for its services under the
Management Agreement is described under "Description of Charges--Charges to Each
Partnership--1. Trading Advisor."
Each Management Agreement also permits the General Partner to designate an
additional trading advisor or advisors for a Partnership, and to apportion to
such additional advisor(s) such amount of the Partnership's Net Assets as the
General Partner may determine in its absolute discretion.
LIABILITY AND INDEMNIFICATION
Each Management Agreement sets forth a standard of liability for the
Trading Advisor and also provides for certain indemnities of the Trading
Advisor. See "Fiduciary Responsibility."
Each Management Agreement also provides that the Trading Advisor will
assume financial responsibility for any errors committed or caused by it in
transmitting orders for the purchase or sale of futures interests for the
Partnership. Each Trading Advisor has an affirmative obligation promptly to
notify the General Partner of any error in transmitting orders for the purchase
and sale of futures interests, and a Trading Advisor must use its best efforts
to identify and promptly notify the General Partner of any order or trade which
the Trading Advisor reasonably believes was not executed in accordance with its
instructions.
OBLIGATIONS TO A PARTNERSHIP
Each Trading Advisor is engaged in the business of advising investors as to
the purchase and sale of futures interests. During the term of each Management
Agreement, the Trading Advisors and their principals and affiliates may be
advising other investors and trading for their proprietary accounts. However,
under the Management Agreements, the Trading Advisors and their principals and
affiliates may not knowingly or deliberately favor (other than by charging
different management and/or incentive fees) any account advised or managed by
the Trading Advisors or any of their principals and affiliates over the accounts
of the Partnerships. Each Trading Advisor will treat the Partnership for which
it manages funds in a fiduciary capacity to the extent recognized by applicable
law, but, subject to that standard, each Trading Advisor and its principals and
affiliates will be free to advise and manage accounts of other investors and
will be free to trade on the basis of the same trading systems, methods or
strategies employed by such Trading Advisor on behalf of the Partnership, or
trading systems, methods or strategies that are entirely independent of, or
materially different from, those employed on behalf of the Partnership, and will
be free to compete for the same futures interests as the Partnership or to take
positions opposite to the Partnership, where such actions do not knowingly or
deliberately favor any of such accounts over the Partnership's account.
69
<PAGE>
EXCHANGE PRIVILEGE
If the conditions described below are satisfied, a Limited Partner can
redeem Units in a Partnership as of the last day of any calendar month and, with
the proceeds of such redemption, purchase Units of one or more other
Partnerships at 100% of the Net Asset Value thereof (a "Series Exchange"). A
Series Exchange of Units will be permitted as of the last day of each month,
commencing the sixth month-end after a person becomes a Limited Partner of any
Partnership (an "Exchange Date"). Each Unit purchased in a Series Exchange with
the proceeds of a redemption 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 such
Exchange Date. 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.
Each Series Exchange is subject to satisfaction of certain additional
conditions immediately prior to an Exchange Date. Each redeeming Partnership
must have assets sufficient to discharge its liabilities and redeem Units. See
"Redemptions." In order to effect a Series Exchange, a Subscription Agreement
must be sent by a Limited Partner (or any assignee thereof) to a DWR branch
office and received by the General Partner at least five business days prior to
the applicable Exchange Date. Such Subscription Agreement must acknowledge that
the Limited Partner remains eligible to purchase Units on such date. A minimum
of 500 Units must be exchanged, unless a Limited Partner is liquidating his
entire interest in a Partnership. However, in the case of subscribers who
already own Units in a Partnership and desire to make an additional investment
in such Partnership, the minimum investment is 100 Units. A form of Subscription
Agreement is annexed hereto as Exhibit B. Additional copies of the Subscription
Agreement may be obtained by written request to the General Partner or from a
local DWR branch office. Each Partnership issuing Units to Limited Partners
pursuant to a Series Exchange 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 currently intends to
maintain a sufficient number of Units registered to effect Series Exchanges, the
General Partner shall not have any obligation to have Units registered or to
maintain a current Prospectus. There can be no assurance that any or a
sufficient number of Units will be available for sale on an Exchange Date. If
Units are not registered or qualified for sale under either federal or
applicable state securities laws or pursuant to a current Prospectus, the
General Partner will not be able to effect a Series Exchange for a Limited
Partner. Furthermore, certain states may impose significant burdens on, or alter
the requirements for, qualifying Units for sale and, in such cases, the General
Partner may not continue qualifying Units for sale in such state or states, and
a resident thereof would not be eligible for a Series Exchange. At some time in
the future, certain 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 a resident of such
state to effect a 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 any
manner which it deems reasonable under the circumstances and may allocate a
substantial portion of such Units to new subscribers for Units. In addition, if
the Initial Closing is held for only two of the Partnerships, Limited Partners
in such Partnerships will only be able to effect Series Exchanges for Units of
those Partnerships; likewise, if the Initial Closing is held for only one of the
Partnerships, Limited Partners in that Partnership will have no Series Exchange
privilege. See "Plan of Distribution."
Units of limited partnership interest of any new partnership in the Charter
Series may be offered to Limited Partners pursuant to exercise of the Series
Exchange privilege. Before purchasing such units, a Limited Partner must execute
a Subscription Agreement specifically referring to the units of such partnership
and must have received a copy of a prospectus or a supplement to this Prospectus
describing such units and such partnership.
Since a Series Exchange is equivalent to a redemption and immediate
reinvestment of the proceeds of such redemption, a Limited Partner should
carefully review the portions of this Prospectus describing redemptions and
certain tax consequences thereof. See "Redemptions" and "Material Federal Income
Tax Considerations."
REDEMPTIONS
Persons who have been Limited Partners for six months may redeem all or
part of their Units, regardless of when such Units were purchased, at any
month-end (a "Redemption Date") in the manner described herein. Redemptions may
only be made in whole Units, with a minimum of 100 Units required for each
redemption, unless a Limited Partner is redeeming his entire interest in a
Partnership. Redemption of Units will be deemed to be in the order in which they
are purchased (assuming purchases at more than one Closing).
70
<PAGE>
Units redeemed on or prior to the last day of the twelfth month from the
date of purchase will be 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 prior to the last day of the twenty-fourth month
from the date of purchase will be subject to a redemption charge equal to 1% of
the Net Asset Value of a Unit on the Redemption Date. Units redeemed after the
last day of the twenty-fourth month from the date of purchase will not be
subject to a redemption charge. The foregoing redemption charges will be paid to
DWR.
Under certain circumstances, Units are exempt from redemption charges, as
follows. Units purchased by an investor who purchases $500,000 or more of Units
will not be subject to redemption charges. A Limited Partner redeeming Units at
the first Redemption Date following notice of an increase in certain fees will
not be subject to redemption charges. A Limited Partner who redeems Units
pursuant to a Series Exchange will not be subject to redemption charges with
respect to the Units exchanged and, for purposes of determining the
applicability of future redemption charges, such Units will be deemed as having
the same purchase date as the Units exchanged. A Limited Partner who redeems
units pursuant to a Non-Series Exchange will be subject to any applicable
redemption charges with respect to the units redeemed from the other limited
partnership; however, the Units purchased pursuant to a Non-Series Exchange will
not be subject to the foregoing redemption charges. Further, a Limited Partner
who redeems Units and has either paid a redemption charge with respect to such
Units or held such Units for at least two years 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. Such subscribers remain subject to the minimum purchase
and suitability requirements. See "Subscription Procedure."
Redemptions must be made in whole Units, in a minimum amount of 100 Units,
unless a Limited Partner is redeeming his entire interest in a Partnership.
Redemptions will 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
("Redemption Date"). A "Request for Redemption" is a letter in the form
specified by the General Partner, 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 Redemption Date. A Limited Partner may obtain daily
an approximate Net Asset Value per Unit for each Partnership. However, since the
actual Net Asset Value per Unit as of a particular Redemption Date is determined
subsequent to the Redemption Date, it is not possible for a Limited Partner to
know the actual amount to be received upon redemption until after the Redemption
Date. A form of Request for Redemption is annexed to the Limited Partnership
Agreement, which is annexed hereto as Exhibit A. Additional copies of the
Request for Redemption may be obtained by written request to the General Partner
or a local DWR branch office. In addition to the information and reports
described below under "The Limited Partnership Agreements--Reports to Limited
Partners," the General Partner will provide Limited Partners with such other
information and will comply with any such procedures in connection with
redemptions as in the future are specifically required under SEC rules and
policies for commodity pools and similar investment vehicles.
The "Net Asset Value" of a Unit is an amount equal to a Partnership's Net
Assets allocated to capital accounts represented by Units, divided by the number
of Units outstanding. "Net Assets" are defined in each Limited Partnership
Agreement to mean 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 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, one-half of the brokerage commissions that would
be payable with respect to the closing of each Partnership's open futures
interests positions (if charged on a roundturn basis), or brokerage fees (if
charged on a "flat rate" basis), management fees, incentive fees, ordinary
administrative expenses, transaction fees and costs, if any, 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 be determined using
the settlement price on the exchange on which the particular futures interest is
traded by a 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 is traded or otherwise, the
settlement price on the first subsequent day on which the futures interest could
have been 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 will 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.
71
<PAGE>
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--Risks Relating to the Partnerships
and the Offering of Units--Restricted Investment Liquidity in the Units."
Payment will be made by credit in the amount of such redemption to the Limited
Partner's customer account with DWR, or by check mailed to the Limited Partner
if such account is closed. The right to obtain redemption is contingent upon (i)
the redeeming Partnership having assets sufficient to discharge its liabilities
on the Redemption Date, and (ii) timely receipt by the General Partner of a
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 a person first becomes a Limited Partner in a Charter 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," as described under "The Limited Partnership Agreements--Reports to
Limited Partners."
The liability of Limited Partners, including the possible liability of a
person who has redeemed Units, for liabilities of the Partnership which arose
before such redemption is described under "The Limited Partnership Agreements--
Nature of the Partnerships."
Federal income tax aspects of redemptions are described under the caption
"Material Federal Income Tax Considerations."
THE COMMODITY BROKERS
DESCRIPTION OF THE COMMODITY BROKERS
Dean Witter Reynolds Inc. ("DWR"), a Delaware corporation, acts as the
Partnerships' non-clearing commodity broker. DWR, as the non-clearing commodity
broker, will hold each Partnership's funds in a customer segregated account as
required under CFTC regulations, and will provide all required margin funds to
Carr Futures Inc., the clearing commodity broker, to cover margin requirements
for each Partnership's trading positions. DWR will also monitor each
Partnership's futures positions that CFI reports it is carrying for any errors
in trade prices or trade fill. DWR also serves as the non-clearing commodity
broker for all but one of the other commodity pools for which Demeter serves as
general partner and commodity pool operator, and CFI serves as the clearing
broker and foreign currency forward counterparty for such commodity pools.
DWR is a principal operating subsidiary of MSDW, which is a publicly-owned
company. DWR is a financial services company which provides to its individual,
corporate and institutional clients services as a broker in securities and
futures interests, 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. DWR 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. ("NASD"). DWR is registered with the CFTC as a futures commission merchant
and is a member of the NFA in such capacity. DWR is currently servicing its
clients through a network of 415 offices nationwide with over 10,000 financial
advisors servicing individual and institutional client accounts.
Carr Futures, Inc., a Delaware corporation ("CFI" and, together with DWR,
the "Commodity Brokers"), acts as each Partnership's clearing commodity broker.
CFI is the broker directly accountable to the futures exchange (or
clearinghouse) for each Partnership's trades, and all payments, including margin
payments, to and from the futures exchanges resulting from each Partnership's
trades, will flow through CFI. In addition, CFI will also act as the
counterparty on each Partnership's foreign currency forward contracts. CFI is a
subsidiary of Credit Agricole Indosuez, which had total equity of approximately
$6.28 billion at December 31, 1997 and which is itself a subsidiary of Caisse
Nationale de Credit Agricole, one of the ten largest banks in the world. CFI's
parent has guaranteed to each Partnership payment of the net liquidating value
of the transactions in the Partnership's account with CFI. CFI has been
registered under the CEAct as a futures commission merchant and has been a
member of the NFA in such capacity since August 1987. CFI's global headquarters
is located at 10 South Wacker Drive, Suite 1100, Chicago, Illinois 60606. CFI
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.
72
<PAGE>
BROKERAGE ARRANGEMENTS
The Partnerships' brokerage arrangements with DWR and CFI are discussed in
"Conflicts of Interest--Relationship of the General Partner to DWR as Commodity
Broker" and "--Customer Agreements with the Commodity Brokers," and "Description
of Charges--Charges to Each Partnership--2. Commodity Brokers."
The General Partner will review at least annually the brokerage
arrangements of each Partnership to ensure that such brokerage arrangements 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
Brokers or any affiliate thereof to the Partnership; (iv) the cost incurred by
the Commodity Brokers 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 Brokers
from assets held thereby; and (vii) if the General Partner is an affiliate of a
Commodity Broker (Demeter is an affiliate of DWR), the risks incurred by the
General Partner as such. See "Conflicts of Interest."
The Customer Agreements set forth a standard of liability for the Commodity
Brokers and provide for certain indemnities of and by the Commodity Brokers. See
"Fiduciary Responsibility."
CERTAIN LITIGATION
At any given time, DWR is involved in numerous legal actions, some of which
seek significant damages.
On May 16, 1996, an NASD arbitration panel awarded damages and costs
against DWR 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 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 DWR. Named defendants include DWR, Demeter,
Dean Witter Futures and Currency Management Inc., MSDW (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 partnerships
commodity pools. 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 DWR. 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. 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. The complaints seek unspecified amounts of compensatory and
punitive damages and other relief. It is possible that additional similar
actions may be filed and that, in the course of these actions, other parties,
including the Partnerships, could be added as defendants. The Dean Witter
Parties believe that they have strong defenses to, and they will vigorously
contest, the actions. Although the ultimate outcome of legal proceedings cannot
be predicted with certainty, it is the opinion of management of the Dean Witter
Parties that the resolution of the actions will not have a material adverse
effect on the financial condition or the results of operations of any of the
Dean Witter Parties.
During the five years preceding the date of this Prospectus, there have
been (other than as described above) no material criminal, civil or
administrative actions pending, on appeal or concluded against DWR, Demeter, or
any of their principals, which DWR or Demeter believes would be material to an
investor's decision to invest in the Partnerships.
At any given time, CFI is involved in various legal actions. On July 31,
1992, a CFTC Administrative Law Judge ("ALJ") ordered CFI to pay a former client
of the firm approximately $1.7 million in damages, plus interest and costs,
based upon certain alleged misrepresentations made by a former account
executive. Al
73
<PAGE>
Baraka Investment and Development Corp. vs. Indosuez Carr Futures, Inc. (CFTC
Docket No. 91-R-126). On May 3, 1993, the CFTC issued an Order of Summary
Affirmance, which affirmed the ALJ's decision, and the U.S. Court of Appeals for
the Seventh Circuit affirmed the CFTC order in June, 1994.
During the five years preceding the date of this Prospectus, there have
been (other than as described above) no material criminal, civil or
administrative actions pending, on appeal or concluded against CFI or any of its
principals, which CFI believes would be material to an investor's decision to
invest in the Partnerships.
THE FUTURES, OPTIONS AND FORWARDS MARKETS
Since 1974, the market in futures interests has undergone dramatic changes.
According to statistics provided by the Futures Industry Association, in 1974
the futures markets were divided 82% in agricultural products, 15% in metals, 2%
in currencies, and 1% in lumber and energy products; by December 31, 1997, the
markets were divided 58% in interest rates, 12% in agriculturals, 10% in stock
indices, 6% in currencies, 8% in metals, and 6% in energy products. By December
31, 1997, over $32 billion was invested in managed futures interests.
FUTURES CONTRACTS
Futures contracts are standardized contracts made on domestic or foreign
exchanges that call for the future delivery of specified quantities of various
agricultural and tropical commodities, industrial commodities, currencies,
financial instruments or metals at a specified time and place. The contractual
obligations, depending upon whether one is a buyer or a seller, may be satisfied
either by taking or making, as the case may be, physical delivery of an approved
grade of commodity or by making an offsetting sale or purchase of an equivalent
but opposite futures contract on the same exchange prior to the designated date
of delivery. As an example of an offsetting transaction where the physical
commodity is not delivered, the contractual obligation arising from the sale of
one contract of December 1999 wheat on a commodity exchange may be fulfilled at
any time before delivery of the commodity is required by the purchase of one
contract of December 1999 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 by delivery of any physical commodity.
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, 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 subjects of individual
negotiation between the parties involved. Moreover, 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.
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 at a specified price (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 of a specific commodity)
in the underlying futures contract or commodity, and 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 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 take a short position in the
underlying futures contract or
74
<PAGE>
commodity 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 take a long
position in the underlying futures contract or commodity 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. Similarly, 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. On certain exchanges,
in-the-money options are automatically exercised on their expiration date, but
on others unexercised options simply become worthless after their expiration
date. 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.
The use of interrelated options and futures positions can provide an
additional means of risk management and permit a trader to retain a futures
position in the hope of additional appreciation in that position, while at the
same time allowing the trader to limit the possible adverse effects of a decline
in the position's value.
Successful futures options trading requires many of the same skills as does
successful futures trading. However, since specific market movements of the
underlying futures contract or commodity must be predicted accurately, the risks
involved are somewhat different. For example, if a Partnership buys an option
(either to sell or buy a futures contract or commodity), it will pay a "premium"
representing the market value and time value of the option. Unless the price of
the futures contract or commodity underlying the option changes and it becomes
profitable to exercise or offset the option before it expires, the Partnership
may lose the entire amount of such premium. Conversely, if the Partnership sells
an option (either to sell or buy a futures contract or commodity), it will be
credited with the premium but will have to deposit margin due to its contingent
liability to take or deliver the futures contract or commodity underlying the
option in the event the option is exercised. Traders who sell options are
subject to the entire loss which occurs in the underlying futures position or
commodity (less any premium received). The ability to trade in or exercise
options may be restricted in the event that trading in the underlying futures
contract or commodity becomes restricted.
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, for example, interest rate sensitive instruments,
foreign currencies and stock portfolios) and which are exposed to exchange,
interest rate and stock market risks, may use the commodities markets primarily
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 merchandiser or 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
commodity 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 interests contracts. Speculators rarely take
delivery of commodities, but rather close out their positions by entering into
offsetting purchases or sales of contracts. Since the speculator may take either
a long or short position in the commodities markets, it is possible for him to
make profits or incur losses regardless of whether prices go up or down. Trading
by the Partnerships will be for speculative rather than for hedging purposes.
COMMODITY EXCHANGES
Commodity exchanges provide centralized market facilities for trading
futures contracts and options (but not forward contracts) relating to specified
commodities, indices and other intangibles. 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 (including the International Monetary Market), the
New York Mercantile Exchange, the New York Cotton Exchange, Inc. and the Coffee,
Sugar and Cocoa Exchange.
75
<PAGE>
Each of the commodity exchanges 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, at least to a large degree, to meet its
obligations with regard to the "other side" of an insolvent clearing member's
contracts. Furthermore, 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.
The exchanges also impose speculative position limits and other restrictions on
customer positions to help ensure that no single trader can amass a position
that would have a major impact on market prices.
Commodity exchanges in the United States and their clearinghouses are given
reasonable latitude in promulgating rules and regulations to control and
regulate their members. Examples of regulations by exchanges and clearinghouses
include the establishment of initial margin levels, size of trading units,
contract specifications, speculative position limits, and daily price
fluctuation limits. The CFTC reviews all such rules (other than those relating
to specific margin levels for futures, as opposed to options) and can disapprove
or, with respect to certain of such rules, require the amendment or modification
thereof.
Foreign commodity exchanges differ in certain respects from their United
States 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--Risks Relating to Futures Interests
Trading and the Futures Interests Markets--Special Risks Associated with Trading
on Foreign Exchanges."
SPECULATIVE POSITION LIMITS
The CFTC and United States commodity 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. Certain exchanges
or their clearinghouses also set limits on the total net positions that may be
held by a clearing broker, such as CFI. However, position limits do not apply to
many currency futures contracts, and, in general, no position limits are in
effect in bank or dealer forward contract trading or in trading on foreign
commodity exchanges, although the principals with which the Partnerships may
trade in such markets may impose such limits as a matter of credit policy. The
futures interests positions of the Partnerships are not, and will not be,
attributable to Limited Partners with respect to their own futures interests
trading, if any, for purposes of position limits.
DAILY LIMITS
Most United States commodity exchanges (but generally not foreign exchanges
or banks or dealers in the case of forward contracts) normally 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 interests 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 interest, no trades may be made at a
price beyond the limit. This can create liquidity problems.
REGULATIONS
Commodity exchanges in the United States are subject to regulation under
the CEAct by the CFTC, the governmental agency having responsibility for
regulation of commodity exchanges and futures interests contract trading
conducted thereon. The function of the CFTC is to implement the objectives of
the CEAct of
76
<PAGE>
preventing price manipulation and excessive speculation and promoting orderly
and efficient markets. Such regulation, among other things, provides that
trading in futures interests must be on exchanges designated as "contract
markets," and that all trading on such exchanges must be done by or through
exchange members.
The CFTC possesses exclusive jurisdiction to regulate the activities of
"commodity trading advisors" and "commodity pool operators" and has adopted
regulations with respect to certain of such persons' activities. Pursuant to its
authority, 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 CEAct 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 CEAct 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 CEAct requires all "futures commission merchants," such as the
Commodity Brokers, 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 CFTC has
similar authority over "introducing brokers," i.e., persons who solicit or
accept orders for futures interests trades but who do not accept margin deposits
for the execution of trades. The Partnerships have no present intention of using
any introducing brokers in their trading. The CEAct also gives the states
certain powers to enforce its provisions and the regulations of the CFTC.
The fact of CFTC registration of the General Partner, the Commodity
Brokers, and the Trading Advisors does not imply that the CFTC has passed on or
approved this offering or their qualifications to act as described in this
Prospectus.
Limited Partners are afforded certain rights for reparations under the
CEAct. Limited Partners may also be able to maintain a private right of action
for certain violations of the CEAct. The CFTC has adopted rules implementing the
reparation provisions of the CEAct which provide that any person may file a
complaint for a reparations award with the CFTC for violation of the CEAct
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 CEAct, the NFA has been formed and registered
with the CFTC as a "registered futures association." At the present time, the
NFA is the only non-exchange self-regulatory organization for commodities
professionals. NFA members are subject to NFA standards relating to fair trade
practices, financial condition, and consumer protection. As the self-regulatory
body of the commodities industry, the NFA 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 NFA responsibility
for the registration of commodity trading advisors, commodity pool operators,
futures commission merchants, introducing brokers and their respective
associated persons and floor brokers. The General Partner, the Commodity
Brokers, and the Trading Advisors are all members of the NFA (the Partnerships
themselves are not required to become members of the NFA).
The above-described regulatory structure may be modified by rules and
regulations promulgated by the CFTC or by legislative changes enacted by
Congress.
The CFTC has no authority to regulate trading on foreign commodity
exchanges and markets. The CFTC has, however, adopted rules relating to the
marketing of foreign futures contracts and options in the United States. These
rules permit foreign futures contracts and options traded only on certain
foreign exchanges to be offered and sold in the United States. See "Risk
Factors--Risks Relating to Futures Interests Trading and the Futures Interests
Markets--Special Risks Associated with Trading on Foreign Exchanges."
MARGINS
"Initial" or "original" margin is the minimum amount of funds that must be
deposited by a commodity trader 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
77
<PAGE>
may decline before he must deliver additional margin. A margin deposit is like a
cash performance bond. It helps assure the commodity trader's performance of the
futures interests contracts he purchases or sells. Futures interests 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 interests contract is set from time to time
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--Risks Relating to Futures Interests Trading and the Futures Interests
Markets--Futures Interests Trading is Highly Leveraged."
Brokerage firms, such as the Commodity Brokers, carrying accounts for
traders in futures interests 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. The Commodity Brokers presently intend to
require each Partnership to make margin deposits equal to the exchange minimum
levels for all futures interests 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 CFI, each Partnership will be able to take advantage of CFI's
credit lines with several participants in the interbank market. CFI will require
margin with respect to a Partnership's trading of currency forward contracts.
When a trader purchases an option, there is no margin requirement. When a
trader sells an option, on the other hand, he is required to deposit margin in
an amount determined by the margin requirements established for the futures
interests contract underlying the option, and, in addition, an amount
substantially equal to the current premium for the option. The margin
requirements imposed on the writing of options, although adjusted to reflect the
probability that out-of-the-money options will not be exercised, can in fact be
higher than those imposed in dealing in the futures markets directly.
Complicated margin requirements apply to "spreads" and "conversions," which are
complex trading strategies in which a trader acquires a mixture of related
futures and options positions.
Margin requirements are computed each day by a trader's commodity broker.
When the market value of a particular open futures interests 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.
THE LIMITED PARTNERSHIP AGREEMENTS
This Prospectus contains an explanation of the more significant terms and
provisions of the Limited Partnership Agreement of each Partnership, a copy of
which is annexed hereto as Exhibit A and is incorporated herein by this
reference. Each Limited Partnership Agreement is identical insofar as the terms
and provisions thereof discussed hereunder are concerned. The following
description is a summary only of certain significant terms of the Limited
Partnership Agreement not set forth elsewhere in this Prospectus, is not
intended to be complete, and is qualified in its entirety by reference to
Exhibit A.
NATURE OF THE PARTNERSHIPS
Each Partnership was formed on July 15, 1998 under the Partnership Act. The
fiscal year of each Partnership begins on January 1 of each year and ends on the
following December 31.
Units purchased and paid for pursuant to this offering will be fully paid
and nonassessable. Except as described under "Restrictions on Transfers and
Assignments" below, Limited Partners may only withdraw from a Partnership by
redeeming all of their Units. Each Partnership may have a claim against its
Limited Partners after redemption or a Series Exchange of Units or receipt of
distributions from such Partnership for liabilities of the Partnership that
arose before the date of such redemption, Series Exchange or distribution, but
such claim will not exceed the sum of such Limited Partner's unredeemed capital
contribution, undistributed profits, if any, any distributions and amounts
received upon redemptions, and amounts deemed received on a Series Exchange,
together with interest thereon. No Partnership will make a claim against its
Limited Partners with respect to amounts distributed to them or amounts received
by them upon redemption of Units or deemed
78
<PAGE>
received upon a Series Exchange of Units unless the Net Assets of the
Partnership are insufficient to discharge liabilities of the Partnership that
arose before the payment of such amounts. The General Partner will be liable for
all obligations of each Partnership to the extent that assets of such
Partnership, including amounts contributed by its Limited Partners and paid out
in distributions, redemptions, Series Exchanges, or otherwise to Limited
Partners, are insufficient to discharge such obligations. However, neither the
General Partner, DWR, nor any of their affiliates shall be personally liable to
a Limited Partner (or assignee) for the return or repayment of all or any
portion of the capital or profits of such Limited Partner.
MANAGEMENT OF PARTNERSHIP AFFAIRS
The Limited Partners of a Partnership will not participate in the
management or operations of such Partnership. Any participation by a Limited
Partner in the management of a Partnership may jeopardize the limited liability
of such Limited Partner. Under each Limited Partnership Agreement,
responsibility for managing the Partnership is vested solely in the General
Partner. See "Fiduciary Responsibility." The General Partner may delegate
complete trading authority to a Trading Advisor and has done so, except for the
ability of the General Partner to override trading instructions that violate a
Partnership's trading policies, or to the extent necessary to fund distributions
or redemptions, or to pay Partnership expenses, or when the Trading Advisor is
unable or unwilling to act and a successor Trading Advisor has not yet been
retained.
On behalf of each Partnership, the General Partner may engage and
compensate from the funds of that Partnership such persons (including other
Trading Advisor(s)) as the General Partner in its sole judgment deems advisable
for the conduct and operation of the business of the Partnership, provided
however, that, except as described in the Limited Partnership Agreement and this
Prospectus, the General Partner will not engage on behalf of a Partnership any
person, firm, or corporation that is an affiliate of the General Partner 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 will
not exceed one year, and such agreement may be terminated without penalty upon
60 days' prior written notice by the Partnership.
Other responsibilities of the General Partner include, but are not limited
to, the following: determining whether each Partnership will make distributions;
administering redemptions and Series Exchanges; preparing monthly and annual
reports to the Limited Partners of each Partnership; preparing or causing to be
prepared and filing tax returns required to be filed by each Partnership;
directing the investment of each Partnership's assets (other than investments in
futures interests); executing various documents on behalf of each Partnership
and its Limited Partners pursuant to powers of attorney; and supervising the
liquidation of a Partnership if an event causing termination of that Partnership
occurs. To facilitate the execution of various documents by the General Partner
on behalf of each Partnership and its Limited Partners, each of the Limited
Partners will appoint the General Partner, with power of substitution, his
attorney-in-fact by executing a Subscription Agreement.
SHARING OF PROFITS AND LOSSES
Each Partner, including the General Partner, of each Partnership will have
a capital account with an initial balance equal to the amount he paid for Units
of such Partnership, or, in the case of the General Partner, its capital
contribution. Each Partnership's Net Assets will be determined monthly, and any
increase or decrease from the end of the preceding month will be added to or
subtracted from the accounts of the Partners in the ratio that each account
bears to all accounts. For a description of the federal tax allocations, see
"Material Federal Income Tax Considerations."
RESTRICTIONS ON TRANSFERS OR ASSIGNMENTS
Except as set forth below, each Limited Partnership Agreement provides that
Units may be transferred or assigned, but that no transferee or assignee may
become a substituted Limited Partner without the written consent of the General
Partner, which consent may not be unreasonably withheld. No Limited Partner, or
an assignee, transferee, estate, custodian or personal representative of a
Limited Partner, may withdraw any capital or profits from a Partnership except
by redemption of Units. See "Redemptions." The General Partner,
79
<PAGE>
without prior notice to or consent of the Limited Partners, may withdraw any
portion of its interest in a Partnership that is in excess of the interest
required under its Limited Partnership Agreement. See "Capitalization." The
General Partner may withdraw or assign its entire interest in a Partnership only
upon 120 days' prior written notice to Limited Partners; if a majority of
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 such
withdrawal.
Any transfer or assignment of Units permitted by the Limited Partnership
Agreements will be effective as of the end of the month in which such transfer
or assignment is made; provided, however, that no Partnership need recognize any
transfer or assignment until it has received at least 30 days' prior written
notice from the Limited Partner, which notice sets forth the address and social
security or taxpayer identification number of the transferee or assignee and the
number of Units transferred or assigned, and is signed by the Limited Partner.
No transfers or assignments of Units will be effective or recognized by the
General Partner if as a result any party to such transfer or assignment owns
fewer than the minimum number of Units required to be purchased as described
herein (subject to certain exceptions relating to gifts, death, divorce, or
transfers to family members or affiliates contained in the Limited Partnership
Agreements). No transfer or assignment of Units will be permitted unless the
General Partner is satisfied that (i) such transfer or assignment would not be
in violation of the Partnership Act or applicable federal, state or foreign
securities laws, and (ii) notwithstanding such transfer or assignment, 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 (the "Code"). No transfer or assignment of Units will be effective or
recognized by a Partnership if such transfer or assignment would result in the
termination of that Partnership for federal income tax purposes, and any
attempted transfer or assignment in violation of the Limited Partnership
Agreement will be ineffective. The Limited Partner will bear all costs
(including any attorneys' and accountants' fees) related to such transfer or
assignment.
AMENDMENTS; MEETINGS
Each Limited Partnership Agreement may be amended in accordance with, and
to the extent permissible under, the Partnership Act by an instrument signed by
the General Partner and by Limited Partners owning more than 50% of the Units
then owned by Limited Partners of that Partnership. In addition, the General
Partner may make the following amendments to a Limited Partnership Agreement
without the consent of the Limited Partners: (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 in the Limited Partnership Agreement; (iii) make any amendment to the
Limited Partnership Agreement that is not adverse to the Limited Partners; (iv)
effect the intent of the allocations proposed in the Limited Partnership
Agreement to the maximum extent possible and to the extent necessary to comply
with the Code or the interpretations thereof affecting such allocations, as same
may be amended from time to time; (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, add or modify any
provision of or to the Limited Partnership Agreement required to be deleted,
added or modified 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 Partnership Act, or to
comply with applicable law; (viii) make any modification to the Limited
Partnership Agreement to reflect the admission of additional or substitute
general partners and to reflect any modification to the net worth and minimum
investment requirements applicable to the General Partner and any other general
partner, as contemplated by Sections 5 and 6 of the Limited Partnership
Agreement; (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, as
amended (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 is informed that doing
so is necessary. However, no amendment of the Limited Partnership Agreement of a
Partnership without the consent of all Partners affected thereby may 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 such Limited Partnership Agreement relating to amendments
requiring the consent of all Partners.
80
<PAGE>
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 of the Partnership(s) in which he owns Units and
the number of Units owned by each. Upon receipt of a written request, signed by
Limited Partners owning at least 10% of the Units then owned by Limited Partners
of a Partnership, that a meeting of such Partnership be called to consider any
matter upon which Limited Partners may vote pursuant to its Limited Partnership
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
receipt of such notice, must call a meeting of that Partnership. Such meeting
must be held at least 30 but not more than 60 days after the mailing of such
notice, and such notice must specify the date, a reasonable place and time, and
the purpose of such meeting.
At any meeting of the Limited Partners, upon the affirmative vote of
Limited Partners (in person or by proxy) owning more than 50% of the Units then
owned by Limited Partners of a Partnership, the following actions may be taken:
(i) the Limited Partnership Agreement may, with certain exceptions described
above, be amended; (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, 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 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 may be taken if it will
adversely affect the classification of the Partnership as a partnership under
the federal income tax laws or the status of the Limited Partners as limited
partners under the Partnership Act (while not required by the Limited
Partnership Agreement, it is advisable that Limited Partners proposing to take
any of the foregoing actions obtain an opinion of qualified counsel to confirm
that the action to be taken will not have adverse ramifications under federal
income tax laws and the Partnership Act, and that such action is otherwise
permitted under the Partnership Act). 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
requisite number of Units; notice of any actions taken by written consent must
be given to non-consenting Limited Partners within seven business days
thereafter.
INDEMNIFICATION
The Limited Partnership Agreement provides for certain indemnities of the
General Partner and its affiliates. See "Fiduciary Responsibility."
REPORTS TO LIMITED PARTNERS
The books and records of each Partnership are maintained at its principal
office, and must be retained for not less than five years. The Limited Partners
or their authorized attorneys or agents will have the right during normal
business hours to inspect and copy such books and records of each Partnership of
which they are Limited Partners, and, upon request, copies of such books and
records will be sent to any Limited Partner if reasonable reproduction and
distribution costs are paid by him. Copies of subscription documentation in
connection with purchases and Exchanges of Units will be retained by the
Partnership for not less than six years.
Within 30 days after the close of each calendar month, the General Partner
shall provide to each Limited Partner such financial and other information with
respect to each Partnership as the CFTC and NFA, from time to time, may require
in such monthly reports, together with information concerning any material
change in the brokerage commissions or fees payable by the Partnerships to any
commodity broker. Additionally, each Partnership will distribute to the Limited
Partners within 90 days after the close of each fiscal year an annual report
containing audited financial statements (including a statement of income and
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 independent certified public accounting firm
which audited such financial statements, and such other information as the CFTC
and the 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. Within 75
days after the close of each fiscal year (but in no event later than March 15 of
each year), the Partnership will report to each Limited Partner tax information
necessary for the preparation of the Limited Partner's federal income tax
returns. The Net Asset Value of Units will be determined daily by the General
81
<PAGE>
Partner and the most recent Net Asset Value calculations will be promptly
supplied in writing to any Limited Partner after receipt of a written request to
such effect. In addition to the above-described information and reports, the
General Partner will provide Limited Partners with such other information and
will comply with any such procedures in connection with redemptions as in the
future are specifically required under SEC rules and policies for commodity
pools and similar investment vehicles.
In addition, if any of the following events occurs, notice of such event,
including a description of Limited Partners' redemption and voting rights, will
be mailed to each Limited Partner of that Partnership within seven business days
after the occurrence of the event: (i) 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; (ii)
any material amendment to the Limited Partnership Agreement; (iii) any change in
Trading Advisors or any material change in the management agreement with a
Trading Advisor; (iv) any change in Commodity Brokers or any material change in
the compensation arrangements with a Commodity Broker; (v) any change in general
partners or any material change in the compensation arrangements with a general
partner; (vi) any change in the Partnership's fiscal year; (vii) any material
change in the Partnership's trading policies as specified in the Limited
Partnership Agreement; or (viii) cessation of futures interests trading by the
Partnership. In the case of a notice given in accordance with clause (i) of the
immediately preceding sentence: (a) 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 described under "Redemptions" for regular Redemption
Dates (a Special Redemption Date may take place on a regular Redemption Date);
and (b) 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. Thereafter, the General Partner
shall determine whether to reinstitute futures interests trading or to terminate
the Partnership.
In addition, subject to limits imposed under certain 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 caps
on management fees, incentive fees, brokerage commissions or fees, transaction
fees and costs, ordinary administrative expenses, or net excess interest or
compensating balance benefits, as described under "Description of
Charges--Charges to Each Partnership--5. Expense Limitations," 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 describes the redemption and voting rights of Limited Partners; and (iii)
Limited Partners redeeming Units at the first Redemption Date following such
notice shall not be subject to any redemption charges.
In addition, following each Closing, the General Partner shall send written
notice to any Limited Partner which has acquired of record more than five
percent of the outstanding Units of a Partnership, so that such Limited Partner
may comply with the reporting requirements of Section 13(d) and (g) of the
Securities Exchange Act of 1934, as amended, and Regulation 13D-G promulgated
thereunder.
Each Limited Partner (and any assignee of such Limited Partner's interest)
expressly agrees that in the event of his death, such Limited Partner waives on
behalf of himself and his estate, and directs the legal representative of his
estate and any person interested therein, to waive 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 described above.
PLAN OF DISTRIBUTION
The Units are being offered through DWR pursuant to a Selling Agreement
among the Partnerships, the General Partner, and DWR, as selling agent. DWR has
appointed MS & Co., and may appoint, with the approval of the General Partner,
as its agent to make offers and sales of the Units, any other securities broker
or dealer which is a member in good standing of the NASD, or any foreign bank,
dealer, institution or person ineligible for membership in the NASD which agrees
to make no offers or sales of Units within the United States or its territories,
possessions or areas subject to its jurisdiction or to persons who are citizens
thereof or residents therein, and which further agrees in making offers and
sales of Units to comply with the applicable provisions of the Conduct Rules of
the NASD (each, an "Additional Seller"). DWR, MS & Co. and the General Partner
are "affiliates" of one another pursuant to SEC rules under the 1933 Act.
82
<PAGE>
The Units are being offered on a "best efforts" basis without any agreement
by DWR to purchase Units. The General Partner has registered 3,000,000 Units of
each Partnership with the SEC, for sale in the Initial Offering and the
Continuing Offering. The General Partner may in the future register additional
Units with the SEC. There is no maximum aggregate amount of funds which may be
contributed to any Partnership. The General Partner may in the future subdivide
or combine outstanding Units of any Partnership, 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.
Units of each Partnership are being offered initially to the public at $10
per Unit, for issuance at the Initial Closing, which is currently scheduled to
be held on October 31, 1998; provided, however, that the General Partner may at
its discretion hold such Initial Closing at any time during the Initial Offering
Period (as defined below). Units that remain unsold following the Initial
Closing may be offered for sale in the Continuing Offering at subsequent Monthly
Closings at a price per Unit equal to 100% of the Net Asset Value of a Unit of
the Partnership which sells the Unit as of the date of the applicable Monthly
Closing. The period from the date of this Prospectus through November 13, 1998
will be referred to herein as the "Initial Offering Period"; provided, however,
that the General Partner may, in its sole discretion, extend the Initial
Offering Period up to and including March 12, 1999. If at least 400,000
($4,000,000) Units in a Partnership have been subscribed for at any time during
the Initial Offering Period, the General Partner will accept subscriptions for
such Partnership at the Initial Closing and commence such Partnership's trading
operations, and continue to offer Units of such Partnership in the Continuing
Offering. Following the Initial Closing, the Net Asset Value of a Unit of a
Partnership will not be related to the performance of any other Partnership and
will depend on the performance of its Trading Advisor. At subsequent Monthly
Closings, such Net Asset Value may increase or decrease substantially between
the date of a subscription and the date as of which such subscription is
accepted by the General Partner; consequently, a subscriber may receive at a
Monthly Closing more or fewer Units of a Partnership than would have been
received if the Monthly Closing had been held on the date of the subscription.
Additionally, even if the amount of a subscription is divided equally among the
Partnerships, the number of Units of each Partnership purchased at a Monthly
Closing will not generally be the same and may differ significantly.
During the Initial Offering Period and, thereafter, during the Continuing
Offering, funds with respect to a subscription received and not immediately
rejected by the General Partner will be transferred to, and held in escrow by,
The Chase Manhattan Bank, New York, New York (the "Escrow Agent"), and invested
solely in the Escrow Agent's interest-bearing money market account. If a
subscription is accepted by the General Partner, the Escrow Agent will pay to
the appropriate Partnerships the subscription funds and pay to DWR any interest
earned on such subscription funds at the applicable Closing, and DWR will credit
the subscriber's customer account with DWR with such interest. If a subscription
is rejected by the General Partner, the Escrow Agent will promptly pay to DWR
the rejected subscription funds and any interest earned thereon, and DWR will
credit the subscriber's customer account with DWR with such amounts, and at such
time such funds will be immediately available for investment or withdrawal. In
the event a subscriber's customer account with DWR has been closed, any
subscription returned and/or interest earned will be paid by check. Interest
will be earned on subscription funds from the day of deposit of such funds with
the Escrow Agent to the day that such funds are either paid to the appropriate
Partnerships in the case of accepted subscriptions or paid to DWR in the case of
rejected subscriptions. At all times during the Initial Offering Period and,
thereafter, during the Continuing Offering, and prior to each Monthly 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 such funds.
If fewer than 400,000 ($4,000,000) Units in any Partnership have been
subscribed for at the termination of the Initial Offering Period or for any
reason the Initial Closing does not occur, the offering of Units with respect to
any such Partnership will terminate and each subscription received during the
Initial Offering Period will be promptly returned by the Escrow Agent to DWR for
prompt deposit to each subscriber's customer account with DWR, within five
business days following termination of the Initial Offering Period, together
with any interest earned on such subscription while held in escrow. DWR will
promptly notify each subscriber that such subscription has been returned to such
subscriber's customer account with DWR and that such funds are under such
subscriber's control. It is contemplated that only one Initial Closing will be
held for the Partnerships, and it is not a condition of the Initial Closing that
all three Partnerships sell the minimum number of Units. If the Initial Closing
is held for only two of the Partnerships, Limited Partners in such Partnerships
will only be able to effect Series Exchanges for Units of those Partnerships;
likewise, if the Initial Closing is held for only one of the Partnerships,
Limited Partners in that Partnership will have no Series Exchange privilege. See
"Exchange Privilege."
83
<PAGE>
During the Initial Offering Period, the General Partner, DWR, any
Additional Seller, the Trading Advisor, and their respective affiliated entities
may, but are not required to, subscribe for any number of Units. Units
subscribed for by such entities will be counted for purposes of determining
whether the minimum subscription requirement for a Partnership has been met. Any
Units subscribed for by such entities may not be redeemed for a period of two
years after the Initial Closing if the Partnership would not have the minimum
$4,000,000 in Net Assets immediately following such redemption.
In the case of Units purchased for cash, qualified employees of DWR have
the option to receive from DWR (payable solely from its own funds) a gross sales
credit equal to 4% of the Net Asset Value per Unit as of the applicable Closing
for each Unit sold by them and issued at such Closing, plus a gross sales credit
of up to 71% of the brokerage fees received by DWR from the Partnership each
month that are attributable to such outstanding Units, commencing with the
fifteenth month after the Closing at which a Unit is issued. Alternatively,
qualified employees of DWR may forego the initial sales credit of 4% of the Net
Asset Value per Unit and immediately commence receiving a gross sales credit of
up to 71% of the brokerage fees received by DWR from the Partnership each month
that are attributable to such outstanding Units. Notwithstanding the foregoing,
employees of DWR that sell $500,000 or more of Units to any single investor will
not have an option, and will only be entitled to receive a gross sales credit of
up to 71% of the brokerage fees received by DWR from the Partnership each month
that are attributable to such outstanding Units, commencing with the first month
after the Units are issued.
In the case of Units purchased pursuant to a Series Exchange or Non-Series
Exchange, qualified employees of DWR will not receive the initial gross sales
credit of 4%. However, in the case of a Series Exchange or Non-Series Exchange,
DWR employees will receive a gross sales credit of up to 71% of the brokerage
fees received by DWR from the Partnership each month that are attributable to
such outstanding Units, as follows: (i) in the case of a Series Exchange where
the DWR employee elected to receive the initial gross sales credit of 4% in
connection with the initial purchase of the Units redeemed, such DWR employee
will receive the monthly gross sales credit commencing with the fifteenth month
after the date the Units being redeemed were purchased; and (ii) in the case of
(A) a Series Exchange where the DWR employee elected not to receive the initial
gross sales credit of 4% in connection with the initial purchase of the Units
redeemed, or (B) a Non-Series Exchange, such DWR employee will receive the
monthly gross sales credit commencing with the first month after the Units are
issued. In all cases, qualified DWR employees will receive continuing
compensation until the applicable Partnership terminates or such Unit is
redeemed (whichever comes first).
For the purpose of paying continuing compensation, brokerage fees are
deemed to be attributable to Units sold by an employee in the proportion which
the number of such Units bears to the total number of Units outstanding at any
time. For example, if an employee sold 2,500 Units of one Partnership and there
were 125,000 Units of such Partnership outstanding, 2% (2,500 divided by
125,000) of the brokerage fees received by DWR with respect to such Partnership
would be deemed to be attributable to the Units sold by that employee, and such
employee would be paid by DWR, under present plans, up to 57% of such fees.
Units issued to a Limited Partner in a Series Exchange will be treated for
purposes of allocating brokerage fees as sold by the employee who sold the Units
subject to such Series Exchange. No part of such compensation will be paid by a
Partnership and, accordingly, Net Assets will not be reduced as a result of such
compensation. Each person receiving such continuing compensation must be a DWR
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 NFA 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 CEAct and the regulations thereunder. The additional services to be
rendered by such employees include: (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 interests 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 (f) providing such other services as
Limited Partners from time to time may reasonably request. Such additional
compensation paid by DWR may be deemed to be underwriting compensation. In
addition, certain officers and directors of the General Partner may receive
compensation as employees of DWR based, in part, on the amount of brokerage fees
paid by the Partnerships to DWR. The Selling Agreement among DWR, the General
Partner and the Partnerships provides that such compensation may only be paid by
DWR as long as such services are provided.
84
<PAGE>
A Limited Partner may telephone, write or visit such employee at the local DWR
branch office to avail himself of such services.
DWR may compensate any qualified Additional Seller for each Unit sold by it
by paying such Additional Seller a selling commission, payable by DWR solely
from its own funds, as determined by DWR and such Additional Seller, but not to
exceed 4% of the Net Asset Value of the Unit sold (except MS & Co., which will
be compensated at the same rate as DWR). Additional Sellers who are properly
registered as futures commission merchants or introducing brokers with the CFTC
and are members of the NFA in such capacity may also receive from DWR, payable
solely from its own funds, continuing compensation for providing to Limited
Partners the continuing services described above. Such additional compensation
paid by DWR may be up to 35% of the brokerage fees generated by outstanding
Units sold by such Additional Sellers and received by DWR as commodity broker
for each Partnership. Additional Sellers 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 such employees are properly
registered with the CFTC and are members of the NFA. Such additional
compensation paid by DWR may be deemed to be underwriting compensation.
In connection with the sale of Units, DWR may at any time and from time to
time implement cash sales incentive and/or promotional programs for its
employees who sell Units. Such programs will provide for DWR, and not the
Partnership or General Partner, to pay its employees bonus compensation based on
sales of Units. Any such program will be approved by the NASD prior to its
implementation.
The aggregate of all compensation paid to employees of DWR from the initial
4% gross sales credit, the redemption charges received by DWR, and any sales
incentives will not exceed 10% of the proceeds of the sale of Units.
The Units of each Partnership are being sold by each Partnership when, as
and if subscriptions therefor are accepted by the General Partner, subject to
the satisfaction of certain conditions set forth in the Selling Agreement and
the approval by counsel of certain legal matters. Pursuant to the respective
Management Agreements, each Partnership has agreed to indemnify its Trading
Advisor 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 such Trading
Advisor. Each Partnership also has agreed to indemnify DWR, the General Partner,
MS & Co., and any other Additional Sellers in connection with the offer and sale
of Units. See "Fiduciary Responsibility."
If units of new partnerships of the Charter Series are offered for sale by
the General Partner, such offer would be on such terms as the General Partner
may determine. The expenses incurred in this offering and the pricing formulas
described above would not be determinative of the price per unit in any such
subsequent offering.
SUBSCRIPTION PROCEDURE
The minimum subscription for most subscribers is $20,000, except that, in
the case of eligible subscribers purchasing Units pursuant to a Non-Series
Exchange, the $20,000 minimum subscription will be satisfied if the proceeds of
the redemption of the units redeemed would have equaled at least $20,000 as of
the last day of the month immediately preceding the Closing at which the Units
are purchased, irrespective of whether the actual proceeds from such redemption
are less than $20,000 when the units are redeemed. See "Investment
Requirements." A subscription may be for Units of one Partnership, or may be
divided among two or all three Partnerships, provided that the minimum
subscription for any one Partnership is: (a) in the case of a cash purchase,
$5,000, or (b) in the case of a Non-Series Exchange, the proceeds from the
redemption of (i) five units from commodity pools other than the Spectrum Series
or MSTAF, (ii) 500 units from one, or any combination, of the Spectrum Series,
or (iii) 500 units from MSTAF. A subscriber who already owns Units in a
Partnership and desires to make an additional investment in such Partnership may
subscribe for additional Units at a Monthly Closing with a minimum investment
of: (a) in the case of a cash purchase, $1,000, or (b) in the case of a
Non-Series Exchange, the proceeds from the redemption of (i) one unit from
commodity pools other than the Spectrum Series or MSTAF, or (ii) 100 units from
one, or any combination of the Spectrum Series, or (iii) 100 units from MSTAF.
In order to purchase Units, a subscriber must complete, execute, and
deliver to DWR an execution copy of a Subscription Agreement. In the
Subscription Agreement, a subscriber (other than one effecting an Exchange) will
authorize the General Partner and DWR to transfer immediately the full
subscription amount from his customer account with DWR to the Partnerships'
Escrow Account. DWR will promptly debit the subscriber's
85
<PAGE>
customer account and transfer such funds to the Escrow Account with the Escrow
Agent upon receipt of the executed Subscription Agreement. A subscriber (other
than one effecting an Exchange) whose Subscription Agreement is received by DWR
and whose subscription is not immediately rejected, must have the appropriate
amount in his customer account with DWR on the first business day following the
date that his Subscription Agreement is received by DWR, and DWR will debit his
customer account and transfer such funds into escrow with the Escrow Agent on
that date. In the event that a subscriber (other than one effecting an Exchange)
does not have a customer account with DWR or does not have sufficient funds in
his existing customer account with DWR, the subscriber should make appropriate
arrangements with his DWR financial advisor, if any, and if none, should contact
his local DWR branch office. MS & Co. and the other Additional Sellers, if any,
will arrange for their respective customers subscribing for Units to open
customer accounts with DWR. Payment must not be mailed to the General Partner,
as any such payment will be returned to the subscriber for proper placement with
the DWR branch office where his account is maintained. Additional investments in
the Partnerships for subscribers who already own Units must be made by executing
a Subscription Agreement authorizing the immediate transfer of funds from the
customer's account with DWR to the Escrow Agent. In the case of a Series
Exchange or a Non-Series Exchange, a subscriber must complete, execute, and
deliver to DWR an execution copy of a Subscription Agreement, which will
authorize the General Partner to redeem all or a portion of such subscriber's
interest in a Partnership or another commodity pool for which the General
Partner serves as general partner and commodity pool operator (subject to terms
of the applicable limited partnership agreement), and use the proceeds of such
redemption (less any applicable redemption charges) to purchase Units in the
Partnership[s]. In accordance with an NASD rule, DWR will not subscribe for
Units on behalf of any customer account over which it has discretionary
authority, unless it gets prior written approval from the customer.
In the case of a subscription on behalf of an IRA or other employee benefit
plan, merely subscribing for Units does not create a plan. Those considering the
purchase of Units on behalf of an IRA or other employee benefit plan must first
ensure that the plan has been properly established in accordance with the Code
and the regulations thereunder and administrative rulings thereof and that the
plan has been adequately funded. If an IRA or other employee benefit plan has
been properly established and adequately funded, the trustee or custodian of the
plan who decides to or who is instructed to do so may subscribe for Units.
Payment of the subscription price must be made by having the trustee or
custodian of the plan authorize the General Partner and DWR to transfer
immediately the full subscription amount to the Morgan Stanley Dean Witter
Charter Series Escrow Account from the plan's customer account with DWR. An
employee benefit plan, including an IRA, should consider the tax consequences of
an investment in the Partnerships. See "Purchases by Employee Benefit
Plans--ERISA Considerations."
All Units subscribed for upon DWR's transfer of funds from a customer
account following receipt of a subscriber's check will be issued subject to the
collection of the funds represented by such check. In the event that a
subscriber's check is returned unpaid, DWR will notify the General Partner, and
the relevant Partnership will cancel the Units issued to such subscriber
represented by such check. Any losses or profits sustained by the Partnership in
connection with the Partnership's business allocable to such cancelled Units
will be deemed a decrease or increase in Net Assets and 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 such Limited Partner.
All subscriptions for Units are generally irrevocable by subscribers,
provided, however, that (i) a subscriber may revoke his Subscription Agreement,
and receive a full refund of the subscription amount and any accrued interest
thereon (or revoke the redemption of units in the other commodity pool in the
case of a Series Exchange or Non-Series Exchange), within five business days
after execution of such Subscription Agreement or no later than 3:00 P.M., New
York City time, on the date of the applicable Closing, whichever comes first, by
delivering written notice to his DWR financial advisor; and (ii) there may be
possible 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. See "Plan of Distribution." A specimen form of the Subscription
Agreement is annexed hereto as Exhibit B. A separate execution copy of the
Subscription Agreement accompanies this Prospectus or may be obtained, after
delivery of this Prospectus (and, if applicable, the Partnerships' latest
Monthly Report), from a local DWR branch office. Limited Partners will not
receive certificates evidencing Units, but will be sent confirmations of
purchase in DWR's customary form.
86
<PAGE>
PURCHASES BY EMPLOYEE BENEFIT PLANS -- ERISA CONSIDERATIONS
The purchase of Units might or might not be a suitable investment for an
employee benefit plan. Before proceeding with a purchase of Units, the person
with investment discretion on behalf of an employee benefit plan should
determine whether the purchase of Units is (a) permitted under the governing
instruments of the plan and (b) appropriate for that particular plan in view of
its overall investment policy, the composition and diversification of its
portfolio, and the considerations discussed below.
As used herein, 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. Such 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 ("IRAs"), described in Section 408 of the
Internal Revenue Code of 1986, as amended (the "Code").
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 ("ERISA"), and Section 4975 of the Code, 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 (the
"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 such
an entity if the equity security is a "publicly-offered security," meaning it is
(1) freely transferable, (2) held by more than 100 investors independent of the
issuer and of each other, and (3) either (a) registered under Section 12(b) or
Section 12(g) of the Securities Exchange Act of 1934, as amended (the "1934
Act") or (b) sold to the plan as part of a public offering of such securities
pursuant to an effective registration statement under the 1933 Act, where the
security is then timely registered under Section 12(b) or Section 12(g) of the
1934 Act. It is expected that the Units will meet, and 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 Code to employee benefit plans and
other tax-exempt entities which purchase Units in one or more of the
Partnerships. Although the Internal 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.
The person with investment discretion on behalf of an employee benefit plan
who is considering the purchase of Units in one or more of the Partnerships
should consult a professional tax adviser regarding the application of the
foregoing matters to their purchase of Units.
Units may not be purchased with the assets of an employee benefit plan if
the General Partner, DWR, any Additional Seller, any Trading Advisor or any of
their respective affiliates either: (a) has investment discretion with respect
to the investment of such 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 will serve as
a primary basis for investment decisions with respect to such plan assets and
that such advice will be based on the particular investment needs of the plan;
or (c) is an employer maintaining or contributing to such plan.
Subscribing for Units in a Partnership does not create an IRA or other
employee benefit plan. Those considering the purchase of Units on behalf of an
IRA or other employee benefit plan must first ensure that the plan has been
properly established in accordance with the Code and ERISA 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, DWR, MS & CO.,
ANY OTHER ADDITIONAL SELLERS OR ANY PARTNERSHIP THAT THIS INVESTMENT MEETS ALL
RELEVANT
87
<PAGE>
LEGAL REQUIREMENTS WITH RESPECT TO INVESTMENTS BY PLANS GENERALLY OR ANY
PARTICULAR PLAN OR THAT THIS 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 United States taxpayers of
acquiring, owning and disposing of Units. The opinions appearing in this section
are the opinions of Cadwalader, Wickersham & Taft, except as otherwise
specifically noted herein. The following summary is based upon the Internal
Revenue Code of 1986, as amended (the "Code"), 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 which follow in
general relate only to the tax implications of an investment in the Partnerships
by individuals who are citizens or residents of the United States. 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 must consult their own tax
advisors on such 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. 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.
The opinion of counsel described above is based upon the facts set forth
herein, including that a principal activity of each Partnership consists of
buying and selling commodities not held as inventory, or futures, options and
forward contracts with respect to such commodities, and at least 90% of the
Partnership's gross income during each year consists of gains from such trading
and interest income.
Certain "publicly traded partnerships" are taxed as corporations. While
this treatment does not affect the Partnerships, new legislation governing the
taxation of limited partnerships may be enacted at any time, and may apply to
the Partnerships retroactively. If a partnership were treated as an association
(or a publicly traded partnership) taxable as a corporation, income or loss of
such partnership would not be passed through to its partners, and such
partnership would be subject to tax on its income without deduction for any
distributions to its partners, at the rates applicable to corporations. In
addition, all or a portion of any distributions by such partnership to its
partners could be taxable to the partners as dividends or capital gains.
PARTNERSHIP TAXATION
Partners, Rather than Partnership, Subject to Federal Income Tax. Each
Partnership, as an entity, will not be subject to federal income tax. Except as
provided below with respect to certain nonresident aliens, each Limited Partner
in computing his federal income tax liability for a taxable year will be
required to take into account his distributive share of all items of Partnership
income, gain, loss, deduction, and credit for the taxable year of the
Partnership ending within or with the taxable year of such Partner, regardless
of whether such Partner has received any distributions from the Partnership. The
characterization of an item of profit or loss will usually be determined at the
Partnership level.
Organization and 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).
88
<PAGE>
Allocation of Partnership Profits and Losses. For federal income tax
purposes, a Limited Partner's distributive share of items of Partnership income,
gain, loss, deduction, and credit will be determined by each Limited Partnership
Agreement, annexed hereto as Exhibit A, unless an allocation under such
Agreement does not have "substantial economic effect," in which case the
allocations are made in accordance with the Partners' interests in the
Partnership. 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. Net recognized capital gain
for each year is allocated next among all Partners whose capital accounts are in
excess of their Units' allocation accounts to the extent of such excess in the
ratio that each such Partner's excess bears to all such Partners' excesses. Net
recognized loss for each year is allocated next among all Partners whose Units'
allocation accounts are in excess of their capital accounts to the extent of
such excess in the ratio that each such Partner's excess bears to all such
Partners' excesses.
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 each
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 such
Limited Partner.
These allocation provisions are designed to reconcile tax allocations to
economic allocations. However, no assurance can be given that the Internal
Revenue Service will not challenge such allocations (including each
Partnership's tax allocations in respect of redeemed Units).
If the allocation provided by each Limited Partnership Agreement is not
recognized 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 under such Limited Partnership Agreement may be increased or reduced or
the character of such 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 such 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 redemption of Units only if, following the
redemption of all of a Limited Partner's Units, such Partner has any tax basis
in his Units remaining. In such case, the Limited Partner will recognize loss to
the extent of such 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, such gain or
loss would be long-term capital gain or loss.
GAIN OR LOSS ON TRADING ACTIVITY
Because each Partnership will purchase futures interests for its own
account and not for the account of others, because each Partnership will not
maintain an inventory of futures interests and because substantially all of the
expected return of any combination of each Partnership's futures interests
positions will not be attributable to the time value of such Partnership's net
investment in such positions, for federal income tax purposes substantially all
of the profit and loss generated by each Partnership from its trading activities
will be capital gain and loss, which in turn may be either short-term, long-term
or a combination thereof. 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
such gain or loss, and long-term capital gain or loss to the extent of 60% of
such gain or loss. For individual partners, long-term capital gains are taxed at
a maximum marginal rate of 20%, and short-term capital gains are taxed at a
maximum marginal rate of 39.6%. For corporate partners, all capital gains are
taxed at a maximum marginal rate of 35%.
A "Section 1256 contract" includes a "regulated futures contract," a
"foreign currency contract," a "nonequity option," and a "dealer equity option."
A "regulated futures contract" is a futures contract which is traded on or
subject to the rules of a national securities exchange which is registered with
the SEC, a domestic
89
<PAGE>
board of trade designated as a contract market by the CFTC, or any other board
of trade, exchange or other market designated by the Secretary of the Treasury
("a qualified board or exchange"), and which is "marked-to-market" to determine
the amount of margin which must be deposited or may be withdrawn. A "foreign
currency contract" is a contract which requires delivery of, or the settlement
of which depends upon the value of, a foreign currency which is a currency in
which positions are also traded through regulated futures contracts, which is
traded in the interbank market, and which is entered into at arm's length at a
price determined by reference to the price in the interbank market. (The
Secretary of the Treasury is authorized to issue regulations excluding certain
currency forward contracts from mark-to-market treatment.) A "nonequity option"
means an option which is traded on a qualified board or exchange and the value
of which is not determined directly or indirectly by reference to any stock (or
group of stocks) or stock index, unless (i) there is in effect a designation by
the CFTC of a contract market for a contract based on such group of stocks or
stock index or (ii) such option is a cash-settled option on a stock index that
the SEC has determined to be "broad based." A "dealer equity option" means, with
respect to an options dealer, any listed option which is an equity option, is
purchased or granted by such options dealer in the normal course of his activity
of dealing in options, and is listed on the qualified board or exchange on which
such options dealer is registered. Each Section 1256 contract held at the end of
a Partnership's taxable year will be treated as having been sold for its fair
market value on the last day of such taxable year, and gain or loss will be
taken into account for such year. The Partnerships expect that a majority of
their trading activities will be conducted in Section 1256 contracts; however,
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
("non-Section 1256 contracts").
Gain or loss with respect to foreign currency forward and futures contracts
that are not traded on U.S. exchanges or on certain foreign exchanges designated
as "qualified boards or exchanges" by the Internal Revenue Service, ("foreign
currency positions") is treated as capital gain or loss only if held by an
electing "qualified fund." In general, a "qualified fund" is an electing
partnership that: (1) has at least 20 unrelated partners (no one of which owns
more than 20% of the capital or profits of the partnership); (2) has as a
principal activity the buying and selling of options, futures, or forwards with
respect to commodities; and (3) receives at least 90% of its gross income from
interest, dividends, gains from the sale or disposition of capital assets held
for the production of interest or dividends, and income and gain from futures,
forward, and option contracts with respect to commodities. All such foreign
currency positions held by a qualified fund are treated as "Section 1256
contracts" (i.e., marked-to-market at year end) and gain or loss with respect to
all such foreign currency positions is treated as 100% short-term gain or loss.
Gain or loss with respect to "regulated futures contracts," "foreign currency
contracts" and "nonequity options" is treated as 60% long-term gain or loss and
40% short-term gain or loss. The General Partner has made a qualified fund
election for the Partnerships.
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 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.
During taxable years in which little or no profit is generated from trading
activities, a Limited Partner may still have interest income.
The Partnerships may eventually engage in spread and straddle trading
(i.e., holding offsetting positions whereby the risk of loss from holding either
or both position(s) is substantially diminished). Realized losses with respect
to any position in a spread or straddle are taken into account for federal
income tax purposes only to the extent that the losses exceed unrecognized gain
(at the end of the taxable year) from offsetting positions, successor positions,
or offsetting positions to the successor positions. Thus, spreads and straddles
may not be used to defer gain from one taxable year to the next. For purposes of
applying the above rules restricting the deductibility of losses with respect to
offsetting positions, if a Partner takes into account gain or loss with respect
to a position held by the Partnership, the 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
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. 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
90
<PAGE>
capitalize (rather than deduct) interest and carrying charges allocable to
property held by him. A portion of the gain on a "conversion transaction,"
including spread and straddle trading, may be characterized as ordinary income
where substantially all of the expected return is attributable to the time value
of the net investment in the transaction.
Pursuant to current Proposed and Temporary Treasury Regulations, the
holding period of any position included in a straddle begins anew when the
straddle is terminated unless the position was held for more than the long-term
capital gain and loss holding period before the straddle was established.
Further, the loss on any position included in a straddle will be treated as a
long-term capital loss if, at the time the loss position was acquired, the
taxpayer held offsetting positions with respect to such loss position that would
give rise only to long-term capital loss if such offsetting positions were
disposed of on the day the loss position was acquired.
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 Code and the regulations promulgated thereunder. The appropriate
tax treatment of any gains and losses from trading in mixed straddles will
depend on which of the following four alternatives a Partnership elects to
pursue. A Partnership may elect to treat Section 1256 positions as non-Section
1256 positions, and the mixed straddle would be subject to the rules governing
non-Section 1256 straddles. Alternatively, a Partnership may identify the
positions of a particular straddle as an "identified mixed straddle" under
Section 1092(b)(2) of the Code and, thereby, net the capital gain or loss
attributable to the offsetting positions. The net capital gain or loss is
treated as 60% long-term and 40% short-term capital gain or loss if attributable
to the Section 1256 positions, or all short-term capital gain or loss if
attributable to the non-Section 1256 positions. Alternatively, a Partnership may
place the 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. If a Partnership does not make any of the
aforementioned three elections, any net loss attributable to either the Section
1256 or the non-Section 1256 positions will be treated as 60% long-term and 40%
short-term capital loss, while any net gain will be treated as 60% long-term and
40% short-term capital gain, or all short-term capital gain, depending upon
whether the net gain was attributable to Section 1256 positions or non-Section
1256 positions.
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
lesser of the tax basis of his Units or (in the case of certain Limited
Partners, including individuals and closely-held C corporations) the amounts for
which he is "at risk" with respect to such interest 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, including
gains. The amount for which a Limited Partner is "at risk" with respect to his
interest in a Partnership is generally equal to his tax basis for such interest,
less: (i) any amounts borrowed in connection with his acquisition of such
interest for which he is not personally liable and for which he has pledged no
property other than his interest; (ii) any amounts borrowed from persons who
have a proprietary interest in such Partnership; and (iii) 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 Partner only as so-called itemized deductions and, therefore,
will not reduce the federal taxable income of a Partner who does not itemize his
deductions. Furthermore, an individual who is subject to the alternative minimum
tax for a taxable year will not realize any tax benefit from such itemized
deductions.
Limitations on Deductibility of Passive Losses. In general, losses from a
passive activity ("passive losses") are disallowed to the extent such losses
exceed income from all passive activities ("passive income"). A passive activity
is defined as a trade or business in which the taxpayer does not materially
participate unless otherwise provided in Treasury Regulations.
Proposed and Temporary Treasury Regulations provide that the trading of
personal property, such as commodities, will not be treated as a passive
activity. Accordingly, a Limited Partner's distributive share of
91
<PAGE>
items of income, gain, deduction, or loss from a Partnership will not be treated
as passive income or loss and Partnership gains allocable to Limited Partners
will not be available to offset passive losses from sources outside such
Partnership. Partnership gains allocable to Limited Partners will, however, be
available to offset losses with respect to "portfolio" investments, such as
stocks and bonds. Moreover, any Partnership losses allocable to Limited Partners
will be available to offset other income, regardless of source. Final Treasury
Regulations may modify the Proposed and Temporary Regulations, and such
regulations may be retroactive in effect.
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 (for tax years beginning in 1998, this amount is
$124,500 ($62,250 in the case of married individuals filing a separate return))
and (ii) 80% of such 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, 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, such 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 Partnership expenses (including incentive fees) are investment expenses
which are subject to these limitations.
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. An alternative minimum tax may be imposed on
Limited Partners, depending on their particular circumstances. This tax, with
respect to taxpayers other than corporations, will be assessed to the extent
that 26% of the first $175,000 ($87,500 for married individuals filing a
separate return) of "alternative minimum taxable income" in excess of the
exemption amount ($45,000 in the case of married taxpayers filing joint returns
or a surviving spouse; $33,750 in the case of an unmarried taxpayer who is not a
surviving spouse; or $22,500 in the case of a married individual filing a
separate return or an estate or trust) plus 28% of the balance of such excess
exceeds the taxpayer's regular federal income tax liability (subject to special
modification) for the year. The alternative minimum tax exemption is phased-out
for individual taxpayers with alternative minimum taxable income in excess of
$112,500 ($150,000 for married taxpayers filing a joint return and surviving
spouses; $75,000 for married individuals filing separate returns, estates and
trusts). "Alternative minimum taxable income" is equal to adjusted gross income
computed without deducting normal net operating losses, less specified net
operating losses, credits, trust distributions and itemized deductions, and
increased by certain tax preferences. Long-term capital gains are taxed at a
maximum rate of 20%. The limitation on the long-term capital gains rate does not
give rise to an adjustment or increase in "alternative minimum taxable income."
Therefore, transactions in Section 1256 contracts should not directly affect the
application of the alternative minimum tax. The extent, if any, to which the
alternative minimum tax will be imposed will depend on the overall tax situation
of each Limited Partner at the end of each 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 not investment income unless the Limited Partner waives the benefit of
the preferential tax rate on such gain. It is
92
<PAGE>
not clear whether a Limited Partner's distributive share of Partnership net
capital gain constitutes investment income where such 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 Limited Partner who is a
non-resident alien individual, foreign corporation, foreign partnership, foreign
trust or foreign estate (a "Foreign Limited Partner") generally is not subject
to taxation by the United States on United States source capital gains from
commodity trading for a taxable year, provided that such Foreign Limited Partner
does not have certain present or former connections with the United States
(e.g., if the Foreign Limited Partner (in the case of an individual) does not
spend more than 182 days in the United States during his taxable year (or, in
certain limited circumstances, a prior taxable year) or if the Foreign Limited
Partner is not engaged in a trade or business within the United States during
the taxable year or, in certain limited circumstances, a prior taxable year to
which income, gain, or loss from a Partnership is treated as effectively
connected).
Pursuant to a "safe harbor" provision of the Code, a Foreign Limited
Partner would not be engaged in a trade or business within the United States
solely because such Foreign Limited Partner is a partner of a partnership which
effects transactions in the United States in commodities for the partnership's
own account, as long as neither the foreign limited partner nor the partnership
is a dealer in commodities and as long as the partnership only trades
commodities which are of a kind customarily dealt in on an organized commodity
exchange in transactions of a kind customarily consummated on such an exchange.
The Partnerships have been advised by the General Partner's counsel that, in
such counsel's opinion, each Partnership's commodities transactions should
satisfy the safe harbor, and that owning an interest in a Partnership should
not, in such counsel's opinion, by itself, cause a Foreign Limited Partner that
is not a dealer in commodities to be engaged in a trade or business within the
United States. In the event that future Partnership transactions are not covered
by the safe harbor, there is a risk that all of a Foreign Limited Partner's
distributive share of income of a Partnership would be treated as effectively
connected with the conduct of a trade or business in the United States and taxed
at regular rates (discussed previously) and, in the case of a Foreign Limited
Partner which is a foreign corporation, an additional 30% branch profits tax
(unless reduced or eliminated by treaty).
If a Foreign Limited Partner is a dealer in commodities, or is otherwise
engaged in a U.S. trade or business and if income, gain or loss from a
Partnership is treated as effectively connected with such trade or business,
such Partnership may be required to withhold tax on income allocable to such
Foreign Limited Partner and remit to the Internal Revenue Service an amount
equal to 39.6% (35% for corporations) of the amount of such effectively
connected taxable income allocable to such Foreign Limited Partner. Any amounts
remitted will constitute a refundable credit against the Foreign Limited
Partner's United States federal income tax liability, which can be claimed on
the Foreign Limited Partner's United States federal income tax return. Foreign
Limited Partners that are corporations and derive effectively connected income
from the Partnerships may also be required to pay a branch profits tax at a 30%
rate unless reduced by an applicable tax treaty.
A foreign person generally is subject to a 30% withholding tax (unless
reduced or exempted by treaty) on certain types of United States source income
that are not effectively connected with the conduct of a United States trade or
business, such as certain interest-bearing obligations, the income attributable
to which is not exempt from tax. This tax must be withheld by the person having
control over the payment of such income. Accordingly, a Partnership may be
required to withhold tax on items of such income which are included in the
distributive share (whether or not actually distributed) of a Foreign Limited
Partner. However, 30% withholding is not required in respect of certain interest
bearing obligations, such as "portfolio interest" obligations issued after July
18, 1984 (if procedural requirements are complied with). If a Partnership is
required to withhold tax on such income of a Foreign Limited Partner, the
General Partner may pay such tax out of its own funds and then be reimbursed out
of the proceeds of any distribution to or redemption of Units by the Foreign
Limited Partner.
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.
93
<PAGE>
Tax Elections. The Code 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 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. 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 Unit of any Limited Partner) copies of (i) the
Partnership's Schedule K-1 indicating the Limited Partner's distributive share
of tax items and (ii) such additional information as is reasonably necessary to
permit the Limited Partners to prepare their own federal and state tax returns.
Partnership's Tax Accounting. 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 Code, provided that the Units purchased by such plans
and entities are not "debt-financed." Such investors should see "Purchases by
Employee Benefit Plans--ERISA Considerations."
TAX AUDITS
All Partners are required under the Code to report all the Partnership
items on their own returns consistently with the treatment by a 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, certain Limited Partners (i.e., Limited Partners owning
less than a 1% profits interest if the Partnership has more than 100 Partners).
However, prior to settlement, 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 such Limited Partner.
The period for assessing a deficiency against a partner in a partnership,
such as any of the Partnerships, with respect to a partnership item is the later
of three years after such partnership files its return or, if the name and
address of the partner does not appear on such 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 Code and the regulations promulgated thereunder and the existing
administrative and judicial interpretations thereof. It is emphasized that no
assurance can be given 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 an interest in the Partnerships may not be the same for all
taxpayers. There can be no assurance that the Partnerships' tax returns will not
be audited by the Internal Revenue Service or that no adjustments to the returns
will 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 an interest in the
Partnerships 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.
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
94
<PAGE>
and local taxes. Certain of such 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 hence 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 such Partners' income from the
Partnerships. New York City residents may be subject to New York City personal
income tax on such 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.
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. MSDW, a global leader in financial management, has
developed the Morgan Stanley Dean Witter Charter Series 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. See "Risk Factors." The General Partner and DWR believe that managed
futures investments (such as a Partnership) provide investors with the potential
for long-term capital appreciation (with commensurate risk) and are appropriate
only for the aggressive growth portion of an investor's comprehensive financial
plan. See "Risk Factors." However, such an investment offers the following
potential advantages.
INVESTMENT DIVERSIFICATION
An investor who is not prepared to make a significant investment or spend
substantial time trading various futures interests nevertheless may participate
in these markets through an investment in a Partnership, thereby obtaining
diversification from investments in stocks, bonds, and real estate. The General
Partner believes, on the basis of past experience, 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 (as well as profitable) during periods of
generally favorable economic conditions.
Managed futures investments can serve to diversify a portfolio and smooth
overall portfolio volatility. Modern Portfolio Theory ("MPT") was developed
pursuant to an academic study on the value of diversification. MPT 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. MPT illustrates that investing in any asset class with positive
returns greater than the risk-free rate and low to no 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
MPT in a study about portfolio diversification. The results of Lintner's work
demonstrated that by including a variety of assets, such as commodities, in a
hypothetical portfolio an investor may lower the portfolio's overall volatility
or risk. In 1996, Dr. Thomas Schneeweis of the University of Massachusetts at
Amherst completed a study titled "The Benefits of Managed Futures" which
furthers Lintner's original premise that a managed futures component can benefit
an overall portfolio.
The Partnerships' combined benefits of growth potential (with commensurate
risk) and diversification can potentially reduce overall portfolio volatility
while increasing profits. By combining asset classes, investors strive to create
a portfolio mix that provides the potential to offer the greatest possible
return within acceptable
95
<PAGE>
levels of volatility. Thus, 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 an investor's overall portfolio. The ability of an investor in the
Partnerships to lower the overall volatility or risk of his investment portfolio
will depend on the characteristics of the portfolio and, as such, an investment
in the Partnerships could actually increase the overall volatility or risk of an
investor's portfolio.
Each Money Manager's speculative trading techniques will be the primary
factor in a Partnership's success or failure. Investors should note that there
are always two parties to a futures or forward contract; consequently, for any
gain achieved by one party on a contract, a corresponding loss is suffered by
the other. Therefore, due to the nature of futures and forward trading, only 50%
of futures and forward contracts held by all market participants can experience
gain at any one time, without reference to brokerage commissions and other costs
of trading, which may reduce or eliminate any gain that would otherwise be
achieved.
CHARTING A COURSE FOR YOUR FINANCIAL FUTURE
The first step toward a sound financial future is to establish your
investment objectives. Based on your financial goals, requirements, and
investment preferences, your DWR Financial Advisor can help you determine the
combination of asset classes as well as the type of Money Manager 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.
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
BONDS (LEHMAN
BROTHERS U.S. CORPORATE MANAGED
STOCKS TREASURY BONDS (SALOMON INT'L STOCKS FUTURES (BARCLAY
(S&P 500 INDEX) BOND INDEX) CORPORATE BOND INDEX) (MSCI EAFE INDEX) CTA INDEX)
--------------- -------------- --------------------- ----------------- ----------------
<S> <C> <C> <C> <C> <C>
% % % % %
1981 -5.0 1.14 -1.2 -1.0 23.9
1982 21.6 41.11 42.5 -0.9 16.7
1983 22.5 1.80 6.3 24.6 23.8
1984 6.2 14.68 16.8 7.9 8.7
1985 31.7 32.01 30.1 56.7 25.5
1986 18.6 24.15 19.9 70.0 3.8
1987 5.2 -2.66 -0.2 24.9 57.3
1988 16.5 9.14 10.7 28.6 21.8
1989 31.6 18.89 16.2 10.8 1.8
1990 -3.1 4.56 6.8 -23.2 21.0
1991 30.4 17.85 19.9 12.5 3.7
1992 7.6 7.83 9.4 -11.8 -0.9
1993 10.1 16.37 13.2 32.9 10.4
1994 1.3 -6.92 -5.8 8.1 -0.7
1995 37.5 30.70 27.2 11.5 13.7
1996 23.0 -0.41 1.3 6.4 9.1
1997 33.4 14.87 11.6 2.1 10.9
1998* 17.7 6.27 5.2 16.0 -2.2
</TABLE>
*1998 returns are as of June 30, 1998.
96
<PAGE>
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 the five asset classes: stocks, U.S. treasury bonds,
U.S. corporate bonds, international stocks, and managed futures. 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, and the Barclay CTA Index.
The S&P 500 Stock 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.
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 Barclay CTA Index provides a benchmark of representative performance of
CTAs. In order to qualify for inclusion in the Barclay CTA Index, a CTA must
meet the following criteria: (1) the CTA must have four years of prior
performance history; and (2) in cases where a CTA 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 are 327 CTA programs
which are included in the calculation of the Barclay CTA 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 Investment Software, Rockville, MD. 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. 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.
------------------------
Over time, managed futures investments have demonstrated that they have the
potential to perform independently of traditional markets such as stocks and
bonds. 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.
97
<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
June 1998, using the recognized market indices of each asset.
S&P 500 BARCLAY'S CTA INDEX
(STOCKS)(MANAGED FUTURES)
12-month12-month
holding holding
periods periods
Dec-80
1981 Jan-81
Feb-81
Mar-81
Apr-81
May-81
Jun-81
Jul-81
Aug-81
Sep-81
Oct-81
Nov-81
Dec-81 -4.93% 23.90%
1982 Jan-82 -2.05% 19.68%
Feb-82 -9.17% 22.38%
Mar-82 -13.10% 36.81%
Apr-82 -7.44% 34.16%
May-82 -10.76% 33.64%
Jun-82 -11.57% 22.58%
Jul-82 -13.25% 14.52%
Aug-82 3.33% 15.91%
Sep-82 9.96% 30.14%
Oct-82 16.32% 29.02%
Nov-82 16.21% 14.97%
Dec-82 21.45% 16.68%
1983 Jan-83 27.61% 35.84%
Feb-83 38.28% 19.89%
Mar-83 44.12% 13.97%
Apr-83 48.81% 13.88%
May-83 52.66% 21.23%
Jun-83 61.03% 3.85%
Jul-83 59.06% 17.83%
Aug-83 43.89% 23.21%
Sep-83 44.04% 12.85%
Oct-83 27.76% 18.58%
Nov-83 25.43% 19.50%
Dec-83 22.47% 23.75%
1984 Jan-84 17.39% 6.22%
Feb-84 10.74% 15.67%
Mar-84 8.71% 15.59%
Apr-84 1.66% 13.59%
May-84 -3.16% 7.70%
Jun-84 -4.84% 6.16%
Jul-84 -3.08% 24.90%
Aug-84 5.99% 5.36%
Sep-84 4.63% 9.35%
Oct-84 6.22% 2.87%
Nov-84 2.89% 4.15%
Dec-84 6.10% 8.74%
1985 Jan-85 15.06% 9.78%
Feb-85 20.67% 16.02%
Mar-85 18.65% 12.57%
Apr-85 17.48% 13.21%
May-85 31.66% 10.18%
Jun-85 31.02% 16.27%
Jul-85 32.48% 9.21%
Aug-85 18.28% 16.78%
Sep-85 14.61% 3.67%
Oct-85 19.40% 15.37%
Nov-85 29.06% 24.49%
Dec-85 31.83% 25.50%
1986 Jan-86 22.90% 24.64%
Feb-86 30.55% 35.92%
Mar-86 37.73% 45.10%
Apr-86 36.35% 38.81%
May-86 35.70% 31.60%
Jun-86 35.84% 36.26%
Jul-86 28.36% 23.46%
Aug-86 39.11% 31.90%
Sep-86 31.64% 34.95%
Oct-86 33.15% 21.01%
Nov-86 27.55% 13.05%
Dec-86 18.54% 3.82%
1987 Jan-87 33.88% 12.63%
Feb-87 29.39% -0.72%
Mar-87 26.08% -2.84%
Apr-87 26.34% 26.48%
May-87 20.94% 29.26%
Jun-87 24.86% 26.93%
Jul-87 39.02% 28.75%
Aug-87 34.23% 20.42%
Sep-87 43.16% 28.42%
Oct-87 6.22% 34.78%
Nov-87 -4.78% 49.66%
Dec-87 5.20% 57.27%
1988 Jan-88 -3.33% 39.63%
Feb-88 -2.77% 39.76%
Mar-88 -8.35% 30.57%
Apr-88 -6.41% 2.74%
May-88 -6.59% 13.99%
Jun-88 -6.95% 50.09%
Jul-88 -11.73% 31.52%
Aug-88 -17.94% 34.50%
Sep-88 -12.49% 34.61%
Oct-88 14.71% 36.00%
Nov-88 22.96% 28.51%
Dec-88 16.33% 21.76%
1989 Jan-89 19.79% 25.93%
Feb-89 11.65% 20.71%
Mar-89 17.87% 29.56%
Apr-89 22.64% 31.52%
May-89 26.54% 35.10%
Jun-89 20.37% 7.40%
Jul-89 31.72% 15.00%
Aug-89 39.10% 7.71%
Sep-89 32.83% 3.61%
Oct-89 26.12% -3.91%
Nov-89 30.61% -4.21%
Dec-89 31.37% 1.80%
1990 Jan-90 14.25% 1.86%
Feb-90 18.59% 6.36%
Mar-90 18.94% 5.71%
Apr-90 10.24% 13.34%
May-90 16.29% -4.29%
Jun-90 16.18% -4.34%
Jul-90 6.27% 2.83%
Aug-90 -5.11% 16.50%
Sep-90 -9.30% 23.49%
Oct-90 -7.44% 32.87%
Nov-90 -3.44% 29.27%
Dec-90 -3.07% 21.02%
1991 Jan-91 8.45% 13.35%
Feb-91 14.78% 11.53%
Mar-91 14.56% 12.89%
Apr-91 17.73% 5.95%
May-91 11.92% 10.30%
Jun-91 7.53% 11.85%
Jul-91 12.92% 2.34%
Aug-91 26.95% -5.91%
Sep-91 31.09% -5.97%
Oct-91 33.32% -7.88%
Nov-91 20.28% -7.21%
Dec-91 30.34% 3.73%
1992 Jan-92 22.61% 4.13%
Feb-92 15.96% 2.26%
Mar-92 10.99% -3.71%
Apr-92 13.97% -2.64%
May-92 9.81% -1.77%
Jun-92 13.26% -0.07%
Jul-92 12.61% 7.86%
Aug-92 7.77% 12.50%
Sep-92 10.94% 7.76%
Oct-92 9.96% 8.96%
Nov-92 18.44% 9.97%
Dec-92 7.71% -0.91%
1993 Jan-93 10.55% 1.91%
Feb-93 10.66% 10.36%
Mar-93 15.18% 11.84%
Apr-93 9.25% 16.34%
May-93 11.65% 17.93%
Jun-93 13.69% 14.02%
Jul-93 8.78% 13.36%
Aug-93 15.34% 7.37%
Sep-93 13.06% 8.20%
Oct-93 14.97% 7.37%
Nov-93 10.07% 6.26%
Dec-93 9.97% 10.37%
1994 Jan-94 12.80% 8.69%
Feb-94 8.23% 1.57%
Mar-94 1.45% 4.16%
Apr-94 5.29% -0.86%
May-94 4.26% 1.27%
Jun-94 1.46% 2.79%
Jul-94 5.22% -1.92%
Aug-94 5.53% -1.92%
Sep-94 3.72% 0.59%
Oct-94 3.82% 1.25%
Nov-94 1.09% 2.80%
Dec-94 1.39% -0.65%
1995 Jan-95 0.61% 0.90%
Feb-95 7.44% 5.85%
Mar-95 15.63% 10.41%
Apr-95 17.46% 13.71%
May-95 20.24% 11.20%
Jun-95 26.03% 7.09%
Jul-95 26.03% 6.88%
Aug-95 21.42% 12.88%
Sep-95 29.76% 10.86%
Oct-95 26.47% 10.74%
Nov-95 36.97% 10.05%
Dec-95 37.51% 13.64%
1996 Jan-96 38.58% 18.77%
Feb-96 34.71% 9.38%
Mar-96 32.10% 3.39%
Apr-96 30.17% 8.28%
May-96 28.42% 5.62%
Jun-96 26.03% 6.63%
Jul-96 16.53% 6.19%
Aug-96 18.74% 2.92%
Sep-96 20.33% 5.35%
Oct-96 24.07% 11.17%
Nov-96 27.88% 13.84%
Dec-96 22.98% 9.12%
1997 Jan-97 26.19% 10.42%
Feb-97 26.07% 20.00%
Mar-97 19.70% 18.59%
Apr-97 25.01% 10.37%
May-97 29.40% 12.94%
Jun-97 34.68% 13.43%
Jul-97 52.15% 21.88%
Aug-97 40.68% 17.97%
Sep-97 40.55% 16.58%
Oct-97 32.21% 8.74%
Nov-97 28.64% 6.59%
Dec-97 33.50% 10.89%
Jan-98 27.09% 7.40%
Feb-98 35.15% 2.73%
Mar-98 48.12% 3.90%
Apr-98 41.13% 1.81%
May-98 30.76% 2.28%
Jun-98 30.26% 2.52%
Notes to "Managed Futures vs. Stocks" Table:
Stocks are represented by the S&P 500 Index, Thomson Investment Software,
Rockville, MD; managed futures are represented by the Barclay CTA Index, 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, i.e., 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 18
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 illustrates 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 MONEY MANAGERS 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 MONEY MANAGERS INCLUDED IN THE BARCLAY
CTA INDEX. ACCORDINGLY,
98
<PAGE>
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 - June 1998.
Risk/Return Analysis
January 1981 through June 1998
Stocks/Bonds/International Equities/Managed Futures
(Risk/Return Chart Data Points)
<TABLE>
<CAPTION>
Standard Deviation Average Monthly ROR
(x-axis) (Y-axis)
<S> <C> <C>
100% Stocks (S&P 500 Index) 4.1532% 1.3910%
100% Bonds (Salomon Corporate Bond Index) 2.6867% 1.0262%
100% International Equities (MSCI EAFE Index) 5.0225% 1.2071%
100% Managed Futures (Barclay CTA Index) 5.1604% 1.1804%
50% Stocks/50% Bonds 2.9025% 1.2086%
50% Stocks/30% Bonds/10% Int'l Eqs./10% Mgd. Future 2.8436% 1.2421%
</TABLE>
Notes to "Improved Portfolio Efficiency" Table:
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 EAFE Index, each provided by Thomson Investment Software,
Rockville, MD; 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.
99
<PAGE>
PROFESSIONAL MANAGEMENT
Professional money management is one of the most significant benefits a
managed futures investment can offer. A professional Money Manager has several
advantages over an individual investor.
* Capitalization -- A professional Money Manager is well capitalized, and
capable of managing market volatility.
* Discipline -- A professional Money Manager applies an established,
disciplined approach to futures trading, with strict money management
policies and techniques.
* Planned Strategy -- A professional Money Manager utilizes a researched
trading strategy designed to reduce risk while seeking long-term profit
opportunities.
* Risk Control -- Professional Money Managers offer a full time commitment
to risk control, using conservative risk management and years of research
and experience.
* Research and Development -- A professional Money Manager 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.
THE INVESTMENT PROCESS
In order for a Money Manager to be selected by the General Partner, a
rigorous qualitative and quantitative due diligence process is undertaken. The
General Partner's primary objective in the selection process is to allocate
assets to Money Managers 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, making it one of the most comprehensive computerized
management systems in the industry. 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 Money Managers
relative to their historical profile.
Monitoring also occurs on a periodic basis by discussing with the Money
Managers their performance relative to profile and peer Money Managers, 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.
Money Managers 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 Money Manager's profile
* Consistency of trading approach
* On-site office visit to Money Manager 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 Money Managers
* Correlation analysis of Money Manager returns versus managed futures industry
indices, and other asset class indices.
MONEY MANAGER EVALUATION AND SELECTION
<TABLE>
<S> <C>
SCREENING Money Managers screened from a pool of approximately 400.
EVALUATION Money Managers categorized and evaluated based on
quantitative and qualitative factors.
</TABLE>
100
<PAGE>
<TABLE>
<S> <C>
SELECTION Selection of Money Managers based on quantitative
and qualitative analysis
DUE DILIGENCE Rigorous due diligence
MONITORING Daily and periodic monitoring and reporting
</TABLE>
FUTURES INTERESTS 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 the 75 global futures and forward
markets on approximately 20 exchanges worldwide.
Each Partnership normally trades a portfolio of diverse futures interests,
but may trade a greater or lesser number of futures interests from time to time.
Each Limited Partner will obtain greater diversification in futures interests
traded than would be possible trading individually, unless substantially more
than the minimum investment described herein were committed to the futures
interests markets.
EXCHANGE PRIVILEGE
Subject to certain limitations, each calendar month a Limited Partner may
redeem Units in a Partnership and, with the proceeds of such redemption,
purchase Units of one or more of the other Partnerships at a price equal to its
Net Asset Value per Unit (a "Series Exchange"). See "Exchange Privilege." 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
Series Exchange.
DIVERSIFIED PROFESSIONAL TRADING MANAGEMENT
Trading decisions for each Partnership will be made by a Money Manager
retained by the General Partner. See "The Trading Advisors." The trading
approaches employed on behalf of each Partnership by its Money Manager are not
available for investments as small as the required minimum investment in each
Partnership. A Limited Partner can diversify his professional trading management
by dividing his investment among one or more of the Partnerships. For example,
an investor owning Units of all three Partnerships would have the benefit of
having his investment managed by three different Money Managers.
LIMITED LIABILITY
Unlike an individual who invests directly in futures interests, 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. See "The Futures, Options and Forwards
Markets," "Redemptions" and "The Limited Partnership Agreements--Nature of the
Partnerships."
INTEREST INCOME
Many commodity brokers permit accounts above a certain size to deposit
margin for futures interests 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. DWR will credit each Partnership with interest income at
month-end at the rate earned by DWR on its U.S. Treasury bills investments with
customer segregated funds as if 100% of each Partnership's average daily funds
(including cash and securities) held in such Partnership's account with DWR
during the month were invested in U.S. Treasury bills at such rate. In addition,
DWR will credit each Partnership with 100% of the interest income DWR receives
from CFI with respect to such Partnership's assets deposited as margin with CFI.
It is anticipated that approximately 80% of each Partnership's average daily
funds maintained in trading accounts will be on deposit with DWR and that
approximately 20% of each Partnership's average daily funds maintained in
trading accounts will be on deposit with CFI, although such percentages will
vary from time to time. 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 DWR 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
101
<PAGE>
inherent in the trading of futures interests. See "Risk Factors" and "Investment
Programs, Use of Proceeds and Trading Policies."
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 interests 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.
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 DWR 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 statements of financial condition of 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., as of July 20, 1998, and the statements
of financial condition of Demeter Management Corporation as of November 30, 1997
and December 31, 1996 included in this Prospectus, have been audited by Deloitte
& Touche LLP, independent auditors, as indicated in their reports with respect
thereto in this Prospectus, and are included in reliance upon their authority as
experts in accounting and auditing. Deloitte & Touche LLP also acts as
independent auditors for MSDW.
ADDITIONAL INFORMATION
This Prospectus does not contain all of the information set forth in the
Registration Statements and the exhibits relating thereto that have been filed
with the Securities and Exchange Commission in Washington, D.C. For further
information pertaining to each Partnership and the Units offered hereby,
reference is hereby made to the Registration Statements, including the exhibits
filed as part thereof. The Registration Statements and exhibits are on file at
the offices of the Securities and Exchange Commission, 450 Fifth Street, N.W.,
Room 1024, Judiciary Plaza, Washington, D.C. 20549, and may be examined, without
charge, at the offices of the SEC, and copies may be obtained of all or part
thereof from the SEC upon payment of the prescribed fees.
GLOSSARY
CERTAIN TERMS AND DEFINITIONS
Knowledge of various terms and concepts relating to this offering is useful
for a potential investor in determining whether to invest in the Partnerships.
"Affiliate"--An "affiliate" of a person means (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.
"Brokerage Fee"--The fee charged by a broker for executing a trade in a
commodity account of a customer. DWR charges a monthly flat-rate brokerage fee
of 1/12 of 7% of Net Assets (a 7% annual rate).
"CFI"--Carr Futures, Inc., the clearing commodity broker for the
Partnerships.
"Churning"--Engaging in excessive trading with respect to a futures
interests account for the purpose of generating brokerage commissions.
102
<PAGE>
"Daily Limits"--Limits imposed by commodity exchanges on the amount of
fluctuation in futures interest prices during a single trading day.
"DWR"--Dean Witter Reynolds Inc., the selling agent and non-clearing
commodity broker for the Partnerships.
"Forward Contract"--A contractual right to purchase or sell a specified
quantity of currency or commodity at or before a specified date in the future at
a specified price. It is distinguished from a futures contract in that it is not
traded on an exchange and it contains terms and conditions specifically
negotiated by the parties.
"Futures Contract"--Standardized contract made on domestic or foreign
commodity exchanges which calls for the future delivery of a specified quantity
of a commodity at a specified time, place, and price.
"GCM"--Graham Capital Management, L.P., the Trading Advisor for Morgan
Stanley Dean Witter Charter Graham L.P.
"General Partner" or "Demeter"--Demeter Management Corporation, the general
partner for each Partnership.
"Limit Order"--An order to execute a trade at a specified price or better.
As contrasted with a stop order, a limit order does not become a market order
when the limit price is reached.
"Margin"--Good faith deposits with a broker to assure fulfillment of a
purchase or sale of a commodity futures contract and, under certain
circumstances, a commodity option contract.
"Market Order"--An order to execute a trade at the prevailing price as soon
as possible.
"Money Manager"--See Trading Advisor.
"MRC"--Millburn Ridgefield Corporation, the Trading Advisor for Morgan
Stanley Dean Witter Charter Millburn L.P.
"Net Assets"--A 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, ordinary
administrative expenses, transaction fees and costs 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 be determined using the
settlement price on the exchange on which the particular futures interest was
traded by a 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 futures interest traded on a foreign exchange shall mean
its market value as determined by the General Partner on a basis consistently
applied for each different variety of futures interest.
"Net Asset Value Per Unit"--The Net Assets allocated to capital accounts
represented by Units of Limited Partnership Interest divided by the aggregate
number of Units outstanding on the date of calculation.
"Option"--An option on a futures contract or a physical commodity gives the
buyer of the option the right, as opposed to the obligation, to take a position
at a specified price in an underlying futures contract or commodity.
"Organizational and Offering Expenses"--Costs incurred in the organization
of a Partnership and the offering of Units, including legal, accounting and
auditing fees, printing costs, filing fees, escrow fees, marketing costs and
expenses, and other related expenses.
"Pyramiding"--Using unrealized profits on existing positions in a given
futures interest due to favorable price movements as margin specifically to buy
or sell additional positions in the same or related futures interest.
"Settlement Price"--The closing price for futures contracts in a particular
commodity established by the clearinghouse or exchange after the close of each
day's trading.
103
<PAGE>
"Speculative Position Limits"--Limits established by the CFTC and United
States commodity exchanges on the maximum net long or short speculative
positions which a person or group of persons may hold, own, or control in
futures interests.
"Spot Contract"--A cash market transaction in which the buyer and seller
agree to the immediate purchase and sale of a specific commodity lot, usually
with a two-day settlement.
"Stop Order"--An order given to a broker to execute a trade in a futures
interest when the contract price reaches the specified stop order price. Stop
orders become market orders when the stop price is reached.
"Trading Advisor"--Any person who for any consideration engages in the
business of advising others, either directly or indirectly, as to the value or
purchase of futures interests.
"Trading Profits" is defined to mean net futures interests trading profits
(realized and unrealized) earned on a Partnership's Net Assets, decreased by
monthly management fees, brokerage fees, and any transaction fees and costs not
included in the brokerage fees (under the current Customer Agreements with the
Commodity Brokers, the brokerage fees include all transaction fees and costs);
with such trading profits and items of decrease determined from the end of the
last calendar month in which an incentive fee was earned by the Trading Advisor
or, if no incentive fee has been earned previously by the Trading Advisor, from
the date that the Partnership commenced trading, to the end of the month as of
which such incentive fee calculation is being made. Extraordinary expenses of
the Partnership, if any, will not be deducted in determining Trading Profits. No
incentive fees will be paid on interest earned by the Partnership.
"Transaction Fees and Costs"--Floor brokerage fees, exchange fees,
clearinghouse fees, NFA fees, "give up" fees, any taxes (other than income
taxes), any third party clearing costs incurred by CFI, costs associated with
taking delivery of futures interests, and any fees for execution of forward
contract transactions.
"Unrealized Profit or Loss"--The profit or loss which could be realized on
an open position if it were closed out at the current settlement price.
"WIC"--Welton Investment Corporation, the Trading Advisor for Morgan
Stanley Dean Witter Charter Welton L.P.
BLUE SKY GLOSSARY
Prospective investors should be aware of the following definitions,
reprinted verbatim from the "Guidelines for Registration of Commodity Pool
Programs" adopted by the North American Securities Administrators Association,
Inc., as revised in September, 1993 (the "Guidelines"), which Guidelines are
applied by certain state securities administrators in reviewing public offerings
of "commodity pools" (such as the Partnerships). For ease of reference, each of
these definitions is followed by the comparable defined term used in the form of
Limited Partnership Agreement and this Prospectus, in brackets, as applicable.
"Advisor"--Any Person who for any consideration engages in the business of
advising others, either directly or indirectly, as to the value, purchase, or
sale of Commodity Contracts or commodity options. ["Trading Advisors"--page A-4]
"Affiliate"--An Affiliate of a Person means (a) any Person directly or
indirectly owning, controlling or holding with power to vote 10% or more of the
outstanding voting securities of such Person; (b) any Person 10% or more of
whose outstanding voting securities are directly or indirectly owned, controlled
or held with power to vote, by such Person; (c) any Person, directly or
indirectly, controlling, controlled by, or under common control of such Person;
(d) any officer, director or partner of such Person; or (e) if such Person is an
officer, director or partner, any Person for which such Person acts in any such
capacity. ["Affiliate"--
page A-17]
"Capital Contributions"--The total investment in a Program by a Participant
or by all Participants, as the case may be. ["Unit(s) of General Partnership
Interest"--page A-3; "Unit(s)"--page A-3]
"Commodity Broker"--Any Person who engages in the business of effecting
transactions in Commodity Contracts for the account of others or for his own
account. ["Commodity Broker"--page A-4; includes DWR and CFI]
"Commodity Contract"--A contract or option thereon providing for the
delivery or receipt at a future date of a specified amount and grade of a traded
commodity at a specified price and delivery point. ["Futures Interests"--page
A-1]
104
<PAGE>
"Net Assets"--The total assets, less total liabilities, of the Program
determined on the basis of generally accepted accounting principles. Net Assets
shall include any unrealized profits or losses on open positions, and any fee or
expense including Net Asset fees accruing to the Program. ["Net Assets"--page
A-6]
"Net Worth"--The excess of total assets over total liabilities as
determined by generally accepted accounting principles. Net Worth shall be
determined exclusive of home, home furnishings and automobiles. ["net worth," as
regards subscribers' investment requirements, is referenced on pages 1, B-2>,
and B-3; as regards the General Partner's net worth requirement, see Section 5
of the Limited Partnership Agreement on page A-2]
"New Trading Profits"--The excess, if any, of Net Assets at the end of the
period over Net Assets at the end of the highest previous period or Net Assets
at the date trading commences, whichever is higher, and as further adjusted to
eliminate the effect on Net Assets resulting from new Capital Contributions,
redemptions, or capital distributions, if any, made during the period decreased
by interest or other income, not directly related to trading activity, earned on
Program assets during the period, whether the assets are held separately or in
margin account. ["Trading Profits"--pages 27-28 and 104]
"Organizational and Offering Expenses"--All expenses incurred by the
Program in connection with and in preparing a Program for registration and
subsequently offering and distributing it to the public, including, but not
limited to, total underwriting and brokerage discounts and commissions
(including fees of the underwriter's attorneys), expenses for printing,
engraving, mailing, salaries of employees while engaged in sales activity,
charges of transfer agents, registrars, trustees, escrow holders, depositories,
experts, expenses of qualification of the sale of its Program Interest under
federal and state law, including taxes and fees, accountants' and attorneys'
fees. ["organizational, initial and continuing offering expenses"--page A-7]
"Participant"--The holder of a Program Interest. ["General Partner,"
"Limited Partners," "Partners"--page A-1]
"Person"--Any natural Person, partnership, corporation, association or
other legal entity. [No comparable term]
"Program"--The limited partnership, joint venture, corporation, trust or
other entity formed and operated for the purpose of investing in Commodity
Contracts. ["Partnership"--page A-1]
"Pyramiding"--A method of using all or part of an unrealized profit in a
Commodity Contract position to provide margin for any additional Commodity
Contracts of the same or related commodities. [See Trading Policy 5 on page
A-10]
"Sponsor"--Any Person directly or indirectly instrumental in organizing a
Program or any Person who will manage or participate in the management of a
Program, including a Commodity Broker who pays any portion of the Organizational
Expenses of the Program, and the general partner(s) and any other Person who
regularly performs or selects the Persons who perform services for the Program.
Sponsor does not include wholly independent third parties such as attorneys,
accountants, and underwriters whose only compensation is for professional
services rendered in connection with the offering of the units. The term
"Sponsor" shall be deemed to include its Affiliates. ["General Partner," "DWR"
and their "Affiliates"]
"Valuation Date"--The date as of which the Net Assets of the Program are
determined. [No comparable term, but for purposes of redemption, Net Assets of
the Partnerships are determined as of the last business day of the month--page
A-14]
105
<PAGE>
INDEPENDENT AUDITORS' REPORT
To the Limited Partners and the General Partner of
Morgan Stanley Dean Witter Charter Graham L.P.
Morgan Stanley Dean Witter Charter Millburn L.P.
Morgan Stanley Dean Witter Charter Welton L.P.:
We have audited the accompanying statements of financial condition of 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. (collectively,
the "Partnerships") as of July 20, 1998. These financial statements are the
responsibility of the Partnerships' 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 audits 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 statements of financial condition
presentation. We believe that our audits 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 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., as of July 20, 1998 in conformity with
generally accepted accounting principles.
/s/ Deloitte & Touche LLP
July 21, 1998
New York, New York
F-1
<PAGE>
MORGAN STANLEY DEAN WITTER CHARTER GRAHAM 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
AS OF JULY 20, 1998
ASSETS
<TABLE>
<S> <C>
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-2
<PAGE>
MORGAN STANLEY DEAN WITTER CHARTER MILLBURN 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
AS OF JULY 20, 1998
ASSETS
<TABLE>
<S> <C>
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-3
<PAGE>
MORGAN STANLEY DEAN WITTER CHARTER WELTON 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
AS OF JULY 20, 1998
ASSETS
<TABLE>
<S> <C>
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-4
<PAGE>
MORGAN STANLEY DEAN WITTER CHARTER SERIES
NOTES TO STATEMENTS OF FINANCIAL CONDITION
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
ORGANIZATION--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. (collectively, the "Partnerships") are limited partnerships
organized under the Delaware Revised Uniform Limited Partnership Act on July 15,
1998 to engage in the speculative trading of futures and forward contracts,
options on futures contracts and physical commodities and other commodity
interests, including foreign currencies, financial instruments, precious and
industrial metals, energy products and agriculturals (collectively, "futures
interests.") The initial capital contributed are the capital contributions of
$10 to each Partnership by Demeter Management Corporation, the general partner
of the Partnerships (the "General Partner"), and $10 to each Partnership by Mark
J. Hawley, President of the General Partner and Executive Vice President of Dean
Witter Reynolds Inc. ("DWR"), an affiliate of the General Partner, as initial
Limited Partner to each Partnership, to permit the filing of Certificates of
Limited Partnership under the Delaware Revised Uniform Limited Partnership Act
for each Partnership.
The Partnerships will each offer 3,000,000 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 (i) $20,000, except as may
be the case in a Non-Series Exchange, as described in the Partnerships'
Prospectus. If at least 400,000 Units of a Partnership are subscribed for during
the "Initial Offering Period" (defined as the date of the Prospectus to January
31, 1999, subject to earlier termination or extension) the General Partner may
accept such subscriptions at the "Initial Closing" (currently scheduled for
October 31, 1998) and commence operations of such Partnership. Thereafter, Units
in each 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 Partnerships' cash is on deposit with Dean Witter Reynolds Inc.
("DWR"), an affiliate of the General Partner, in a futures interest trading
account. At each Monthly Closing (as described in the Prospectus), the General
Partner will contribute, in $1,000 increments to each 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 Partnerships in
proportion to the amount of Partnership interest owned by each.
The Partnerships will terminate on December 31, 2035 or at an earlier date
if certain conditions occur as defined in the Partnerships' Limited Partnership
Agreement.
Limited Partners may redeem some or all of their Units at 100% of the Net
Asset Value per Unit effective as of the sixth month-end following the closing
at which they first become a Limited Partner. The Net Asset Value of a Unit is
equal to Net Assets (as defined below) divided by the aggregate number of Units
of Limited and General Partnership Interest outstanding. Thereafter, Units may
be redeemed as of the end of any month upon advance notice by redemption form to
the General Partner. However, any Units redeemed on or prior to the last day of
the twelfth month after such Units were purchased will be 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 of a 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. Investors who purchase $500,000 or more of Units
will not be subject to the redemption charges described above.
Net Assets, which will be determined daily, is defined as the total assets
of a Partnership (including, but not limited to, all cash and cash equivalents,
accrued interest and amortization of original issue discount, and the market
value of all open futures interest contract positions and other assets of a
Partnership) less the total liabilities of a Partnership (including, but not
limited to, one-half of the brokerage commissions that would be payable with
respect to the closing of each Partnership's open futures interest contract
positions (if charged on a "roundturn" basis), or brokerage fees (if charged on
a "flat rate" basis), management fees, incentive fees, ordinary administrative
expenses, transaction fees and costs, 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
F-5
<PAGE>
interest traded on a United States exchange shall mean the settlement price on
the exchange on which the particular futures interest shall be traded by a
Partnership on the day with respect to which Net Assets shall be 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 have been
liquidated shall be the market value of such futures interest for such day. The
market value of 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 futures interest.
2. ORGANIZATION AND OFFERING EXPENSES
The Partnerships are not liable for any organizational and offering
expenses in connection with the issuance and distribution of the Units. DWR has
agreed to pay the organizational expenses of the Partnerships 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 DWR.
3. OTHER AGREEMENTS
The proceeds from the closings will be used to establish futures interests
trading accounts with DWR for each Partnership's Trading Advisor.
Each Partnership will pay its Trading Advisor a monthly management fee
equal to 1/12 of 2% per month (a 2% annual rate) of the Partnership's Net Assets
(as defined in the Prospectus) as of the first day of each month.
Each Partnership also will pay a monthly incentive fee to the Trading
Advisor equal to 20% of "Trading Profits" as of the end of each calendar month.
If the Trading Advisor has experienced 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 each Customer Agreement with DWR, each Partnership will pay DWR a
flat-rate monthly brokerage fee of 1/12 of 7% of Net Assets as of the first day
of each month (a 7% annual rate).
Under each Customer Agreement with Carr Futures Inc. ("CFI"), DWR will pay
or reimburse the Partnerships for all fees and costs of CFI for executing trades
by the Partnerships.
DWR will credit each Partnership with interest income at month-end at the
rate earned by DWR on its U.S. Treasury bills investments with customer
segregated funds as if 100% of each Partnership's average daily funds (including
cash and securities) held in each Partnership's account with DWR during the
month were invested in U.S. Treasury bills at such rate. In addition, DWR will
credit each Partnership with 100% of the interest income DWR receives from CFI
with respect to each Partnership's assets deposited as margin with CFI. It is
anticipated that approximately 80% of each Partnership's average daily funds
maintained in trading accounts will be on deposit with DWR and that
approximately 20% of each Partnership's average daily funds maintained in
trading accounts will be on deposit with CFI, although such percentages will
vary from time to time.
F-6
<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 (a wholly-owned subsidiary of Morgan Stanley, Dean
Witter, Discover & Co.) (the "Company") as of November 30, 1997 and December 31,
1996. These statements of financial condition are the responsibility of the
Company's management. Our responsibility is to express an opinion on these
statements of financial condition 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 statements of financial condition are
free of material misstatement. An audit includes examining, on a test basis,
evidence supporting the amounts and disclosures in the statements 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
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 as
of November 30, 1997 and December 31, 1996 in conformity with generally accepted
accounting principles.
/s/ Deloitte & Touche LLP
January 12, 1998
New York, New York
F-7
<PAGE>
DEMETER MANAGEMENT CORPORATION
(WHOLLY-OWNED SUBSIDIARY OF MORGAN STANLEY DEAN WITTER & CO.)
STATEMENTS OF FINANCIAL CONDITION
<TABLE>
<CAPTION>
MAY 31,
1998 NOVEMBER 30, DECEMBER 31,
(UNAUDITED) 1997 1996
------------ ------------ ------------
<S> <C> <C> <C>
ASSETS $ $
Investments in affiliated partnerships (Note 2) 22,952,032 22,016,069 18,955,507
Income taxes receivable 101,866 429,885 --
Receivable from affiliated partnerships 32,675 968 1,049
------------ ------------ ------------
Total Assets 23,086,573 22,446,922 18,956,556
------------ ------------ ------------
------------ ------------ ------------
LIABILITIES AND STOCKHOLDER'S EQUITY
LIABILITIES
Payable to MSDW (Note 3) 18,282,319 17,995,100 15,762,235
Accrued expenses 27,659 34,072 30,379
Income taxes payable -- -- 114,218
------------ ------------ ------------
Total Liabilities 18,309,978 18,029,172 15,906,832
------------ ------------ ------------
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 50,000
Additional paid-in capital 111,170,000 111,170,000 111,170,000
Retained earnings 4,626,595 4,267,750 2,899,724
------------ ------------ ------------
115,846,595 115,487,750 114,119,724
Less: Notes receivable from MSDW (Note 4) (111,070,000) (111,070,000) (111,070,000)
------------ ------------ ------------
Total Stockholder's Equity 4,776,595 4,417,750 3,049,724
------------ ------------ ------------
Total Liabilities and Stockholder's
Equity 23,086,573 22,446,922 18,956,556
------------ ------------ ------------
------------ ------------ ------------
</TABLE>
The accompanying notes are an integral part of these statements of financial
condition.
F-8
<PAGE>
DEMETER MANAGEMENT CORPORATION
(WHOLLY-OWNED SUBSIDIARY OF MORGAN STANLEY DEAN WITTER & CO.)
NOTES TO STATEMENTS OF FINANCIAL CONDITION
(THE INFORMATION RELATING TO 1998 IS UNAUDITED)
1. BUSINESS DESCRIPTION AND SIGNIFICANT ACCOUNTING POLICIES
Demeter Management Corporation ("Demeter") is a wholly-owned subsidiary of
Morgan Stanley Dean Witter & Co. ("MSDW").
On March 24, 1998, Morgan Stanley, Dean Witter, Discover & Co. changed its
corporate name to Morgan Stanley Dean Witter & Co.
Demeter manages the following commodity pools as their 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.
(formerly Dean Witter Principal Guaranteed Fund L.P.), Dean Witter Principal
Plus Fund L.P. ("DWPPF"), Dean Witter Principal Plus Fund Management L.P., Dean
Witter Portfolio Strategy Fund L.P. (formerly Dean Witter Principal Secured
Futures Fund L.P.) ("DWPSF"), Dean Witter Global Perspective Portfolio L.P.,
Dean Witter World Currency Fund L.P., Dean Witter Institutional Balanced
Portfolio Account I L.P. ("DWIBP I"), Dean Witter Institutional Account II L.P.,
("DWIA II"), DWFCM International Access Fund L.P., Dean Witter Anchor
Institutional Balanced Portfolio Account L.P., ("Anchor"), Dean Witter Spectrum
Global Balanced L.P. (formerly known as Dean Witter Spectrum Balanced L.P.),
Dean Witter Spectrum Strategic L.P., Dean Witter Spectrum Technical L.P., Dean
Witter Spectrum Select L.P. (formerly known as Dean Witter Select Futures Fund
L.P. ("DWSFF"), DWR Chesapeake L.P., DWR Institutional Balanced Portfolio
Account III L.P., DWR/JWH Futures Fund L.P. ("DWR/ JWH") and Morgan Stanley
Tangible Asset Fund L.P. ("MSTAF").
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.
On July 31, 1996, with the Net Asset Value of DWPSF above $1,000 per unit, the
letter of credit arrangement which assured investors who redeemed their units on
July 31, 1996 a minimum Net Asset Value of $1,000 per unit expired. On August 1,
1996, that partnership was renamed Dean Witter Portfolio Strategy Fund L.P. and
will continue trading in a non-guaranteed format. As a result, both the
reduction of interest income of 1.125% per annum for the letter of credit fee
paid by Dean Witter Reynolds Inc. ("DWR") and the letter of credit fee of 1% of
new appreciation have been eliminated.
Demeter reopened DWSFF for additional investment and on August 13, 1996 DWSFF
registered with the SEC 60,000 Units which were offered to investors for a
limited time in a public offering.
On August 20, 1996, Demeter ceased trading activities in DWIBP I and distributed
approximately 97% of DWIBP I's assets. At that time, there were open forward
positions maturing through December 1996. DWIBP I liquidated and distributed its
remaining assets in 1997.
Demeter reopened DWPSF for additional investment and on May 12, 1997 DWPSF
registered with the SEC 50,000 units which were offered to investors for a
limited time in a public offering.
On July 31, 1997, Demeter entered into a limited partnership agreement as
general partner in MSTAF. On November 4, 1997, MSTAF registered with the SEC
5,000,000 units which were offered to investors for a limited time in a public
offering.
On September 18, 1997, Demeter ceased trading activities in Anchor and
distributed approximately 87% of Anchor's assets. Demeter distributed the
remainder of Anchor's assets in 1998.
On April 20, 1998, Dean Witter Spectrum Balanced L.P. changed its name to Dean
Witter Spectrum Global Balanced L.P. and Dean Witter Select Futures Fund L.P.
changed its name to Dean Witter Spectrum Select L.P.
On April 30, 1998, Demeter ceased trading activities in DWIA II and subsequently
distributed DWIA II's Net Assets.
F-9
<PAGE>
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 Dean Witter Spectrum
Select L.P., 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.
INCOME TAXES--The results of operations of Demeter are included in the
consolidated federal income tax return of MSDW, computed on a separate company
basis and due to MSDW.
BASIS OF ACCOUNTING--The preparation of financial statements in conformity with
generally accepted accounting principles requires management to make estimates
and assumptions that affect the reported amounts in the financial statements.
CHANGE IN FISCAL YEAR--In 1997, Demeter changed its fiscal year-end from
December 31 to November 30 to conform to the fiscal year of MSDW.
2. 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 May 31, 1998, November 30, 1997 and December 31, 1996 were as
follows:
<TABLE>
<CAPTION>
MAY 31,
1998 NOVEMBER 30, DECEMBER 31,
(UNAUDITED) 1997 1996
------------- ------------- -------------
<S> <C> <C> <C>
$ $ $
Total assets............................. 1,232,182,556 1,195,307,516 1,084,660,072
Total liabilities........................ 21,081,944 19,346,113 27,893,698
Total partners' capital.................. 1,211,100,612 1,175,961,403 1,056,766,374
</TABLE>
Demeter's investments in the above limited partnerships are carried at market
value with changes in such market value reflected currently in operations.
3. PAYABLE TO MSDW
The payable to MSDW is primarily for amounts due for the purchase of partnership
investments.
4. NET WORTH REQUIREMENT
At May 31, 1998 (unaudited), November 30, 1997 and December 31, 1996, Demeter
held non-interest bearing notes from MSDW that were payable on demand. These
notes were received in connection with additional capital contributions
aggregating $111,070,000.
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 MSDW are included in net worth for
purposes of this calculation.
5. LEGAL MATTERS
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 DWR, an affiliate of Demeter. Named defendants include
DWR,
F-10
<PAGE>
Demeter, Dean Witter Futures and Currency Management Inc., MSDW (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. 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 DWR. 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. 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. The
complaints seek unspecified amounts of compensatory and punitive damages and
other relief. It is possible that additional similar actions may be filed and
that, in the course of these actions, other parties could be added as
defendants. The Dean Witter Parties believe that they have strong defenses to,
and they will vigorously contest, the actions. Although the ultimate outcome of
legal proceedings cannot be predicted with certainty, it is the opinion of
management of the Dean Witter Parties that the resolution of the actions will
not have a material adverse effect on the financial condition or the results of
operations of any of the Dean Witter Parties.
F-11
<PAGE>
EXHIBIT A
TABLE OF CONTENTS TO FORM OF
LIMITED PARTNERSHIP AGREEMENT FOR
MORGAN STANLEY DEAN WITTER CHARTER [GRAHAM] [MILLBURN][WELTON] L.P.
<TABLE>
<C> <S> <C>
PAGE
1. Formation; Name............................................................................ A-1
2. Office..................................................................................... A-1
3. Business................................................................................... A-1
4. Term; Dissolution; Fiscal Year............................................................. A-2
(a) Term.................................................................................. A-2
(b) Dissolution........................................................................... A-2
(c) Fiscal Year........................................................................... A-2
5. Net Worth of General Partner............................................................... A-2
6. Capital Contributions and Offering of Units of Limited Partnership Interest................ A-3
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-6
(e) Expenses and Limitations Thereof...................................................... A-7
(f) Limited Liability of Limited Partners................................................. A-7
(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-8
(c) General Trading Policies.............................................................. A-9
(d) Changes to Trading Policies........................................................... A-10
(e) Miscellaneous......................................................................... A-10
9. Audits; Reports to Limited Partners........................................................ A-11
10. Transfer; Redemption of Units; Exchange Privilege.......................................... A-12
(a) Transfer.............................................................................. A-12
(b) Redemption............................................................................ A-13
(c) Exchange Privilege.................................................................... A-14
11. Special Power of Attorney.................................................................. A-15
12. Withdrawal of a Partner.................................................................... A-15
13. No Personal Liability for Return of Capital................................................ A-16
14. Standard of Liability; Indemnification..................................................... A-16
(a) Standard of Liability................................................................. A-16
(b) Indemnification by the Partnership.................................................... A-16
(c) Affiliate............................................................................. A-17
(d) Indemnification by Partners........................................................... A-17
15. Amendments; Meetings....................................................................... A-17
(a) Amendments with Consent of the General Partner........................................ A-17
(b) Meetings.............................................................................. A-18
(c) Amendments and Actions without Consent of the General Partner......................... A-18
(d) Action Without Meeting................................................................ A-18
(e) Amendments to Certificate of Limited Partnership...................................... A-18
16. Index of Defined Terms..................................................................... A-18
17. Governing Law.............................................................................. A-19
18. Miscellaneous.............................................................................. A-20
(a) Priority among Limited Partners....................................................... A-20
(b) Notices............................................................................... A-20
(c) Binding Effect........................................................................ A-20
(d) Captions.............................................................................. A-20
Annex 1 --Request for Redemption................................................................. A-21
</TABLE>
<PAGE>
EXHIBIT A
FORM OF
LIMITED PARTNERSHIP AGREEMENT FOR
MORGAN STANLEY DEAN WITTER CHARTER [GRAHAM] [MILLBURN] [WELTON] L.P.
This Agreement of Limited Partnership, made as of , 1998, 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 futures 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 Charter [Graham] [Millburn] [Welton] L.P. (the "Partnership"). The
General Partner may, without the approval of the Limited Partners, change the
name of the Partnership, or cause the Partnership to transact business under
another name. The General Partner shall notify all Limited Partners (or any
assignees thereof) of any such change. 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
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 (which may include
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
(collectively, "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
A-1
<PAGE>
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.
(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, 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
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; (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 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 of the close of business (as determined by the General Partner) on any
day to $250,000 or less; (vii) a 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; (viii) a determination by the General Partner upon 120 days' notice
to the Limited Partners to terminate 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 laws 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 a
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 such partnership's partners; provided, however, that if the total
contributions to the Partnership by all 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
A-2
<PAGE>
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.
6. CAPITAL CONTRIBUTIONS AND OFFERING OF UNITS OF LIMITED PARTNERSHIP INTEREST.
The General Partner is herewith contributing $10 in cash to the
Partnership, for which it is receiving one unit of general partnership interest
(a "Unit of General Partnership Interest"). At the initial closing (the "Initial
Closing"), if any, for the acceptance of subscriptions for Units of Limited
Partnership Interest of the Partnership ("Units" or, individually, a "Unit")
during the initial offering of Units (the "Initial Offering"), 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 additional contribution by the General Partner need not exceed
the amount described above and shall be evidenced by Units of General
Partnership Interest. Thereafter, 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. 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's minimum investment requirements of the preceding
paragraph of this Section 6 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 Partnership's ability to meet the administrative requirements applicable to
partnerships under the federal income tax laws, (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 minimum investment in
the Partnership may not be reduced below the lesser of (A) the minimum
investment required by Section II.C of the NASAA Guidelines, and (B) the minimum
investment required by such Guidelines as in effect on the date of such proposed
modification.
Interests in the Partnership, other than the General Partnership Interest
of the General Partner, shall be Units. The initial Limited Partner named at the
end of this Agreement is herewith contributing $10 in cash to the capital of the
Partnership in consideration for receiving one Unit. The initial Limited Partner
agrees to withdraw as a Limited Partner at the Initial Closing, and the
remaining Partners hereby consent to such withdrawal. The $10 capital
contribution of the Initial Limited Partner shall be returned to him, without
interest, and he shall have no further rights or obligations as a Limited
Partner with respect to such contribution.
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
A-3
<PAGE>
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"),
Morgan Stanley & Co. Incorporated ("MS & Co."), 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 day of a calendar 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 at the Initial Closing shall be $10 per Unit, and the offering
price per Unit at any subsequent closing 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, MS & Co.,
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. Notwithstanding Section 10(b), Units purchased at the Initial
Closing by the General Partner, DWR, any Additional Seller and any Trading
Advisor, or any Affiliate of the foregoing (for purposes of this provision, the
term "Affiliate" shall not include any natural persons) may not be redeemed for
a period of two years after the Initial Closing if such redemption would cause
the Partnership to have less than $4,000,000 in Net Assets. 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 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 NASD Regulation, 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, MS & Co., or any other firm as
Selling Agent and entering into a selling agreement with DWR, MS & Co., 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.
A-4
<PAGE>
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, MS & Co., 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 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 (including any trading 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, before accrual of any monthly
management fee and any incentive fee shall be determined.
(2) The accrued monthly management fee shall then be charged against
Net Assets.
(3) The accrued monthly incentive fee, 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
Initial Closing), shall then be credited or charged to the capital
accounts 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 recognized
profit or loss shall be allocated among the Partners pursuant to the following
subparagraphs for federal income tax purposes. Such allocations of profit and
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 recognized gain or loss from the Partnership's trading
activities shall be allocated as follows (with any allocation of
recognized gain or loss consisting of pro rata shares of capital or
ordinary gain or loss):
(aa) For the purpose of allocating the Partnership's net
recognized 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
A-5
<PAGE>
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 recognized 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 recognized 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 recognized 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 recognized 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 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) 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, one-half
of the brokerage commissions that would be payable with respect to the
closing of each of the Partnership's open Futures Interests positions (if
charged on a "roundturn" basis), or brokerage fees (if charged on a "flat
rate" basis), management fees, incentive fees, ordinary administrative
expenses, Transaction Fees and Costs, if any, 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
A-6
<PAGE>
value of a Futures Interest traded on a United States exchange shall be
determined using 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 have been
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 off an exchange 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 divided by
the aggregate number of Units.
(e) EXPENSES AND LIMITATIONS THEREOF. DWR shall pay all of the
organizational, Initial Offering 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. Any such
offering expenses in connection with a subsequent offering of Units shall not be
paid by the Partnership.
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, 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), if such expenses are being paid directly by the
Partnership, 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 incentive fees
payable by the Partnership to any Trading Advisor 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 (e.g., 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 of 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.
A-7
<PAGE>
(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 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
Advisor(s); provided, however, that the General Partner may override any trading
instructions: (i) that 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 within five days of such request, 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.
A-8
<PAGE>
The Partnership shall not enter into any agreement with the General
Partner, DWR, MS & Co., MSDW, 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 any Customer Agreement in its sole
discretion in accordance with the terms of such agreement 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 or any Affiliate thereof to the Partnership; (iv) the costs incurred by
the Commodity Broker 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 is an Affiliate of
the Commodity Broker, the risks incurred by and the obligations of the General
Partner as such. Any modifications to any of the foregoing compensation
arrangements shall be subject to the limits described in the fourth paragraph of
Section 7(e) and the notice requirements of Section 9.
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.
1. The Trading Advisor will trade only in those Futures Interests
that have been approved by the General Partner. The Partnership normally
will not establish new positions in a Futures Interest for any one
contract month or option if such additional positions would result in a
net long or short position for that Futures Interest requiring as margin
or premium more than 15% of the Partnership's Net Assets.
2. The Partnership will not acquire additional positions in any
Futures Interest if such additional positions would result in the
aggregate net long or short positions for all Futures Interests requiring
as margin or premium for all outstanding positions more than 66 2/3% of
the Partnership's Net Assets. Under certain market conditions, such as an
abrupt increase in margins required by a commodity exchange or its
clearinghouse or an inability to liquidate open positions because of
daily price fluctuation limits, or both, the Partnership may be required
to commit as margin amounts in excess of
A-9
<PAGE>
the foregoing limit. In such event, the Trading Advisor will reduce its
open positions to comply with the foregoing limit before initiating new
positions.
3. 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.
4. The Trading Advisor will not generally take a position after the
first notice day in any Futures Interest during the delivery month of
that Futures Interest, except to match trades to close out a position on
the interbank foreign currency or other forward markets or liquidate
trades in a limit market.
5. 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."
6. The Partnership will not under any circumstances lend money to
Affiliates 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.
7. The Partnership will not permit "churning" of the Partnership's
assets.
8. The Partnership will not purchase, sell, or trade securities
(except securities approved by the CFTC for investment of customer
funds). The Partnership may, however, trade in futures contracts on
securities and securities indexes, options on such futures contracts, and
other commodity options.
(d) CHANGES TO TRADING POLICIES. The General Partner shall not make any
material change in the trading policies in Section 8(c) without obtaining prior
written approval of Limited Partners owning more than 50% of the Units then
outstanding.
(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.
A-10
<PAGE>
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, but is not required to, 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, 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 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
A-11
<PAGE>
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. 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).
In addition, following each Closing, the General Partner shall send written
notice to any Limited Partner which has acquired of record more than five
percent of the outstanding Units of the Partnership, so that such Limited
Partner may comply with the reporting requirements of Section 13(d) and (g) of
the Securities Exchange Act of 1934, as amended, and Regulation 13D-G
promulgated thereunder.
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 not be unreasonably
withheld. 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
A-12
<PAGE>
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 assignments 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, shall have that right of redemption, 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.
(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"). Redemptions may only be made in whole
Units, with a minimum amount of 100 Units required for each redemption, unless a
Limited Partner is redeeming his entire interest in the Partnership.
Except as otherwise provided in Section 6, 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 (all such partnerships shall be defined collectively
as the "Charter Series Partnerships" or individually as a "Charter 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 Charter Series Partnership and have either paid a
redemption charge with respect to such units, or have held such units 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 in the
other Charter Series 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 Charter 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
A-13
<PAGE>
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. 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 Charter
Series Partnership (such a transfer between Charter 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 Charter Series Partnership. The minimum amount of any Series Exchange is
500 Units, unless a Limited Partner is liquidating his entire interest in the
other Charter Series Partnerhip; provided, however, that the minimum amount of a
Series Exchange for Limited Partners that already own Units in the Charter
Series Partnership being purchased and desire to make an additional investment
in such Partnership is 100 Units.
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 Charter Series
A-14
<PAGE>
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 Charter 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 Charter Series
Partnerships requesting Units on a Series Exchange, provided, that the General
Partner, in its capacity as the general partner of each of the Charter Series
Partnerships, has (i) timely received a properly executed Exchange Agreement and
Power of Attorney verifying that such units of limited partnership interest in
the other Charter Series Partnership(s) subject to such Series Exchange are
owned by the person requesting such Series Exchange and acknowledging that the
limited partner thereof remains eligible to purchase Units, and (ii) caused the
net proceeds from units of limited partnership interest in the other Charter
Series Partnership(s) 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 another Charter 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 in another Charter Series Partnership is conditioned upon units of
limited partnership interest of other Charter Series Partnerships being
registered and qualified for sale pursuant to a current Prospectus immediately
prior to each Exchange Date. The General Partner shall not have any obligation
to have units of limited partnership interest in other Charter Series
Partnerships registered. There can be no assurance that any or a sufficient
number of such 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.
A-15
<PAGE>
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(s) 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 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
A-16
<PAGE>
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.
(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, provided that
such amendment is not adverse to the Limited Partners; (iv) effect the intent of
the allocations proposed herein to the maximum extent possible and to the extent
necessary to comply with the Code or the interpretations thereof affecting such
allocations, as same may be amended from time to time; (v) attempt to ensure
that the Partnership is not taxed as an association taxable as a corporation for
federal income (or relevant state income or franchise) tax purposes; (vi)
qualify or maintain the qualification of the Partnership as a limited
partnership in any jurisdiction; (vii) delete, add or modify any provision of or
to this Agreement required to be deleted, added or modified 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 and
minimum investment requirements applicable to the General Partner and any other
general partner, as contemplated by Sections 5 and 6 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, as amended (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;
A-17
<PAGE>
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 is
informed 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.
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. Notwithstanding the foregoing, 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 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>
<S> <C>
DEFINED TERM SECTION
1940 Act............................................. 15(a)
Act.................................................. 1
Advisers Act......................................... 15(a)
</TABLE>
A-18
<PAGE>
<TABLE>
<S> <C>
DEFINED TERM SECTION
Affiliate............................................ 14(c)
Agreement............................................ Preamble
CEAct................................................ 8(e)
Certificate of Limited Partnership................... 1
CFTC................................................. 3
Charter Series Partnership(s)........................ 10(b)
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)
Exchange Date........................................ 10(c)
Futures Interests.................................... 3
General Partner...................................... Preamble
Initial Closing...................................... 6
Initial Offering..................................... 6
Limited Partners..................................... Preamble
Management Agreement................................. 8(b)
MS & Co.............................................. 6
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
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.
A-19
<PAGE>
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
that they may have under Section 15.
(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 Corporation,
General Partner, as Authorized Agent and DEMETER MANAGEMENT
Attorney-in-Fact CORPORATION
By:.............................................. By:..............................................
Mark J. Hawley, President Mark J. Hawley, President
INITIAL LIMITED PARTNER:
.................................................
Mark J. Hawley
</TABLE>
A-20
<PAGE>
<TABLE>
<S> <C>
MFAD USE ONLY:............................... CLOSING DATE:................................
</TABLE>
- --------------------------------------------------------------------------------
REQUEST FOR REDEMPTION: 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.
<TABLE>
<S> <C>
.........................., 19 .................................................................
(DATE) (PRINT OR TYPE DEAN WITTER ACCOUNT NUMBER)
</TABLE>
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>
[DWSB] Spectrum Global Balanced Entire Interest Units
[DWSS] Spectrum Strategic Entire Interest Units
[DWST] Spectrum Technical Entire Interest Units
[DWSF] Spectrum Select 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>
[ ] Charter Graham Entire Interest Units
[ ] Charter Millburn Entire Interest Units
[ ] 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 [MSTAF] Morgan Stanley Tangible Asset Fund Entire
[DFF] Diversified Futures Fund [PGF] Multi-Market Portfolio Interest
[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
[IAF] International Access Fund
</TABLE>
A-21
<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
- --------------------------------------------------------------------------------
<TABLE>
<S> <C>
............................................... ...............................................
(Name of Limited Partner) (Dean Witter Account Number)
</TABLE>
Address.........................................................................
(Street)
...............................................................................
(City) (State or Province) (Zip Code or Postal Code)
- --------------------------------------------------------------------------------
2.A. SIGNATURE(S) OF INDIVIDUAL PARTNER(S) OR ASSIGNEE(S) INCLUDING IRAS
- --------------------------------------------------------------------------------
<TABLE>
<S> <C>
X.............................................. ...............................................
(Signature) (Date)
X.............................................. ...............................................
(Signature) (Date)
</TABLE>
- --------------------------------------------------------------------------------
2.B. SIGNATURE OF ENTITY PARTNER OR ASSIGNEE
- --------------------------------------------------------------------------------
<TABLE>
<S> <C>
............................................... By: X..........................................
(Name of Entity) (Authorized officer, partner, trustee or
custodian. If a corporation, include
certified copy of authorized resolution.)
...............................................
(Date)
</TABLE>
- --------------------------------------------------------------------------------
3. BRANCH MANAGER AND FINANCIAL ADVISOR USE ONLY
- --------------------------------------------------------------------------------
We, the undersigned Financial Advisor and Branch Manager, represent that the
above signature(s) is/are true and correct.
<TABLE>
<S> <C>
X.............................................. By: X..........................................
(Financial Advisor MUST sign and date) (Branch Manager MUST sign and date)
...............................................
(Branch Telephone Number) Please enter a SELL order upon receipt of a
completed Request for Redemption.
</TABLE>
A-22
<PAGE>
EXHIBIT B
SUBSCRIPTION AND EXCHANGE AGREEMENT AND POWER OF ATTORNEY
MORGAN STANLEY DEAN WITTER CHARTER SERIES
UNITS OF LIMITED PARTNERSHIP INTEREST SUBSCRIPTION AND EXCHANGE INSTRUCTIONS
Subscribers purchasing Units for cash hereby are "Subscribers." Subscribers
who are (i) redeeming units in another commodity pool for which the General
Partner serves as the general partner and commodity pool operator or (ii)
redeeming Units in a Charter Series Partnership pursuant to a Series Exchange
are "Exchange Subscribers." Subscribers and Exchange Subscribers should follow
the instructions below.
SUBSCRIPTION INSTRUCTIONS
ANY PERSON DESIRING TO SUBSCRIBE FOR UNITS SHOULD CAREFULLY READ AND REVIEW
THE PROSPECTUS DATED *, 1998 (THE "PROSPECTUS") AND THIS SUBSCRIPTION AND
EXCHANGE AGREEMENT AND POWER OF ATTORNEY ("AGREEMENT"). BY SIGNING THIS
AGREEMENT, A SUBSCRIBER OR EXCHANGE SUBSCRIBER 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 2-4, SO PLEASE MAKE
SURE THAT YOU SATISFY ALL APPLICABLE PROVISIONS IN THOSE SECTIONS BEFORE SIGNING
THIS AGREEMENT.
SUBSCRIBERS MUST FILL IN ALL OF THE BOXES AND BLANKS ONLY ON PAGES 6 AND 7,
AND EXCHANGE SUBSCRIBERS MUST FILL IN ALL OF THE BOXES AND BLANKS ONLY ON PAGES
8 AND 9, USING BLACK INK, AS FOLLOWS:
<TABLE>
<S> <C>
Item 1 (pages 6-7 or --Enter Dean Witter Reynolds Inc. ("DWR") Account Number.
pages 8-9)
--Enter the Social Security Number or Taxpayer ID Number and check the
appropriate box to indicate the type of entity that is subscribing.
In case of joint ownership, either Social Security Number may be
used.
--Each subscriber must (i) if a United States taxable subscriber, review
the representation relating to backup withholding tax under "United
States Taxable Investors Only" on Page 6 (for Subscribers) or Page 8
(for Exchange Subscribers) or (ii) if a non-United States subscriber,
review the representation relating to such subscriber's
classification as a non-resident alien for United States federal
income tax purposes under "Non-United States Investors Only" on Page
6 (for Subscribers) or Page 8 (for Exchange Subscribers).
SUBSCRIBER(S) AND EXCHANGE SUBSCRIBER(S) MUST SIGN BELOW THE TAX
REPRESENTATION IN ITEM 1 ON PAGE 6 OR 8.
--Enter the exact name in which the Units are to be held based on
ownership type, and enter residency and other information.
--Enter taxable year of subscriber, if other than calendar year.
--Check box if the subscriber is 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.
--Each subscriber purchasing Units as custodian for a minor: (i) if a
gift to minor not made with minor's funds, net worth and annual
income representations apply only to subscriber, or (ii) if not a
gift, net worth and annual income representations apply only to such
minor.
--Each subscriber purchasing Units as a trustee or custodian of an
employee benefit plan with an individual beneficiary or of an
individual retirement account ("IRA") at the direction of the
beneficiary of such plan or IRA: net worth and annual income
representations apply only to the beneficiary of such plan or
account.
Item 1 For Signatories to Subscription --Enter the dollar amount or number of Units of the subscription for each
Signature Page (page 6) Partnership (see "Subscription Procedure" in the Prospectus for
minimum investment requirements).
Item 1 For Signatories to Exchange --Enter the symbol(s) of the limited partnership(s) from which units are
Signature Page (page 8) to be redeemed; specify the quantity to be redeemed (entire interest
or number of whole units).
Item 2 (page 7 or 9) --Each subscriber must execute the Agreement Signature Page (on Page 7
(for Subscribers) or Page 9 (for Exchange Subscribers)).
Item 3 (page 7 or 9) --Financial Advisor and Branch Manager must complete the required
information.
--This Agreement must be mailed to Dean Witter Reynolds Inc. at Two World
Trade Center, 62nd Floor, New York, New York 10048-0026.
</TABLE>
B-1
<PAGE>
MORGAN STANLEY DEAN WITTER CHARTER SERIES
------------------------
SUBSCRIPTION AND EXCHANGE AGREEMENT AND POWER OF ATTORNEY
Any person subscribing for Units of Limited Partnership Interest ("Units")
in the Morgan Stanley Dean Witter Charter Series, consisting of three commodity
pool limited partnerships, 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, a "Partnership," and collectively, the
"Partnerships"), should carefully read and review the Partnerships' Prospectus
dated *, 1998 (the "Prospectus"). 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.
For Signatories to Subscription Signature Page: By executing the Signature
Page of this Agreement, the undersigned Subscriber ("Subscriber") irrevocably
subscribes for Units in one or more of the Partnerships at the price per Unit
described in the Prospectus.
For Signatories to Exchange Signature Page: By executing the Signature Page
of this Agreement, the undersigned Subscriber ("Subscriber") irrevocably redeems
the units of limited partnership interest of the limited partnership indicated
on the signature page of this Agreement and, with the proceeds of such
redemption, hereby irrevocably subscribes for Units in one or more of the
Partnerships at the price per Unit described in the Prospectus.
NOTWITHSTANDING THE FOREGOING, SUBSCRIBER MAY REVOKE THIS AGREEMENT, AND
RECEIVE A FULL REFUND OF THE SUBSCRIPTION AMOUNT AND 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 CLOSING, WHICHEVER COMES FIRST, BY DELIVERING WRITTEN NOTICE TO
SUBSCRIBER'S DWR FINANCIAL ADVISOR. If this Agreement is accepted, Subscriber
agrees to contribute Subscriber's subscription to each Partnership designated
herein and to be bound by the terms of each such Partnership's Limited
Partnership Agreement, included as Exhibit A to the Prospectus (the "Limited
Partnership Agreement"). BY EXECUTION OF THE SIGNATURE PAGE ATTACHED HERETO,
SUBSCRIBER SHALL BE DEEMED TO HAVE EXECUTED THIS AGREEMENT AND THE LIMITED
PARTNERSHIP AGREEMENT (INCLUDING THE POWERS OF ATTORNEY HEREIN AND THEREIN).
- --------------------------------------------------------------------------------
PAYMENT INSTRUCTIONS
- --------------------------------------------------------------------------------
For Signatories to Subscription Signature Page: Payment of this
subscription must be made by charging the Subscriber's Customer Account with DWR
(the "Customer Account"). In the event that Subscriber does not have a Customer
Account or does not have sufficient funds in Subscriber's existing Customer
Account, Subscriber should make appropriate arrangements with Subscriber's DWR
financial advisor, if any, and if none, should contact Subscriber's local DWR
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 Subscriber for proper placement with the DWR branch
office where Subscriber's Customer Account is maintained. The undersigned
Subscriber hereby authorizes and directs the General Partner and DWR to transfer
the appropriate amount from the Customer Account to the Escrow Account.
For Signatories to Exchange Signature Page: Payment of this subscription
must be made by applying the proceeds from the redemption of limited partnership
units in one of the Partnerships or another commodity pool for which the General
Partner serves as the general partner and commodity pool operator. Subscriber
may only redeem units at such times as are specified in the applicable limited
partnership agreement for such other commodity pool, and under certain
circumstances described therein, Subscriber may be subject to a redemption
charge.
- --------------------------------------------------------------------------------
REPRESENTATIONS AND WARRANTIES
- --------------------------------------------------------------------------------
Subscriber (for myself/ourselves, and, if Subscriber is an entity, on behalf
of and with respect to such entity and its shareholders, partners, or
beneficiaries) hereby represents and warrants to the General Partner and each
Partnership in which Subscriber is purchasing Units, as follows:
(1) Subscriber has received a copy of the Prospectus, including each
Limited Partnership Agreement.
(2) Subscriber is of legal age to execute this Agreement and is legally
competent to do so.
(3) Subscriber has either: (a) net worth of at least $150,000 (exclusive
of home, furnishings, and automobiles); or (b) net worth of at least $45,000
(exclusive of home, furnishings, and automobiles) and annual gross income of
at least $45,000. However, if Subscriber is a resident and/or subject to
regulation by one of the states which imposes more restrictive suitability
requirements than the foregoing, or requires a higher minimum investment, as
set forth below under the caption "State Suitability Requirements"
Subscriber's net worth and/or income and investment satisfies the
requirements of such state. (If Units are being purchased by spouses as
joint owners, their joint net worth and annual income may be used to satisfy
applicable state suitability requirements.) Subscriber agrees to provide any
additional documentation requested by the General Partner, as may be
required by the securities administrators of certain states to confirm that
Subscriber meets the applicable minimum financial suitability standards to
invest in the Partnerships.
(4) The address set forth on the Signature Page is Subscriber's true and
correct residence and Subscriber has no present intention of becoming a
resident of any other state or country. All the information that is provided
on the Signature Page regarding Subscriber is correct and complete as of the
date of this Agreement, and, if there should be any material change in such
information prior to Subscriber's admission as a Limited Partner, Subscriber
will immediately furnish such revised or corrected information to the
General Partner.
B-2
<PAGE>
(5) If Subscriber is an employee benefit plan, to the best of
Subscriber's knowledge, neither the General Partner, DWR, MS & Co., any
other Additional Seller, any Trading Advisor, nor any of their respective
affiliates either: (a) has investment discretion with respect to the
investment of Subscriber's plan assets; (b) has authority or responsibility
to 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 such plan
assets and that such advice will be based on the particular investment needs
of the plan; or (c) is an employer maintaining or contributing to such plan.
For purposes hereof, an "employee benefit plan" shall include 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 IRAs.
(6) Unless (7) or (8) below is applicable, Subscriber's subscription is
made with Subscriber's funds for Subscriber's own account and not as
trustee, custodian or nominee for another.
(7) The subscription, if made as custodian for a minor, is a gift
Subscriber has made to such minor and is not made with such minor's funds
or, if not a gift, the representations as to net worth and annual income set
forth herein apply only to such minor.
(8) If Subscriber is subscribing as a trustee or custodian of an
employee benefit plan or of an IRA at the direction of the beneficiary of
such plan or IRA, the representations set forth herein apply only to the
beneficiary of such plan or IRA.
(9) If Subscriber is subscribing in a representative capacity,
Subscriber has full power and authority to purchase the Units and enter into
and be bound by this Agreement on behalf of the entity for which the
Subscriber is purchasing the Units, and such entity has full right and power
to purchase such Units and enter into and be bound by this Agreement and
become a Limited Partner pursuant to each applicable Limited Partnership
Agreement.
(10) Subscriber either is not required to be registered with the
Commodity Futures Trading Commission ("CFTC") or to be a member of the
National Futures Association ("NFA"), or, if so required, is duly registered
with the CFTC and is 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. Subscriber agrees 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 Signatories to Exchange
Signature Page
(11) Subscriber is 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 are subject to this
redemption request are not subject to any pledge or otherwise encumbered in
any fashion.
By making the representations and warranties set forth above, Subscribers
should be aware that they have not waived any rights of action which they may
have under applicable federal or state securities laws. Federal and state
securities laws provide that any such waiver would be unenforceable. Subscribers
should be aware, however, that the representations and warranties set forth
above may be asserted in the defense of a Partnership, the General Partner, any
Trading Advisor, DWR, MS & Co., any other Additional Seller, or others in any
subsequent litigation or other proceeding.
- --------------------------------------------------------------------------------
STATE SUITABILITY REQUIREMENTS
- --------------------------------------------------------------------------------
Except as indicated below, investors in the Partnerships must have a net
worth (exclusive of home, furnishings, and automobiles) of at least $150,000 or,
failing that standard, have a net worth (same exclusions) of at least $45,000
and an annual gross income of at least $45,000, and must make a minimum
aggregate investment of $20,000 or, in the case of a Non-Series Exchange, the
minimum $20,000 investment will be measured as of the preceding Monthly Closing
and be deemed satisfied irrespective of whether the proceeds from such
redemption are worth less than $20,000 when the Units are subsequently acquired.
However, the states listed below have more restrictive suitability or minimum
investment requirements for Subscribers residing therein. Please read the
following list to make sure that Subscriber meets the minimum suitability and/or
investment requirements for the state in which Subscriber resides. (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.)
CALIFORNIA: (a) $150,000 NW, or (b) $75,000 NW and $50,000 AI.
IOWA: (a) $225,000 NW, or (b) $60,000 NW and $60,000 TI.
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, or (b) $60,000 NW and $60,000 TI.
MISSOURI: (a) $225,000 NW, or (b) $60,000 NW and $60,000 AI.
NORTH CAROLINA: (a) $225,000 NW, or (b) $60,000 NW and $60,000 AI.
B-3
<PAGE>
OHIO: (a) $150,000 NW and investment may not exceed 10% of NW, or (b) $45,000 NW
and $45,000 AI and investment may not exceed 10% of NW.
PENNSYLVANIA: (a) $175,000 NW and investment may not exceed 10% of NW, or (b)
$100,000 NW and $50,000 TI and investment may not exceed 10% of NW.
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.
- --------------------------------------------------------------------------------
SIGNIFICANT DISCLOSURES
- --------------------------------------------------------------------------------
Subscriber should read the Prospectus in its entirety before completing this
Agreement and subscribing for Units, and should carefully consider the
information contained therein as well as the following information (which is set
forth in detail in the Prospectus) concerning an investment in the Partnerships:
(1) The General Partner, DWR, the Partnerships' non-clearing Commodity
Broker, and MS & Co. are each wholly-owned subsidiaries of Morgan Stanley
Dean Witter & Co., and conflicts of interest therefore exist. The principal
business address of the General Partner is Two World Trade Center, 62nd
Floor, New York, New York 10048.
(2) DWR will receive substantial commodity brokerage fees from the
Partnerships and may also realize the benefits of excess interest earned on
the Partnerships' funds and compensating balance benefits from deposits of
the Partnerships' funds, subject to certain limitations as described in the
Prospectus. A Limited Partner will consent to the execution and delivery by
the General Partner on behalf of each Partnership of a Customer Agreement
with DWR, and to the payment to DWR of such brokerage fees and benefits.
(3) The performance information in the Prospectus should be read only in
conjunction with the textual description and notes thereto, and such data
should not be interpreted to mean that the Partnerships will have similar
results or will realize any profits whatsoever. A Limited Partner will
consent to the execution and delivery by the General Partner on behalf of
each Partnership of the Management Agreements with the Trading Advisors (as
described in the Prospectus), and with such other Trading Advisors as the
General Partner may retain from time to time.
(4) Units cannot be transferred or assigned except as set forth in the
Limited Partnership Agreement. Persons who have been Limited Partners for
more than six months may redeem all or part of their Units, at any month-end
in the manner described herein. An investor who has been a Limited Partner
for less than six months may first redeem Units effective as of the last day
of the sixth month following the closing in which he first became a Limited
Partner in the manner described herein. Units redeemed on or prior to the
last day of the twelfth month after such Units were purchased will be
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 of a 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. The
foregoing redemption charges will be paid to DWR. Notwithstanding the above,
Units purchased by an investor who purchases $500,000 or more of Units will
not be subject to the foregoing redemption charges, but will be subject to
the other restrictions on redemptions. Units purchased pursuant to a
Non-Series Exchange will not be subject to the foregoing redemption charges
under the circumstances described below. 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 received upon redeeming an interest in another partnership and used
to purchase Units by (b) the total investment in the Partnerships.
Redemptions of Units will be deemed to be in the order in which they are
purchased (assuming purchases at more than one closing), with Units not
subject to a redemption charge being deemed to be the first Units purchased
at a closing. Limited Partners who redeem Units and have either paid a
redemption charge with respect to such Units, or have held such Units 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 Units, (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. Such subscribers remain subject to
the minimum purchase and suitability requirements. A Limited Partner who
redeems Units pursuant to a Series Exchange will not be subject to the
redemption charges described above 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. Units may only be redeemed upon 5
business days' written notice to the General Partner prior to the effective
date of redemption, which will be the last day of a calendar month.
(5) All subscriptions are subject to acceptance or rejection by the
General Partner in whole or in part for any reason and are irrevocable by
Subscribers, subject to the limited revocation right described on page 2 of
this Agreement.
(6) A Limited Partner may be able to invest in any member partnerships
of the Morgan Stanley Dean Witter Charter Series formed subsequent to the
date hereof by exchanging Units as provided in the Limited Partnership
Agreements. Any such investment will be subject to a Limited Partner's prior
receipt of, and will be subject to all of the terms and conditions described
in, a prospectus or supplement to the Prospectus offering an investment in
any such newly organized partnership.
B-4
<PAGE>
(7) During the Continuing Offering, Units are being offered for sale at
"Monthly Closings" to be held as of the last day of each month. The Net
Asset Value of a Unit may increase or decrease substantially between the
date of this subscription and the date of the Monthly Closing at which this
subscription is accepted by the General Partner; consequently, the
undersigned Subscriber may receive more or fewer Units than would be
received if the Monthly Closing were held on the date of this subscription.
- --------------------------------------------------------------------------------
ACCEPTANCE OF THE LIMITED PARTNERSHIP AGREEMENTS
- --------------------------------------------------------------------------------
The Subscriber hereby agrees that as of the date that Subscriber's name is
entered on the books of a Partnership, Subscriber shall become a Limited Partner
of such Partnership. Subscriber hereby agrees to each and every term of the
Limited Partnership Agreement of such Partnership as if Subscriber's signature
were subscribed thereto. Subscriber further agrees that DWR may receipt on
Subscriber's behalf for the Units purchased by Subscriber hereunder upon the
issuance of such Units by the Partnership (although no certificate evidencing
Unit(s) will be issued to Subscriber).
- --------------------------------------------------------------------------------
POWER OF ATTORNEY AND GOVERNING LAW
- --------------------------------------------------------------------------------
Subscriber hereby irrevocably constitutes and appoints Demeter Management
Corporation, the General Partner of each Partnership, as Subscriber's true and
lawful Attorney-in-Fact, with full power of substitution, in Subscriber's name,
place, and stead, to do all things necessary to admit it as a Limited Partner of
each Partnership requested below, and such other Partnership(s) of the Morgan
Stanley Dean Witter Charter Series as Subscriber may request from time to time,
and 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, 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
to execute, acknowledge, swear to, deliver, file, and record on Subscriber's
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. Subscriber agrees 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 the death, incapacity,
dissolution, liquidation, or termination of Subscriber.
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 SUBSCRIBER MAY HAVE UNDER APPLICABLE FEDERAL OR STATE
SECURITIES LAW.
- --------------------------------------------------------------------------------
RECEIPT OF DOCUMENTATION
- --------------------------------------------------------------------------------
The regulations of the Commodity Futures Trading Commission require that the
undersigned Subscriber be given a copy of the Prospectus, as well as certain
additional documentation consisting of: (a) a supplement to the Prospectus,
which must be given to the undersigned if the Prospectus is dated more than nine
months prior to the date that the undersigned first receives the Prospectus, and
(b) the most current monthly account statement (report) for the Partnerships
after they begin trading operations. The undersigned hereby acknowledges receipt
of the Prospectus and the additional documentation referred to above, if any.
B-5
<PAGE>
- --------------------------------------------------------------------------------
SUBSCRIPTION SIGNATURE PAGE BUY
- --------------------------------------------------------------------------------
MORGAN STANLEY DEAN WITTER CHARTER SERIES
UNITS OF LIMITED PARTNERSHIP INTEREST
SUBSCRIPTION SIGNATURE PAGE
A
PLEASE PRINT OR TYPE. USE BLACK INK ONLY.
PAGES 6 AND 7, THE SUBSCRIPTION SIGNATURE PAGES, SHOULD BE DELIVERED TO THE
LOCAL DEAN WITTER 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.
The Subscriber named below, by execution and delivery of this Signature Page
and by payment of the purchase price for Units of Limited Partnership Interest
("Units") in one or more Partnerships in the Morgan Stanley Dean Witter Charter
Series (the "Partnerships"), hereby subscribes for Units in the Partnership(s)
specified below at a price equal to $10 per Unit at the Initial Closing, or 100%
of the Net Asset Value per Unit of the applicable Partnership(s) as of the close
of business on the date of the Monthly Closing, as applicable.
BY SUCH EXECUTION AND PAYMENT, THE SUBSCRIBER ACKNOWLEDGES RECEIPT OF THE
PROSPECTUS OF THE PARTNERSHIPS DATED , 1998, INCLUDING THE LIMITED
PARTNERSHIP AGREEMENT AND THIS SUBSCRIPTION AND EXCHANGE AGREEMENT AND POWER OF
ATTORNEY, THE TERMS OF WHICH GOVERN THE INVESTMENT IN THE UNITS BEING SUBSCRIBED
FOR HEREBY, AND, IF THE PARTNERSHIPS HAVE BEEN TRADING AT LEAST ONE MONTH, THE
CURRENT MONTHLY REPORT FOR THE PARTNERSHIPS.
ITEM 1 -- SUBSCRIBER (SUBSCRIBER MUST SIGN BELOW TAX REPRESENTATION)
- --------------------------------------------------------------------------------
<TABLE>
<C> <S> <C> <C>
CHARTER FUND SYMBOL AMOUNT
OF
SUBSCRIPTION
/ / / / / / / / / / / / / / / / / / / / MORGAN STANLEY DEAN WITTER CHARTER GRAHAM L.P. $
DWR ACCOUNT NO. MORGAN STANLEY DEAN WITTER CHARTER $
MILLBURN L.P.
MORGAN STANLEY DEAN WITTER CHARTER WELTON L.P. $
</TABLE>
- --------------------------------------------------------------------------------
<TABLE>
<S> <C> <C>
TAXABLE INVESTORS NON-TAXABLE INVESTORS
/ / / / / /-/ / / /-/ / / / / / / / OR / / / / -/ / / / / / / / / / / / / / OR / / / / / / / / / / / / / / / / / / / / / /
SOCIAL SECURITY NUMBER OF: (CHECK ONE) TAXPAYER ID NUMBER FOR: (CHECK ONE) SOC. SEC. #/TAXPAYER ID # FOR: (CHECK ONE)
/ / Individual Ownership / / Trust other than Grantor / / IRA (the DWR Branch Manager must
/ / Joint Tenants with Rights of or Revocable Trust sign below for IRA accounts)
Survivorship / / Estate / / Employee Benefit Plan
/ / Tenants in Common / / UGMA/UTMA (Minor) (Participant-Directed)
/ / Community Property / / Partnership / / Defined Benefit Plan (Other)______________
/ / Grantor or other Revocable Trust / / Corporation / / Other (specify)
</TABLE>
ALL SUBSCRIBERS (OR BRANCH MANAGERS IN THE CASE OF AN IRA) MUST SIGN
<TABLE>
<S> <C> <C>
UNITED STATES TAXABLE INVESTORS ONLY: NON-UNITED STATES INVESTORS ONLY:
/ / Check box if Subscriber is subject to backup withholding under the Under penalties of perjury, by
provisions of Section 3406(a)(1)(C) of the Internal Revenue Code. signature below, the Subscriber
If Subscriber's taxable year is other than the calendar year, certifies that such Subscriber is NOT
indicate the date on which Subscriber's taxable year ends:............ OR
Under penalties of perjury, by signing below, I certify that the Social (a) a citizen or resident of the
Security Number (or Taxpayer ID Number) above to be the true, correct and United States; or
complete Social Security Number (or Taxpayer ID Number) and that all the (b) a United States corporation,
information above is true, correct and complete. partnership, estate or trust.
X ___________________________ ______________________________
(Signature of Subscriber or Officer, Partner or Trustee [or Branch Manager in
the case of IRAs]) Date
</TABLE>
<TABLE>
<S> <C>
If Subscriber is an Entity: Type or Print Name of Entity:...................................................
Name: ................................. Date: .................................
Title:..........................................................................
Full Name of Account.............................................................................................
(Subscriber's Name or Name of Trust or Custodial Account--do not use initials)
Subscriber is a resident of ................................. and a citizen of ................................
(name of country) (name of county)
Street Address...................................................................................................
(MUST be residence address--P.O. Box alone not acceptable)
City............................. State ............. Zip Code ............ Tel. No. ( ............ ) ............
</TABLE>
/ / Check here if Subscriber is 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 business
within the U.S.A. to which income, gain or loss from a Partnership would
be treated as effectively connected. (Subscriber must complete Form W-8,
which may be obtained from a DWR Financial Advisor.
B-6
<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
<TABLE>
<S> <C>
Street Address (P.O. Box alone not acceptable)..................................
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) -- SUBSCRIBER(S) MUST SIGN UNDER TAX REPRESENTATION ON
PRECEDING PAGE AND BELOW
- --------------------------------------------------------------------------------
(INDIVIDUAL OR JOINT SUBSCRIPTION, INCLUDING PARTICIPANT-DIRECTED EMPLOYEE
BENEFIT PLAN OR IRA SUBSCRIPTION)
If this subscription is 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."
X __________________ _______________ X __________________ _______________
(Signature of Subscriber) Date (Signature of Date
Co-Subscriber)
(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 corporate officer, partner or trustee hereby certifies and
warrants that s/he has full power and authority from or on behalf of the entity
named below and its shareholders, partners, or beneficiaries 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 that 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...................................... ......................
(Type or Print Name of Entity) (Signature) Date
Print Name............................................. 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 the 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 the 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 the Prospectus at least five business days prior to
the applicable Monthly 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-7
<PAGE>
MORGAN STANLEY DEAN WITTER CHARTER SERIES
EXCHANGE SIGNATURE PAGE
B
PLEASE PRINT OR TYPE. USE BLACK INK ONLY.
PAGES 8 AND 9, THE SUBSCRIPTION SIGNATURE PAGES, SHOULD BE
DELIVERED TO THE LOCAL DEAN WITTER 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.
The Subscriber named below, by execution and delivery of this
Signature Page hereby redeems 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 Charter Series (the "Partnerships"), hereby subscribes for Units in
the Partnership(s) specified below at a price equal to $10 per Unit at the
Initial Closing, or 100% of the Net Asset Value per Unit of the applicable
Partnership(s) as of the close of business on the date of the Monthly Closing,
as applicable. Redemption of units of any partnership for an exchange must be in
whole units, unless Subscriber is redeeming its entire interest in such
partnership.
BY SUCH EXECUTION AND PAYMENT, THE SUBSCRIBER ACKNOWLEDGES
RECEIPT OF THE PROSPECTUS OF THE PARTNERSHIPS DATED , 1998, INCLUDING
THE LIMITED PARTNERSHIP AGREEMENT AND THIS SUBSCRIPTION AND EXCHANGE AGREEMENT
AND POWER OF ATTORNEY, THE TERMS OF WHICH GOVERN THE INVESTMENT IN THE UNITS
BEING SUBSCRIBED FOR HEREBY, AND, IF THE PARTNERSHIPS HAVE BEEN TRADING FOR AT
LEAST ONE MONTH, THE CURRENT MONTHLY REPORT FOR THE PARTNERSHIPS.
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
ITEM 1 -- SUBSCRIBER (SUBSCRIBER MUST SIGN BELOW TAX REPRESENTATION)
- --------------------------------------------------------------------------------
DWR ACCOUNT NO. / / / / / / / / / / / / / / / / / / / / / /
<TABLE>
<S> <C> <C>
SYMBOL(S) FOR FUND(S) SPECIFY QUANTITY OF UNITS TO BE REDEEMED CHARTER
FROM (CHECK BOX IF ENTIRE INTEREST; INSERT NUMBER IF
WHICH UNITS TO BE WHOLE SERIES UNITS) FUND SYMBOL
REDEEMED
/ / / / / / / / / / / / Entire Interest OR Whole Units TO / / / / / / / /
/ / / / / / / / / / / / Entire Interest OR Whole Units TO / / / / / / / /
/ / / / / / / / / / / / Entire Interest OR Whole Units TO / / / / / / / /
/ / / / / / / / / / / / Entire Interest OR Whole Units TO / / / / / / / /
</TABLE>
The Subscriber hereby authorizes Demeter Management Corporation to
redeem the above 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 thereof to purchase Units in
the applicable Charter Series Partnership as indicated. Redemptions
for an exchange must meet the applicable minimum investment
requirements described under "Subscription Procedure" in the
Prospectus.
- --------------------------------------------------------------------------------
<TABLE>
<S> <C> <C>
TAXABLE INVESTORS NON-TAXABLE INVESTORS
/ / / / / / -/ / / / -/ / / / / / / / OR / / / / -/ / / / / / / / / / / / / / OR / / / / / / / / / / / / / / / / / / / / / /
SOCIAL SECURITY NUMBER OF: (CHECK ONE) TAXPAYER ID NUMBER FOR: (CHECK ONE) SOC. SEC. #/TAXPAYER ID # FOR: (CHECK ONE)
/ / Individual Ownership / / Trust other than Grantor or / / IRA (the DWR Branch Manager must
/ / Joint Tenants with Rights of Revocable Trust sign below for IRA accounts)
Survivorship / / Estate / / Employee Benefit Plan
/ / Tenants in Common / / UGMA/UTMA (Minor) (Participant-Directed)
/ / Community Property / / Partnership / / Defined Benefit Plan (Other)_________
/ / Grantor or other Revocable Trust / / Corporation / / Other (specify) _____________________
</TABLE>
ALL SUBSCRIBERS (OR BRANCH MANAGERS IN THE CASE OF AN IRA) MUST SIGN
<TABLE>
<S> <C> <C>
UNITED STATES TAXABLE INVESTORS ONLY: NON-UNITED STATES INVESTORS ONLY:
/ / Check box if Subscriber is subject to backup withholding under the Under penalties of perjury, by
provisions of Section 3406(a)(1)(C) of the Internal Revenue Code. signature below, the Subscriber
If Subscriber's taxable year is other than the calendar certifies that such Subscriber is NOT
year, indicate the date on which Subscriber's taxable year ends:.... OR
Under penalties of perjury, by signing below, I certify that the Social (a) a citizen or resident of the
Security Number (or Taxpayer ID Number) above to be the true, correct and United States; or
complete Social Security Number (or Taxpayer ID Number) and that all the (b) a United States corporation,
information above is true, correct and complete. partnership, estate or trust.
X
________________________________________________________________________________________________ __________________________
(Signature of Subscriber or Officer, Partner or Trustee [or Branch Manager in the case of IRAs]) Date
If Subscriber is an Entity: Type or Print Name of Entity:.....................................................................
Name:.......................................................Date:.................................
Title:............................................................................................
</TABLE>
- -----------------------------------------------------------------------
EXCHANGE SIGNATURE PAGE EXG
- -----------------------------------------------------------------------
B-8
<PAGE>
<TABLE>
<S> <C>
Full Name of Account.............................................................................................
(Subscriber's Name or Name of Trust or Custodial Account--do not use initials)
Subscriber is a resident of ............................... and a citizen of ..............................
(name of country) (name of county)
</TABLE>
/ / Check here if Subscriber is 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. (Subscriber must complete Form W-8, which may be obtained
from a DWR 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
<TABLE>
<S> <C>
Street Address (P.O. Box alone not acceptable)...................................................................
City............................................................. State ....... Zip Code ....... Tel. No.
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) -- SUBSCRIBER(S) MUST SIGN UNDER TAX REPRESENTATION ON
PRECEDING PAGE AND BELOW
- --------------------------------------------------------------------------------
(INDIVIDUAL OR JOINT SUBSCRIPTION, INCLUDING PARTICIPANT-DIRECTED EMPLOYEE
BENEFIT PLAN OR IRA SUBSCRIPTION)
If this subscription is 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> <C> <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 corporate officer, partner or trustee hereby certifies and
warrants that s/he has full power and authority from or on behalf of the entity
named below and its shareholders, partners, or beneficiaries to complete,
execute and deliver this Subscription Agreement and Power of Attorney on their
behalf and to make the statements, representations, and warranties made herein
on their behalf, and that 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______________________________________ ______________________
(Type or Print Name of Entity) (Signature) Date
Print Name............................................. 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 the 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 the 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 the Prospectus at least five business days prior
to the applicable Monthly 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-9
<PAGE>
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
ITEM 13. OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION
<TABLE>
<S> <C>
SEC registration fee.................................................... $ 8,850
NASD filing fee......................................................... 3,500
Printing and engraving.................................................. 133,333*
Legal fees and expenses (excluding Blue Sky legal fees)................. 83,333*
Accounting fees and expenses............................................ 26,667*
Escrow Agent fees....................................................... 1,000*
Blue Sky fees and expenses (including Blue Sky legal fees).............. 50,000*
Miscellaneous........................................................... 26,650
--------
Total.............................................................. $333,333
--------
--------
</TABLE>
- ------------------
*Represents an estimate of the Partnership's portion of fees and expenses that
are common to the concurrent offerings of the three partnerships in the Morgan
Stanley Dean Witter Charter Series, being effected pursuant to this Registration
Statement and each of the Registration Statements on Form S-1 for Morgan Stanley
Dean Witter Charter Millburn L.P. and Morgan Stanley Dean Witter Charter Welton
L.P., respectively.
ITEM 14. INDEMNIFICATION OF DIRECTORS AND OFFICERS.
Section 14 of the Limited Partnership Agreement (a form of which is annexed
to the Prospectus as Exhibit A) provides for indemnification of the General
Partner and its affiliates (as such term is defined therein) by the Partnership
for any loss, liability, damage, cost or expense arising from any act, omission,
activity or conduct undertaken by or on behalf of the Partnership that is
determined by the General Partner in good faith to be in the best interests of
the Partnership and was not the result of misconduct or negligence. Section 11
of the Selling Agreement provides for indemnification of the General Partner and
its affiliates and its successors and assigns by Dean Witter Reynolds Inc.
("DWR") for any loss, claim, damage, liability, cost and expense incurred for a
breach by DWR of a representation or agreement in the Selling Agreement, or for
misleading statements and material omissions regarding DWR in the Registration
Statement or Prospectus. Such Section also provides for the indemnification by
the Partnership of DWR, the General Partner and their affiliates for any act,
omission, conduct, or activity undertaken by or on behalf of a Partnership that
is determined by DWR or the General Partner, as applicable, in good faith to be
in the best interests of the Partnership and was not the result of misconduct or
negligence. Section 8 of the DWR Customer Agreement provides for indemnification
of DWR and its affiliates for liabilities, losses, damages, costs, or expenses
for activities taken by or on behalf of the Partnership which DWR has determined
in good faith are in the best interests of the Partnership and are not the
result of misconduct or negligence. Section 8 of the Management Agreement
provides for indemnification of the General Partner and its affiliates by the
Trading Advisor for losses, claims, damages, liabilities, costs and expenses
incurred as a result of actions or omissions by the Trading Advisor involving
the Partnership's trading which are the result of a breach of agreement,
representation or warranty or the result of bad faith, misconduct or negligence.
ITEM 15. RECENT SALES OF UNREGISTERED SECURITIES.
None.
II-1
<PAGE>
ITEM 16. EXHIBITS AND FINANCIAL STATEMENTS.
(A) EXHIBITS
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION OF DOCUMENT
------- -----------------------------------------------------------------------------
<C> <S>
1.01* Form of Selling Agreement among the Registrant, Demeter Management Corpora-
tion, the Trading Advisor and Dean Witter Reynolds Inc.
1.02* Form of Additional Seller Agreement between Dean Witter Reynolds Inc. and
additional selling agents (to also be included as an annex to Exhibit 1.01,
form of Selling Agreement).
3.01 Form of Limited Partnership Agreement of the Registrant (included as Exhibit
A to the Prospectus).
3.02* Certificate of Limited Partnership of the Registrant.
5.01 Opinion of Cadwalader, Wickersham & Taft to the Registrant regarding the
legality of Units (including consent).
8.01* Opinion of Cadwalader, Wickersham & Taft to the Registrant regarding certain
federal income tax matters (including consent).
10.01* Form of Customer Agreement between the Registrant and Dean Witter Reynolds
Inc.
10.01(a)* Form of Customer Agreement among the Registrant, Carr Futures, Inc. and Dean
Witter Reynolds Inc.
10.01(b)* Form of International Foreign Exchange Master Agreement between the
Registrant and Carr Futures, Inc.
10.02* Form of Management Agreement among the Registrant, the General Partner and
the Trading Advisor.
10.03 Subscription and Exchange Agreement and Power of Attorney to be executed by
purchasers of Units (included as Exhibit B to the Prospectus).
10.04* Escrow Agreement among the Registrant, Dean Witter Reynolds Inc., and The
Chase Manhattan Bank, the escrow agent.
23.01 Consent of Independent Auditors for the General Partner and the Registrant.
</TABLE>
- ------------------
*Previously filed.
(B) FINANCIAL STATEMENTS.
Included in the Prospectus:
Morgan Stanley Dean Witter Charter Graham L.P.
Independent Auditors' Report
Statement of Financial Condition
Notes to Statement of Financial Condition
Demeter Management Corporation
Independent Auditors' Report
Statements of Financial Condition
Notes to Statements of Financial Condition
ITEM 17. UNDERTAKINGS.
The undersigned Registrant hereby undertakes:
(1) To file, during any period in which offers or sales are being made, a
post-effective amendment to this Registration Statement: (a) to include any
prospectus required by Section 10(a)(3) of the Securities Act of 1933; (b) to
reflect in the Prospectus any facts or events arising after the effective date
of the Registration Statement (or the most recent post-effective amendment
thereof) which, individually or in the aggregate, represent a fundamental change
in the information set forth in the
II-2
<PAGE>
Registration Statement; and (c) to include any material information with respect
to the plan of distribution not previously disclosed in the Registration
Statement or any material change to such information in the Registration
Statement.
(2) That, for the purpose of determining any liability under the Securities
Act of 1933, each such post-effective amendment shall be deemed to be a new
registration statement relating to the securities offered therein, and the
offering of such securities at that time shall be deemed to be the initial bona
fide offering thereof.
(3) That all post-effective amendments will comply with the applicable
forms, rules and regulations of the Securities and Exchange Commission in effect
at the time such post-effective amendments are filed.
(4) To remove from registration by means of a post-effective amendment any
of the securities being registered which remain unsold at the termination of the
offering.
(5) Insofar, as indemnification for liabilities arising under the
Securities Act of 1933 may be permitted to directors, officers, and controlling
persons of the Registrant pursuant to the foregoing provisions, or otherwise,
the Registrant has been advised that in the opinion of the Securities and
Exchange Commission such indemnification is against public policy as expressed
in the Act and is, therefore, unenforceable. In the event that a claim for
indemnification against such liabilities (other than the payment by the
Registrant of expenses incurred or paid by a director, officer, or controlling
person of the Registrant in the successful defense of any action, suit, or
proceeding) is asserted by such director, officer, or controlling person in
connection with the securities being registered, the Registrant will, unless in
the opinion of its counsel the matter has been settled by controlling precedent,
submit to a court of appropriate jurisdiction the question whether such
indemnification by it is against public policy as expressed in the Act and will
be governed by the final adjudication of such issue.
II-3
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, the registrant
has duly caused this Pre-Effective Amendment No. 1 to the Registration Statement
to be signed on its behalf by the undersigned, thereunto duly authorized, in the
City of New York and State of New York on the 21st day of September 1998.
MORGAN STANLEY DEAN WITTER
CHARTER GRAHAM L.P.
By: DEMETER MANAGEMENT CORPORATION,
General Partner
By: /s/ Mark J. Hawley
___________________________________
Mark J. Hawley, President
Pursuant to the requirements of the Securities Act of 1933, this
Pre-Effective Amendment No. 1 to the Registration Statement has been signed by
the following persons in the capacities and on the dates indicated.
<TABLE>
<CAPTION>
SIGNATURE TITLE DATE
- ---------------------------------------- ---------------------------- ----------------------
<C> <S> <C>
DEMETER MANAGEMENT CORPORATION General Partner
/s/ Mark J. Hawley
- ------------------------------ President and Director of September 21, 1998
Mark J. Hawley the General Partner
/s/ Richard M. DeMartini
- ------------------------------ Chairman of the Board and September 21, 1998
Richard M. DeMartini Director of the General
Partner
- ------------------------------ Director of the General
Lawrence Volpe Partner
- ------------------------------ Director of the General
Joseph G. Siniscalchi Partner
/s/ Edward C. Oelsner, III
- ------------------------------ Director of the General September 21, 1998
Edward C. Oelsner, III Partner
/s/ Robert E. Murray
- ------------------------------ Director of the General September 21, 1998
Robert E. Murray Partner
Vice President and Chief September 21, 1998
/s/ Lewis A. Raibley, III Financial and Principal
- ------------------------------ Accounting Officer of the
Lewis A. Raibley, III General Partner
</TABLE>
II-4
CADWALADER, WICKERSHAM & TAFT
100 Maiden Lane
New York, NY 10038
September 21, 1998
Dean Witter Reynolds Inc.
Demeter Management Corporation
Two World Trade Center
62nd Floor
New York, NY 10048
Re: 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.
Ladies and Gentlemen:
We have acted as your counsel in connection with the
organization of 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 a Delaware limited partnership (collectively, the "Partnerships";
individually a "Partnership"), and the preparation and filing with the
Securities and Exchange Commission of Registration Statements on Form S-1 (each
a "Registration Statement") relating to the registration under the Securities
Act of 1933, as amended, of 3,000,000 units of limited partnership interest of
each Partnership ("Units"). In such connection, we have assisted in the
preparation of each Partnership's Limited Partnership Agreement and in the
preparation and filing with the Secretary of State of the State of Delaware of
the Certificates of Limited Partnership for each Partnership. We have also
examined such other documents, records, and applicable law as we have deemed
necessary or appropriate for purposes of rendering this opinion.
Based upon the foregoing, and with regard to each Partnership,
we are of the opinion that upon (1) the sale of the Units described in each
Registration Statement in the manner and on the terms and conditions set forth
therein, and (2) the identification of the purchasers of Units as limited
partners on the books and records of the applicable Partnership, the Units will
be duly authorized, validly issued, fully-paid, and non-assessable. We are also
of the opinion that a limited partner's liability for the losses and obligations
of the Partnerships in which such limited partner purchases Units, solely by
reason of such person being a limited partner of such Partnerships will not
exceed such limited partner's unredeemed capital contribution, undistributed
profits, if any, and any distributions and amounts received upon redemption of
Units with interest thereon.
We hereby consent to the filing of this opinion as an exhibit
to each Registration Statement.
Very truly yours,
/s/ Cadwalader, Wickersham & Taft
CADWALADER, WICKERSHAM & TAFT
INDEPENDENT AUDITORS' CONSENT
We consent to the use in this Pre-Effective Amendment No. 1 on Form S-1 to
Registration Statements (Nos. 333-60115, 333-60103, and 333-60097) of our report
dated July 21, 1998 relating to the statements of financial condition of 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. as of July 20,
1998 and our report dated January 12, 1998 relating to the statements of
financial condition of Demeter Management Corporation as of November 30, 1997
and December 31, 1996 appearing in the Prospectus, which is part of such
Registration Statement, and to the reference to us under the heading "Experts"
in such Prospectus.
/s/ Deloitte & Touche LLP
New York, New York
September 18, 1998
