UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, DC 20549
FORM 10-K
[X] Annual report pursuant to Section 13 or 15(d) of the Securities Exchange Act
of 1934 [No Fee Required] For the year ended December 31, 1998 or
[ ] Transition report pursuant to Section 13 or 15(d) of the Securities Exchange
Act of 1934 [No Fee Required]
For the transition period from _____________ to ________________.
Commission file number 0-13299
DEAN WITTER CORNERSTONE FUND III
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(Exact name of registrant as specified in its Limited Partnership Agreement)
NEW YORK 13-3190919
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(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
c/o Demeter Management Corporation
Two World Trade Center, - 62nd Flr., New York, N.Y. 10048
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(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code (212) 392-5454
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Securities registered pursuant to Section 12(b) of the Act:
Title of each class Name of each exchange
on which registered
None None
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Securities registered pursuant to Section 12(g) of the Act:
Units of Limited Partnership Interest
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(Title of Class)
Indicate by check-mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days. Yes X No
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Indicate by check-mark if disclosure of delinquent filers pursuant to
Item 405 of Regulation S-K (section 229.405 of this chapter) is not contained
herein, and will not be contained, to the best of registrant's knowledge, in
definitive proxy or information statements incorporated by reference in Part III
of this Form 10-K or any amendment of this Form 10-K. [X]
State the aggregate market value of the Units of Limited Partnership Interest
held by non-affiliates of the registrant. The aggregate market value shall be
computed by reference to the price at which units were sold as of a specified
date within 60 days prior to the date of filing: $38,138,069.44 at January 31,
1999.
DOCUMENTS INCORPORATED BY REFERENCE
(See Page 1)
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DEAN WITTER CORNERSTONE FUND III
INDEX TO ANNUAL REPORT ON FORM 10-K
DECEMBER 31, 1998
Page No.
DOCUMENTS INCORPORATED BY REFERENCE. . . . . . . . . . . . . . . 1
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Part I.
Item 1. Business. . . . . . . . . . . . . . . . . . . . 2-4
Item 2. Properties. . . . . . . . . . . . . . . . . . . . . 4
Item 3. Legal Proceedings. . . . . . . . . . . . . . . . . 5-6
Item 4. Submission of Matters to a Vote of Security Holders 6
Part II.
Item 5. Market for the Registrant's Partnership Units
and Related Security Holder Matters . . . . . . . 7
Item 6. Selected Financial Data . . . . . . . . . . . . 8
Item 7. Management's Discussion and Analysis of Financial
Condition and Results of Operations. . . . . . . 9-18
Item 7A. Quantitative and Qualitative Disclosures About
Market Risk . . . . . . . . . . . . . . . . . . . 18-30
Item 8. Financial Statements and Supplementary Data. . 31
Item 9. Changes in and Disagreements with Accountants on
Accounting and Financial Disclosure. . . . . . 31
Part III.
Item 10. Directors and Executive Officers of the Registrant .32-36
Item 11. Executive Compensation . . . . . . . . . . . . 36
Item 12. Security Ownership of Certain Beneficial Owners
and Management . . . . . . . . . . . . . . . . 37
Item 13. Certain Relationships and Related Transactions 37
Part IV.
Item 14. Exhibits, Financial Statement Schedules, and
Reports on Form 8-K . . . . . . . . . . . 38
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DOCUMENTS INCORPORATED BY REFERENCE
Portions of the following documents are incorporated by reference as follows:
Documents Incorporated Part of Form 10-K
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Partnership's Prospectus
dated August 28, 1996,
together with the Supplement
to the Prospectus dated
October 14, 1998 I
Annual Report to the Dean Witter
Cornerstone Funds II, III and
IV Limited Partners for the
year ended December 31, 1998 II, III and IV
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PART I
Item 1. BUSINESS
(a) General Development of Business. Dean Witter Cornerstone Fund III
(the "Partnership") is a New York limited partnership organized to engage in the
speculative trading of futures, options, forward contracts on foreign currencies
and other commodity interests (collectively, "futures interests"). The
Partnership is one of the Dean Witter Cornerstone Funds, comprised of Dean
Witter Cornerstone Fund II, the Partnership, and Dean Witter Cornerstone Fund
IV. The Partnership's general partner is Demeter Management Corporation
("Demeter"). The non-clearing commodity broker is Dean Witter Reynolds Inc.
("DWR") and an unaffiliated clearing commodity broker, Carr Futures Inc.
("Carr"), provides clearing and execution services. Both Demeter and DWR are
wholly-owned subsidiaries of Morgan Stanley Dean Witter & Co. ("MSDW"). The
trading advisors to the Partnership are Abraham Trading Co., Welton Investment
Corporation and Sunrise Capital Management Inc., (collectively, the "Trading
Advisors").
The Partnership's Net Asset Value per Unit, as of December 31, 1998,
was $3,266.97, representing an increase of 9.13 percent from the Net Asset Value
per Unit of $2,993.52 at December 31, 1997.
For a more detailed description of the Partnership's business, see
subparagraph (c).
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(b) Financial Information about Industry Segments. For financial
information reporting purposes, the Partnership is deemed to engage in one
industry segment, the speculative trading of futures interests. The relevant
financial information is presented in Items 6 and 8.
(c) Narrative Description of Business. The Partnership is in the
business of speculative trading of futures interests, pursuant to trading
instructions provided by the Trading Advisors. For a detailed description of the
different facets of the Partnership's business, see those portions of the
Partnership's prospectus, dated August 28, 1996, (the "Prospectus") together
with the supplement to the Prospectus dated October 14, 1998 (the "Supplement")
incorporated by reference in this Form 10-K, set forth below.
Facets of Business
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1. Summary 1."Summary of the Prospectus"
(Pages 1-9 of the Prospectus
and Pages S-18 - S-34 of the
Supplement).
2. Commodity Markets 2."The Commodities Markets"
(Pages 80-84 of the Prospectus).
3. Partnership's Commodity 3."Investment Program, Use of
Trading Arrangements and Proceeds and Trading Policies"
Policies (Pages 45-47 of the Prospectus)
and "The Trading Managers"
(Pages 51-74 of the Prospectus
and Pages S-18 - S-29 of the
Supplement).
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<PAGE>
4. Management of the Part- 4. "The Cornerstone Funds"
nership (Pages 19-24 of the Prospectus
and Pages S-1 - S-4 of the
Supplement). "The General
Partner" (Pages 77-79 of the
Prospectus and Pages S-29 - S-31
of the Supplement). "The
Commodity Brokers" (Pages
79-80 of the Prospectus and
Pages S-31 - S-32 of the
Supplement). "The Limited
Partnership Agreements"
Pages 86-90 of the
Prospectus).
5. Taxation of the Partner- 5. "Material Federal Income
ship's Limited Partners Tax Considerations" and "State and
Local Income Tax Aspects" (Pages
92-99 of the Prospectus and Page
S-34 of the Supplement ).
(d) Financial Information About Foreign and Domestic Operations and
Export Sales.
The Partnership has not engaged in any operations in foreign countries;
however, the Partnership (through the commodity brokers) enters into forward
contract transactions where foreign banks are the contracting party and trades
in futures interests on foreign exchanges.
Item 2. PROPERTIES
The executive and administrative offices are located within the offices
of DWR. The DWR offices utilized by the Partnership are located at Two World
Trade Center, 62nd Floor, New York, NY 10048.
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Item 3. LEGAL PROCEEDINGS
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 & Currency Management Inc. ("DWFCM"), MSDW (all
such parties referred to hereafter as the "Dean Witter Parties") the
Partnership, certain other 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, including the
Partnership, sold by DWR. A consolidated and amended
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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 New York
Supreme Court dismissed the New York action in November 1998, but granted
plaintiffs leave to file an amended complaint, which they did in early December
1998. The defendants have filed a motion to dismiss the amended complaint with
prejudice on February 1, 1999. 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 and the Partnership 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.
Item 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
None.
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PART II
Item 5. MARKET FOR THE REGISTRANT'S PARTNERSHIP UNITS AND RELATED
SECURITY HOLDER MATTERS
There is no established public trading market for the Units of limited
partnership interest ("Units") in the Partnership. The number of holders of
Units at December 31, 1998 was approximately 4,606. No distributions have been
made by the Partnership since it commenced trading operations on January 2,
1985. Demeter has sole discretion to decide what distributions, if any, shall be
made to investors in the Partnership. No determination has yet been made as to
future distributions.
The offering for the Partnership originally commenced May 31, 1984.
Effective September 30, 1994, Dean Witter Cornerstone Fund II, the Partnership
and Dean Witter Cornerstone Fund IV were closed to new investors. Units have
been sold since then solely in "Exchanges" with existing investors, at 100% of
Net Asset Value per Unit. DWR has been paying all expenses in connection with
the offering of Units since September 30, 1994 without reimbursement. Through
December 31, 1998, the Partnership has sold 74,405.186 Units and the Cornerstone
Funds have sold an aggregate of 235,419,742 Units, leaving 14,580.258 Units
remaining available for sale as of January 1, 1999. The aggregate price of Units
sold through December 31, 1998 with respect to the Partnership is $137,132,762.
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Item 6. SELECTED FINANCIAL DATA (in dollars)
<TABLE>
<CAPTION>
For the Years Ended December 31,
1998 1997 1996 1995 1994
-------- -------- -------- -------- ---------
<S> <C> <C> <C> <C> <C>
Total Revenues
(including interest) 7,717,783 8,583,432 7,585,090 16,882,940 1,307,961
Net Income (Loss) 3,657,606 4,261,542 2,778,204 11,031,694 (5,680,495)
Net Income (Loss)
Per Unit (Limited
& General Partners) 273.45 278.01 206.83 541.04 (219.67)
Total Assets 40,759,850 41,782,326 43,137,470 48,156,795 48,308,274
Total Limited Partners'
Capital 39,835,572 39,970,539 40,997,752 45,991,101 46,250,611
Net Asset Value Per
Unit of Limited
Partnership Interest 3,266.97 2,993.52 2,715.51 2,508.68 1,967.64
</TABLE>
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Item 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
Liquidity. Assets of the Partnership are deposited with DWR as
non-clearing broker and Carr as clearing broker in separate futures interest
trading accounts. Such assets are held in either non-interest bearing bank
accounts or in securities approved by the Commodity Futures Trading Commission
("CFTC") for investment of customer funds. The Partnership's assets held by DWR
and Carr may be used as margin solely for the Partnership's trading. Since the
Partnership's sole purpose is to trade in futures interests, it is expected that
the Partnership will continue to own such liquid assets for margin purposes.
The Partnership's investment in futures interests may, from time to
time, be illiquid. Most United States futures exchanges limit fluctuations in
certain futures interest prices during a single day by regulations referred to
as "daily price fluctuations limits" or "daily limits." Pursuant to such
regulations, during a single trading day no trades may be executed at prices
beyond the daily limit. If the price for a particular futures interest has
increased or decreased by an amount equal to the daily limit, positions in such
futures interest can neither be taken nor liquidated unless traders are willing
to effect trades at or within the limit. Futures interests prices have
occasionally moved the daily limit for several consecutive days with little or
no trading. Such
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market conditions could prevent the Partnership from promptly liquidating its
futures interests and result in restrictions on redemptions.
There is no limitation on daily price moves in trading forward
contracts on foreign currency. The markets for some world currencies have low
trading volume and are illiquid, which may prevent the Partnership from trading
in potentially profitable markets or from promptly liquidating unfavorable
positions, subjecting it to substantial losses. Either of these market
conditions could result in restrictions on redemptions.
Capital Resources. The Partnership does not have, nor does it expect to
have, any capital assets. Future redemptions and exchanges of Units will affect
the amount of funds available for investment in futures interests in subsequent
periods. Since they are at the discretion of Limited Partners, it is not
possible to estimate the amount and therefore, the impact of future redemptions
and exchanges.
Results of Operations. As of December 31, 1998, the Partnership's total
capital was $40,299,819, a decrease of $814,555 from the Partnership's total
capital of $41,114,374 at December 31, 1997. For the year ended December 31,
1998, the Partnership generated net income of $3,657,606, total subscriptions
aggregated $15,998 and total redemptions aggregated $4,488,159.
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For the year ended December 31, 1998, the Partnership's total trading
revenues, including interest income, were $7,717,783. The Partnership's total
expenses for the year were $4,060,177, resulting in net income of $3,657,606.
The value of an individual unit in the Partnership increased from $2,993.52 at
December 31, 1997 to $3,266.97 at December 31, 1998.
As of December 31, 1997, the Partnership's total capital was
$41,114,374, a decrease of $920,984 from the Partnership's total capital of
$42,035,358, at December 31, 1996. For the year ended December 31, 1997, the
Partnership generated net income of $4,261,542, total subscriptions aggregated
$5,000 and total redemptions aggregated $5,187,526.
For the year ended December 31, 1997, the Partnership's total trading
revenues, including interest income, were $8,583,432. The Partnership's total
expenses for the year were $4,321,890, resulting in net income of $4,261,542.
The value of an individual unit in the Partnership increased from $2,715.51 at
December 31, 1996 to $2,993.52 at December 31, 1997.
As of December 31, 1996, the Partnership's total capital was
$42,035,358, a decrease of $4,914,316 from the Partnership's total capital of
$46,949,674 at December 31, 1995. For the year ended December 31, 1996, the
Partnership generated net income of $2,778,204,
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total subscriptions aggregated $8,388, and total redemptions aggregated
$7,700,908.
For the year ended December 31, 1996, the partnership's total trading
revenues, including interest income, were $7,585,090. The Partnership's total
expenses for the year were $4,806,886 resulting in net income of $2,778,204. The
value of an individual unit in the Partnership increased from $2,508.68 at
December 31, 1995 to $2,715.51 at December 31, 1996.
The Partnership's overall performance record represents varied results
of trading in different futures interests markets. For a further description of
1998 trading results, refer to the letter to the Limited Partners in the
accompanying Annual Report to Limited Partners for the year ended December 31,
1998, incorporated by reference in this Form 10-K. The Partnership's gains and
losses are allocated among its partners for income tax purposes.
Credit Risk. In entering into futures and forward contracts there is a
credit risk to the Partnership that the counterparty on a contract will not be
able to meet its obligations to the Partnership. The ultimate counterparty of
the Partnership for futures contracts traded in the United States and most
foreign exchanges on which the Partnership trades is the clearinghouse
associated with such exchange. In general, a clearinghouse is backed by the
membership of the exchange and will act in the event of non-performance by one
of its members or
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one of its member's customers, and, as such, should significantly reduce this
credit risk. For example, a clearinghouse may cover a default by (i) drawing
upon a defaulting member's mandatory contributions and/or non-defaulting
members' contributions to a clearinghouse guarantee fund, established lines or
letters of credit with banks, and/or the clearinghouse's surplus capital and
other available assets of the exchange and clearinghouse, or (ii) assessing its
members.
In cases where the Partnership trades on a foreign exchange where the
clearinghouse is not funded or guaranteed by the membership or where the
exchange is a "principals' market" in which performance is the responsibility of
the exchange member and not the exchange or a clearinghouse, or when the
Partnership enters into off-exchange-traded contracts with a counterparty, the
sole recourse of the Partnership will be the clearinghouse, the exchange member
or the off-exchange contract counterparty, as the case may be. There can be no
assurance that a clearinghouse, exchange or other exchange member will meet its
obligations to the Partnership, and the Partnership is not indemnified against a
default by such parties from Demeter, MSDW or DWR.
Further, the law is unclear as to whether a commodity broker has any
obligation to protect its customers from loss in the event of an exchange,
clearinghouse or other exchange member default on trades effected for the
broker's customers. Any such obligation on the part of
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the broker appears even less clear where the default occurs in a non-US
jurisdiction.
Demeter deals with the credit risks of all partnerships for which it
serves as general partner in several ways. First, it monitors the Partnership's
credit exposure to each exchange on a daily basis, calculating not only the
amount of margin required for it but also the amount of its unrealized gains at
each exchange, if any. The commodity brokers inform the Partnership, as with all
their customers, of its net margin requirements for all its existing open
positions, but do not break that net figure down, exchange by exchange. Demeter,
however, has installed a system which permits it to monitor the Partnership's
potential margin liability, exchange by exchange. Demeter is then able to
monitor the Partnership's potential net credit exposure to each exchange by
adding the unrealized trading gains on that exchange, if any, to the
Partnership's margin liability thereon.
Second, the Partnership's trading policies limit the amount of its net
assets that can be committed at any given time to futures contracts and require,
in addition, a certain minimum amount of diversification in the Partnership's
trading, usually over several different products. One of the aims of such
trading policies has been to reduce the credit exposure of the Partnership to a
single exchange and, historically, the Partnership's exposure has typically
amounted to only a small percentage of its total net assets. On those relatively
few occasions where the
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Partnership's credit exposure may climb above that level, Demeter deals with the
situation on a case by case basis, carefully weighing whether the increased
level of credit exposure remains appropriate.
Third, Demeter has secured, with respect to Carr acting as the clearing
broker for the Partnership, a guarantee by Credit Agricole Indosuez, Carr's
parent, of the payment of the "net liquidating value" of the transactions
(futures, options and forward contracts) in the Partnership's account.
With respect to forward contract trading, the Partnership trades with
only those counterparties which Demeter, together with DWR, have determined to
be creditworthy. At the date of this filing, the Partnership deals only with
Carr as its counterparty on forward contracts. The guarantee by Carr's parent,
discussed above, covers these forward contracts.
See "Financial Instruments" under Notes to Financial Statements in the
Partnership's Annual Report to Limited Partners for the year ended December 31,
1998, incorporated by reference in this Form 10-K.
Year 2000 Problem. 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".
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The Partnership could be adversely affected if computer systems used by it or
any third party with whom it has 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 adversely affect the handling or
determination of futures trades and prices and other services.
MSDW began its planning for the Year 2000 Problem in 1995, and
currently has several hundred employees working on the matter. 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 coordinating with MSDW to address
the Year 2000 Problem with respect to Demeter's computer systems that affect the
Partnership. This includes hardware and software upgrades, systems consulting
and computer maintenance.
Beyond the challenge facing internal computer systems, the systems
failure of any of the third parties with whom the Partnership has a material
relationship - the futures exchanges and clearing organizations through which it
trades, Carr, or the Trading Advisors - could result in a material financial
risk to the Partnership. All U.S. futures exchanges are subject to monitoring by
the CFTC of their Year 2000 preparedness and the major foreign futures exchanges
are also expected
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to be subject to market-wide testing of their Year 2000
compliance during 1999. Demeter intends to monitor the progress of Carr and the
Trading Advisors throughout 1999 in their Year 2000 compliance and, where
applicable, to test its external interface with Carr and the Trading Advisors.
A worst case scenario would be one in which trading of contracts on
behalf of the Partnership becomes impossible as a result of the Year 2000
Problem encountered by any third parties. A less catastrophic but more likely
scenario would be one in which trading opportunities diminish as a result of
technical problems resulting in illiquidity and fewer opportunities to make
profitable trades. MSDW has begun developing various "contingency plans" in the
event that the systems of such third parties fail. Demeter intends to consult
closely with MSDW in implementing those plans. Despite the best efforts of both
Demeter and MSDW, however, it is possible that these steps will not be
sufficient to avoid any adverse impact to the Partnership.
Risks Associated With the Euro. On January 1, 1999, eleven countries in
the European Union established fixed conversion rates on their existing
sovereign currencies and converted to a common single currency (the "euro").
During a three-year transition period, the sovereign currencies will continue to
exist but only as a fixed denomination of the euro. Conversion to the euro
prevents the Trading Advisors from trading in certain currencies and thereby
limits their
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ability to take advantage of potential market opportunities that might otherwise
have existed had separate currencies been available to trade. This could
adversely affect the performance results of the Partnership.
Item 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
Introduction
The Partnership is a commodity pool engaged primarily in the
speculative trading of futures interests. The market sensitive instruments held
by the Partnership are acquired solely for speculative trading purposes and, as
a result, all or substantially all of the Partnership's assets are subject to
the risk of trading loss. Unlike an operating company, the risk of market
sensitive instruments is integral, not incidental, to the Partnership's primary
business activities.
The futures interests traded by the Partnership involve varying degrees
of related market risk. Such market risk is often dependent upon changes in the
level or volatility of interest rates, exchange rates, and/or market values of
financial instruments and commodities. Fluctuations in related market risk based
upon the aforementioned factors result in frequent changes in the fair value of
the Partnership's open positions, and, consequently, in its earnings and cash
flow.
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The Partnership's total market risk is influenced by a wide variety of
factors, including the diversification effects among the Partnership's existing
open positions, the volatility present within the market(s) and the liquidity of
the market(s). At varying times, each of these factors may act to exacerbate or
mute the market risk associated with the Partnership.
The Partnership's past performance is not necessarily indicative of its
future results. Any attempt at quantifying the Partnership's market risk must be
qualified by the inherent uncertainty of its speculative trading, which may
cause future losses and volatility (i.e. "risk of ruin") far in excess of the
Partnership's experience to date and/or any reasonable expectation premised upon
historical changes in the fair value of its market sensitive instruments.
Quantifying the Partnership's Trading Value at Risk
The following quantitative disclosures regarding the Partnership's
market risk exposures contain "forward-looking statements" within the meaning of
the safe harbor from civil liability provided for such statements by the Private
Securities Litigation Reform Act of 1995 (set forth in Section 27A of the
Securities Act of 1933 and Section 21E of the Securities Exchange Act of 1934).
All quantitative disclosures in this section are
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deemed to be forward-looking statements for purposes of the safe harbor, except
for statements of historical fact.
The Partnership accounts for open positions on the basis of
mark-to-market accounting principles. As such, any loss in the fair value of the
Partnership's open positions is directly reflected in the Partnership's
earnings, whether realized or unrealized, and the Partnership's cash flow, as
profits and losses on open positions of exchange-traded futures interests are
settled daily through variation margin.
The Partnership's risk exposure in the various market sectors traded by
the Trading Advisors is estimated below in terms of Value at Risk ("VaR"). The
VaR model employed by the Partnership incorporates numerous variables that could
impact the fair value of the Partnership's trading portfolio. The Partnership
estimates VaR using a model based on historical simulation with a confidence
level of 99%. Historical simulation involves constructing a distribution of
hypothetical daily changes in trading portfolio value. The VaR model generally
takes into account linear exposures to price and interest rate risk. Market
risks that are incorporated in the VaR model include equity and commodity
prices, interest rates, foreign exchange rates, as well as correlation that
exists among these variables. The hypothetical changes in portfolio value are
based on daily observed percentage changes in key
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market indices or other market factors ("market risk factors") to which the
portfolio is sensitive. In the case of the Partnership's VaR, the historical
observation period is approximately four years. The Partnership's one-day 99%
VaR corresponds to the negative change in portfolio value that, based on
observed market risk factor moves, would have been exceeded once in 100 trading
days.
VaR models such as the Partnership's are continually evolving as
trading portfolios become more diverse and modeling techniques and systems
capabilities improve. It must also be noted that the VaR model is used to
quantify market risk for historic reporting purposes only and is not utilized by
either Demeter or the Trading Advisors in their daily risk management
activities.
The Partnership's Value at Risk in Different Market Sectors
The following table indicates the VaR associated with the Partnership's
open positions as a percentage of total net assets by market category as of
December 31, 1998. As of December 31, 1998, the Partnership's total
capitalization was approximately $40 million.
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Primary Market December 31, 1998
Risk Category Value at Risk
------------- -------------
Interest Rate (1.32)%
Currency (.72)%
Equity (.91)%
Commodity (.73)%
Aggregate Value at Risk (1.61)%
Aggregate value at risk represents the aggregate VaR of the
Partnership's open positions and not the sum of the VaR of the individual
categories listed above. Aggregate VaR will be lower as it takes into account
correlation among different positions and categories.
The table above represents the VaR of the Partnership's open positions
at December 31, 1998 only and is not necessarily representative of either the
historic or future risk of an investment in the Partnership. As the
Partnership's sole business is the speculative trading of primarily futures
interests, the composition of its portfolio of open positions can change
significantly over any given time period or even within a single trading day.
Such changes in open positions could materially impact market risk as measured
by VaR either positively or negatively.
The table below supplements the year end VaR by presenting the
Partnership's high, low and average VaR as a percentage of total net
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assets for the four quarterly reporting periods from January 1, 1998 through
December 31, 1998.
Primary Market Risk Category High Low Average
- ---------------------------- ---- --- -------
Interest Rate (1.74)% (.63)% (1.20)%
Currency (1.75)% (.72)% (1.09)%
Equity (.94)% (.08)% (.64)%
Commodity (.93)% (.66)% (.75)%
Aggregate Value at Risk (2.24)% (1.61)% (1.95)%
Limitations on Value at Risk as an Assessment of Market Risk
The face value of the market sector instruments held by the Partnership
is typically many times the applicable margin requirements, as such margin
requirements generally range between 2% and 15% of contract face value.
Additionally, due to the use of leverage, the face value of the market sector
instruments held by the Partnership is typically many times the total
capitalization of the Partnership. The financial magnitude of the Partnership's
open positions thus creates a "risk of ruin" not typically found in other
investment vehicles. Due to the relative size of the positions held, certain
market conditions may cause the Partnership to incur losses greatly in excess of
VaR within a short period of time. The foregoing VaR tables, as well as the past
performance of the Partnership, gives no indication of such "risk of ruin".
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<PAGE>
In addition, VaR risk measures should be interpreted in light of the
methodology's limitations, which include the following: past changes in market
risk factors will not always yield accurate predictions of the distributions and
correlations of future market movements; changes in portfolio value in response
to market movements may differ from the responses implicit in a VaR model;
published VaR results reflect past trading positions while future risk depends
on future positions; VaR using a one-day time horizon does not fully capture the
market risk of positions that cannot be liquidated or hedged within one day; and
the historical market risk factor data used for VaR estimation may provide only
limited insight into losses that could be incurred under certain unusual market
movements.
The foregoing VaR tables present the results of the Partnership's VaR
for each of the Partnership's market risk exposures and on an aggregate basis at
December 31, 1998 and for the end of quarter periods during calendar 1998. Since
VaR is based on historical data, VaR should not be viewed as predictive of the
Partnership's future financial performance or its ability to manage and monitor
risk and there can be no assurance that the Partnership's actual losses on a
particular day will not exceed the VaR amounts indicated below or that such
losses will not occur more than 1 in 100 trading days.
- 24 -
<PAGE>
Non-Trading Risk
The Partnership has non-trading market risk on its foreign cash
balances not needed for margin. However, such balances, as well as any market
risk they may represent, are immaterial. The Partnership also maintains a
substantial portion (approximately 87%) of its available assets in cash at DWR.
A decline in short-term interest rates will result in a decline in the
Partnership's cash management income. This cash flow risk is not considered
material.
Materiality, as used throughout this section, is based on an assessment
of reasonably possible market movements and the potential losses caused by such
movements, taking into account the leverage, optionality and multiplier features
of the Partnership's market sensitive instruments.
Qualitative Disclosures Regarding Primary Trading Risk Exposures
The following qualitative disclosures regarding the Partnership's
market risk exposures - except for (i) those disclosures that are statements of
historical fact and (ii) the descriptions of how the Partnership manages its
primary market risk exposures - constitute forward-looking statements within the
meaning of Section 27A of the Securities Act and Section 21E of the Securities
Exchange Act. The Partnership's primary market risk exposures as well as the
strategies used and to be used by Demeter and the Trading Advisors for managing
such exposures are subject to numerous uncertainties, contingencies and risks,
any one of which
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<PAGE>
could cause the actual results of the Partnership's risk controls to differ
materially from the objectives of such strategies. Government interventions,
defaults and expropriations, illiquid markets, the emergence of dominant
fundamental factors, political upheavals, changes in historical price
relationships, an influx of new market participants, increased regulation and
many other factors could result in material losses as well as in material
changes to the risk exposures and the risk management strategies of the
Partnership. Investors must be prepared to lose all or substantially all of
their investment in the Partnership. The following were the primary trading risk
exposures of the Partnership as of December 31, 1998, by market sector. It may
be anticipated, however, that these market exposures will vary materially over
time.
Interest Rate. Interest rate risk is the principal market exposure of
the Partnership. Interest rate movements directly affect the price of the
sovereign bond futures positions held by the Partnership and indirectly the
value of its stock index and currency positions. Interest rate movements in one
country as well as relative interest rate movements between countries materially
impact the Partnership's profitability. The Partnership's primary interest rate
exposure is to interest rate fluctuations in the United States and the other G-7
countries. However, the Partnership also takes futures positions in the
government debt of smaller nations - e.g. New Zealand and Australia.
- 26 -
<PAGE>
Demeter anticipates that G-7 interest rates will remain the primary
market exposure of the Partnership for the foreseeable future. The changes in
interest rates which have the most effect on the Partnership are changes in
long-term, as opposed to short-term, rates. Most of the speculative futures
positions held by the Partnership are in medium-to-long term instruments.
Consequently, even a material change in short-term rates would have little
effect on the Partnership were the medium-to-long term rates to remain steady.
Currency. The Partnership's currency exposure is to exchange rate
fluctuations, primarily fluctuations which disrupt the historical pricing
relationships between different currencies and currency pairs. These
fluctuations are influenced by interest rate changes as well as political and
general economic conditions. The Partnership trades in a large number of
currencies, including cross-rates - i.e., positions between two currencies other
than the U.S. dollar. However, the Partnership's major exposures have typically
been in the dollar/yen, dollar/mark and dollar/pound positions. Demeter does not
anticipate that the risk profile of the Partnership's currency sector will
change significantly in the future, although it is difficult at this point to
predict the effect of the introduction of the Euro on the Trading Advisors'
currency trading strategies.
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<PAGE>
Equity. The Partnership's primary equity exposure is to equity price
risk in the G-7 countries. The stock index futures traded by the Partnership are
by law limited to futures on broadly based indices. As of December 31, 1998, the
Partnership's primary exposures were in the S&P 500, Financial Times (England),
and NASDAQ 100 stock indices. Demeter anticipates little, if any, trading in
non-G-7 stock indices. The Partnership is primarily exposed to the risk of
adverse price trends or static markets in the major U.S., European and Japanese
indices. (Static markets would not cause major market changes but would make it
difficult for the Partnership to avoid being "whipsawed" into numerous small
losses).
Commodity.
Metals. The Partnership's primary metals market exposure is to
fluctuations in the price of gold and silver. Although certain of the Trading
Advisors will from time to time trade base metals such as aluminum, copper,
nickel, zinc and lead, the principal market exposures of the Partnership have
consistently been in the precious metals, gold and silver (and, to a much lesser
extent, platinum). The Trading Advisor's gold trading has been increasingly
limited due to the long-lasting and mainly non-volatile decline in the price of
gold over the last 10-15 years. However, silver prices have remained volatile
over this period, and the Trading Advisors have from time to time taken
substantial positions as they have perceived market opportunities to
- 28 -
<PAGE>
develop. Demeter anticipates that gold and silver will remain the primary metals
market exposure for the Partnership.
Soft Commodities. One of the Partnership's primary commodities exposure
is to fluctuations in the price of soft commodities, which are often directly
affected by severe or unexpected weather conditions. Grains, soybean oil and
sugar accounted for the substantial bulk of the Partnership's commodities
exposure at December 31, 1998. In the past the Partnership has had material
market exposure to live cattle and hogbellies and may do so again in the future.
However, Demeter anticipates that the Trading Advisors will maintain an emphasis
on grains, soybean oil and sugar, in which the Partnership has historically
taken it's largest positions.
Energy. The Partnership's primary energy market exposure is to gas and
oil price movements, often resulting from political developments in the Middle
East. Although the Trading Advisors trade natural gas to a limited extent, oil
is by far the dominant energy market exposure of the Partnership. Oil prices are
currently depressed, but they can be volatile and substantial profits and losses
have been and are expected to continue to be experienced in this market.
Qualitative Disclosures Regarding Non-Trading Risk Exposure
The following was the only non-trading risk exposure of the Partnership
at December 31, 1998.
- 29 -
<PAGE>
Foreign Currency Balances. The Partnership's primary foreign currency
balances are in Japanese yen, German marks, British pounds, French francs and
euros. The Partnership controls the non-trading risk of these balances by
regularly converting these balances back into U.S. dollars at varying intervals,
depending upon such factors as size, volatility, etc.
Qualitative Disclosures Regarding Means of Managing Risk Exposure
The means by which the Partnership and the Trading Advisors, severally,
attempt to manage the risk of the Partnership's open positions are essentially
the same in all market categories traded. Demeter attempts to manage the
Partnership's market exposure by (i) diversifying the Partnership's assets among
different Trading advisors, each of whose strategies focus on market sectors and
trading approaches, and (ii), monitoring the performance of the Trading Advisors
on a daily basis. In addition, the Trading Advisors establish diversification
guidelines, often set in terms of the maximum margin to be committed to
positions in any one market sector or market sensitive instrument. One should be
aware that certain Trading Advisors treat their risk control policies as strict
rules, whereas others treat such policies as general guidelines.
Demeter monitors and controls the risk of the Partnership's non-trading
instrument, cash, which is the only Partnership investment directed by Demeter,
rather than the Trading Advisors.
- 30 -
<PAGE>
Item 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
The information required by this Item appears in the Annual Report to
Limited Partners for the year ended December 31, 1998 and is incorporated by
reference in this Annual Report on Form 10-K.
Item 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON
ACCOUNTING AND FINANCIAL DISCLOSURE
None.
- 31 -
<PAGE>
PART III
Item 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
There are no directors or executive officers of the Partnership. The
Partnership is managed by Demeter.
Directors and Officers of the General Partner
The directors and officers of Demeter are as follows:
Mark J. Hawley, age 55, is Chairman of the Board and a Director of
Demeter. Mr. Hawley is also Chairman of the Board and a Director of DWFCM. Mr.
Hawley previously served as President of Demeter throughout 1998. 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.
Joseph G. Siniscalchi, age 53, is a Director of Demeter. Mr.
Siniscalchi joined DWR in July 1984 as a First Vice President, Director of
General Accounting and served as a Senior Vice President and
- 32 -
<PAGE>
Controller for DWR's Securities Division through 1997. He is currently Executive
Vice President and Director of the Operations 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 Demeter. 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.
Robert E. Murray, age 38, is President and a Director of Demeter. Mr.
Murray is also President and a Director of DWFCM. Effective as of the close of
business December 31, 1998, Mr. Murray replaced Mr. Hawley as President of
Demeter. Mr. Murray is also 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
- 33 -
<PAGE>
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, Chief Financial
Officer and a Director of Demeter. Effective as of the close of business on
December 31, 1998, Mr. Raibley was elected to Demeter's Board of Directors. 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. He has been with MSDW and its affiliates since June 1986.
Mitchell M. Merin, age 45, became a Director of Demeter on March 17,
1999. Mr. Merin was appointed the Chief Operating Officer of Asset Management
for MSDW in December 1998 and the President and Chief Executive Officer of
Morgan Stanley Dean Witter Advisors in February 1998. He has been an Executive
Vice President of DWR since 1990, during which time he has been director of
DWR's Taxable Fixed Income and Futures divisions, managing director in Corporate
Finance and corporate treasurer. Mr. Merin received his Bachelor's degree from
Trinity
- 34 -
<PAGE>
College in Connecticut and his M.B.A. degree in finance and accounting from the
Kellogg Graduate School of Management of Northwestern University in 1977.
Richard A. Beech, age 47, became a Director of Demeter on March 17,
1999. Mr. Beech has been associated with the futures industry for over 23 years.
He has been at DWR since August 1984 where he is presently Senior Vice President
and head of Branch Futures. Mr. Beech began his career at the Chicago Mercantile
Exchange, where he became the Chief Agricultural Economist doing market
analysis, marketing and compliance. Prior to joining DWR, Mr. Beech also had
worked at two investment banking firms in Operations, Research, Managed Futures
and Sales Management.
Ray Harris, age 42, became a Director of Demeter on March 17, 1999. Mr.
Harris is currently Senior Vice President, Planning and Administration for
Morgan Stanley Dean Witter Asset Management and has worked at DWR or its
affiliates since July 1982, serving in both financial and administrative
capacities. From August 1994 to January 1999, he worked in two separate DWR
affiliates, Discover Financial Services and Novus Financial Corp., culminating
as Senior Vice President. Mr. Harris received his B.A. degree from Boston
College and his M.B.A. in finance from the University of Chicago.
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<PAGE>
Richard M. DeMartini, age 46, previously served as the Chairman of the
Board and as a Director of Demeter throughout 1998. Effective as of the close of
business on December 31, 1998, Mr. DeMartini resigned as the Chairman of the
Board and as a Director of Demeter due to changes in his responsibilities within
MSDW.
Lawrence Volpe, age 51, served as a Director to Demeter throughout
1998. Effective as of the close of business on December 31, 1998, Mr. Volpe
resigned as a Director of Demeter.
Patti L. Behnke, age 38, served as Vice President and Chief Financial
Officer of Demeter through May 1998. Effective June 1, 1998, Ms. Behnke resigned
as Vice President and Chief Financial Officer of Demeter in order to take on new
responsibilities as Operations Officer - Controllers Division for MSDW, and was
replaced by Mr. Raibley.
Item 11. EXECUTIVE COMPENSATION
The Partnership has no directors and executive officers. As a limited
partnership, the business of the Partnership is managed by Demeter, which is
responsible for the administration of the business affairs of the Partnership
but receives no compensation for such services.
- 36 -
<PAGE>
Item 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
(a) Security Ownership of Certain Beneficial Owners - As of December
31, 1998 there were no persons known to be beneficial owners of more than 5
percent of the Units.
(b) Security Ownership of Management - At December 31, 1998, Demeter
owned 142.103 Units of General Partnership Interest representing a 1.15 percent
interest in the Partnership.
(c) Changes in Control - None
Item 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
Refer to Note 2 - "Related Party Transactions" of "Notes to Financial
Statements," in the accompanying Annual Report to Limited Partners for the year
ended December 31, 1998, incorporated by reference in this Form 10-K. In its
capacity as the Partnership's retail commodity broker, DWR received commodity
brokerage commissions (paid and accrued by the Partnership) of $2,088,096 for
the year ended December 31, 1998.
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<PAGE>
PART IV
Item 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON FORM 8-K
(a) 1. Listing of Financial Statements
The following financial statements and report of independent auditors,
all appearing in the accompanying Annual Report to Limited Partners for the year
ended December 31, 1998, are incorporated by reference in this Form 10-K:
- Report of Deloitte & Touche LLP, independent auditors, for the
years ended December 31, 1998, 1997 and 1996.
- Statements of Financial Condition as of December 31, 1998 and
1997.
- Statements of Operations, Changes in Partners' Capital, and
Cash Flows for the years ended December 31, 1998, 1997 and
1996.
- Notes to Financial Statements.
With the exception of the aforementioned information and the
information incorporated in Items 7, 8, and 13, the Annual Report to Limited
Partners for the year ended December 31, 1998 is not deemed to be filed with
this report.
2. Listing of Financial Statement Schedules
No financial statement schedules are required to be filed with this
report.
(b) Reports on Form 8-K
No reports on Form 8-K have been filed by the Partnership during the
last quarter of the period covered by this report.
(c) Exhibits
Refer to Exhibit Index on Page E-1.
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<PAGE>
SIGNATURES
Pursuant to the requirements of Sections 13 or 15(d) of the Securities
Exchange Act of 1934, the registrant has duly caused this report to be signed on
its behalf by the undersigned, thereunto duly authorized.
DEAN WITTER CORNERSTONE FUND III
(Registrant)
BY: Demeter Management Corporation,
General Partner
March 25, 1999 BY: /s/ Robert E. Murray
-----------------------------------
Robert E. Murray, Director and
President
Pursuant to the requirements of the Securities Exchange Act of 1934,
this report has been signed below by the following persons on behalf of the
registrant and in the capacities and on the dates indicated.
Demeter Management Corporation.
BY: /s/ Robert E. Murray March 25, 1999
-----------------------------------------
Robert E. Murray, Director
and President
/s/ Mark J. Hawley March 25, 1999
-----------------------------------------
Mark J. Hawley, Director and
Chairman of the Board
/s/ Joseph G. Siniscalchi March 25, 1999
----------------------------------------
Joseph G. Siniscalchi, Director
/s/ Edward C. Oelsner III March 25, 1999
----------------------------------------
Edward C. Oelsner III, Director
/s/ Mitchell M. Merin March 25, 1999
----------------------------------------
Mitchell M. Merin, Director
/s/ Richard A. Beech March 25, 1999
----------------------------------------
Richard A. Beech, Director
/s/ Ray Harris March 25, 1999
----------------------------------------
Ray Harris, Director
/s/ Lewis A. Raibley, III March 25, 1999
-----------------------------------------
Lewis A. Raibley, III, Director, Chief
Financial Officer and Principal
Accounting Officer
- 39 -
<PAGE>
EXHIBIT INDEX
ITEM METHOD OF FILING
- - 3.01 Limited Partnership Agreement of
the Partnership, dated as of
December 7, 1983, as amended as
of May 11, 1984. (1)
- -10.01 Management Agreement among the
Partnership, Demeter and Sunrise
Commodities Inc. (former name of
Sunrise Capital Management Inc.),
dated as of November 15, 1983. (2)
- -10.02 Management Agreement among the
Partnership, Demeter and Welton
Investment Systems Corporation
dated as of July 1, 1996 (4)
- -10.03 Management Agreement among the
Partnership, Demeter and Abraham
Trading Co. dated as of July
1, 1996 (4)
- -10.04 Dean Witter Cornerstone Funds
Exchange Agreement, dated as of
May 31, 1984. (3)
- -10.05 Amended and Restated Customer
Agreement, dated as of December
1, 1997, between the Partnership
and Dean Witter Reynolds Inc. is
filed herewith (5)
- -10.06 Customer Agreement, dated as of
December 1, 1997, among the
Partnership, Carr Futures, Inc.
and Dean Witter Reynolds Inc.
is filed herewith (5)
- -10.07 International Foreign Exchange Master
Agreement, dated as of August 1, 1997,
between the Partnership and Carr
Futures, Inc. is filed herewith (5)
- -13.01 Annual Report to Limited Partners
for the year ended December 31, 1998. (5)
(1) Incorporated by reference to Exhibit 3.01 to Partnership's Annual
Report on Form 10-K for the fiscal year ended September 30, 1984 (File
No. 0-13299).
(2) Incorporated by reference to Exhibit 10.03 to the Partnership's Annual
Report on Form 10-K for the fiscal year ended September 30, 1984 (File
No. 0-13299).
(3) Incorporated by reference to Exhibit 10.06 to the Partnership's Annual
Report on Form 10-K for the fiscal year ended September 30, 1984 (File
No. 0-13299).
(4) Incorporated by reference to Exhibit 10 Annual Report on Form 10-K for
the fiscal year ended December 31, 1997 (File No. 0-13299).
(5) Filed herewith.
E-1
Exhibit 10.05
AMENDED AND RESTATED CUSTOMER AGREEMENT
THIS AMENDED AND RESTATED CUSTOMER AGREEMENT (this "Agreement"), made as of
the 1st day of December, 1997, by and between DEAN WITTER CORNERSTONE FUND III,
a New York limited partnership (the "Customer"), and DEAN WITTER REYNOLDS INC.,
a Delaware corporation ("DWR");
W I T N E S S E T H :
WHEREAS, the Customer was organized pursuant to a Certificate of Limited
Partnership filed in the office of the County Clerk of New York on
December 7, 1983, as amended, and a Limited Partnership Agreement dated as of
December 7, 1983, as amended, between Demeter Management Corporation, a Delaware
corporation ("Demeter"), acting as general partner (in such capacity, the
"General Partner"), and the limited partners of the Customer to trade, buy,
sell, or otherwise acquire, hold, or dispose of commodities (including, but not
limited, to foreign currencies, mortgage-backed securities, money market
instruments, and any other securities or items which are, or may become, the
subject of futures contract trading), commodity futures contracts, commodity
forward contracts, commodity options, and any rights pertaining thereto
(hereinafter referred to collectively as "commodity interests");
WHEREAS, the Customer (which is a commodity pool) and the General Partner
(which is a registered commodity pool operator) have entered into management
agreements (the "Management Agreements") with certain trading managers (each, a
"Trading Manager" and collectively, the "Trading Managers"), which provide that
the Trading Managers have authority and responsibility, except in certain
limited situations, to direct the investment and reinvestment of the assets of
the Customer in commodity interests under the terms set forth in the Management
Agreements;
WHEREAS, the Customer and DWR entered into that certain Amended and
Restated Customer Agreement, dated as of September 1, 1996 (the "Customer
Agreement"), whereby DWR agreed to perform commodity interests brokerage and
certain other services for the Customer; and
WHEREAS, the Customer and DWR wish to amend and restate the Customer
Agreement to set forth the terms and conditions upon which DWR will continue to
perform certain non-clearing commodity interests brokerage and certain other
services for the Customer;
NOW, THEREFORE, the parties hereto hereby agree as follows:
1. Definitions. All capitalized terms not defined herein shall have the
meaning given to them in the Customer's most recent prospectus as filed with the
Securities and Exchange Commission (the "Prospectus") relating to the offering
of units of limited partnership interest of the Customer (the "Units") and in
any amendment or supplement to the Prospectus.
2. Duties of DWR. DWR agrees to act as a non-clearing commodity broker for
the Customer and introduce the Customer's account to Carr Futures, Inc. ("CFI")
for execution and clearing of commodity interests transactions on behalf of the
Customer in accordance with instructions provided by the Trading Managers, and
the Customer agrees to retain DWR as a non-clearing commodity broker for the
term of this Agreement.
DWR agrees to furnish to the Customer as soon as practicable all of the
information from time to time in its possession which Demeter, as the general
partner of the Customer, is required to furnish to the Limited Partners pursuant
to the Limited Partnership Agreement as from time to time in effect and as
required by applicable law, rules, or regulations and to perform such other
services for the Customer as are set forth herein and in the Prospectus.
3. Obligations and Expenses. Except as otherwise set forth herein and in
the Prospectus, the Customer, and not DWR, shall be responsible for all taxes,
management and incentive fees to the Trading Managers, brokerage fees to DWR,
fees and expenses specified in the Exchange Agreement among the Customer, Dean
Witter Cornerstone Fund II, Dean Witter Cornerstone Fund IV and the General
Partner, dated as of May 31, 1984, and as amended, and all extraordinary
expenses incurred by it. In addition, the Customer, and not DWR, shall pay the
charges of CFI for executing and clearing its commodity interests trades (as
described in paragraph 5(b) below).
4. Agreement Nonexclusive. DWR shall be free to render services of the
nature to be rendered to the Customer hereunder to other persons or entities in
addition to the Customer, and the parties acknowledge that DWR may render such
services to additional entities similar in nature to the Customer, including
other partnerships organized with Demeter as their general partner. It is
expressly understood and agreed that this Agreement is nonexclusive and that the
Customer has no obligation to execute any or all of its trades for commodity
interests through DWR. The parties acknowledge that the Customer may utilize
such other broker or brokers as Demeter may direct from time to time. The
Customer's utilization of an additional commodity broker shall neither terminate
this Agreement nor modify in any regard the respective rights and obligations of
the Customer and DWR hereunder.
5. (a) Compensation of DWR. The Customer will pay brokerage commissions to
DWR at a roundturn rate (but charged on a half-turn basis) of 80% of DWR's
published non-member rates for speculative accounts (which covers both the
taking and liquidation of a position), and substantially equivalent rates for
currency forward contract transactions in the forward contract and interbank
markets.
The Customer will pay DWR brokerage commissions for currency forward
contract transactions at rates established with reference to the brokerage
commission rate charged on exchange-traded currency futures contracts. DWR may
from time to time adjust the United States dollar size of currency forward
contracts so that the brokerage commission rate charged on such contracts will
approximate the rate charged on exchange-traded currency futures contracts of
similar United States dollar value. DWR shall also charge the Partnership
brokerage commissions for rollovers of forward contract positions.
(b) Compensation of CFI. The Customer will pay certain charges of CFI for
executing and clearing trades for the Customer pursuant to that
certain Customer Agreement dated as of December 1, 1997, among the
Customer, CFI and DWR. In addition, DWR shall pay CFI certain charges
with respect to the execution and clearance of trades for the Customer
as agreed from time to time between DWR and CFI.
(c) Notwithstanding the foregoing, brokerage commissions, together with
transaction fees and costs including those paid by the Customer to
CFI, with respect to each Trading Manager's allocated Net Assets will
be capped at 13/20 of 1% per month (in the case of Trading Managers
that employ multiple trading systems in trading on behalf of the
Customer, the foregoing cap is applied on a per trading system basis)
of the Customer's Net Assets allocated to such Trading Manager or
trading system as of the last day of each month (a maximum 7.8% annual
rate). In addition, the aggregate of (i) brokerage commissions and
transaction fees and costs payable by the Customer, and (ii) net
excess interest and compensating balance benefits to DWR (after
crediting the Customer with interest) shall not exceed 14% annually of
the Customer's average month-end Net Assets during each calendar year.
(d) From time to time, DWR may increase or decrease brokerage fees to
be charged to the Customer; provided, however, 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; and (ii) such notice shall
describe the redemption and voting rights of Limited Partners.
6. Investment Discretion. The parties recognize that DWR shall have no
authority to direct the commodity interests investments to be made for the
Customer's account. However, the parties agree that DWR, and not the Trading
Managers, shall have the authority and responsibility with regard to the
investment, maintenance, and management of the Customer's assets that are held
in segregated or secured accounts, as provided in Section 7 hereof.
7. Investment of Customer Funds. The Customer shall deposit its assets in
accounts with DWR. The Customer's assets deposited with DWR will be segregated
or secured in accordance with the Commodity Exchange Act and CFTC regulations.
The Customer's assets deposited with DWR will be held in non-interest bearing
accounts or invested in securities approved for investment by the CFTC for
investment of customer funds. In any event, DWR will credit the Customer with
interest income at month-end in an amount equal to 80% of the Customer's average
daily Net Assets at a rate equal to the average yield on 13-week U.S. Treasury
Bills issued during such month. All of such funds will be available for margin
for the Customer's trading. The Customer understands that it will not receive
any other interest income on its assets and that DWR will receive interest
income from CFI, as agreed from time to time by DWR and CFI, on the Customer's
assets deposited as margin with CFI. The Customer's assets held by DWR may be
used solely as margin for the Customer's trading.
Ownership of the right to receive interest on the Customer's assets
pursuant to the preceding paragraph shall be reflected and maintained and may be
transferred only on the books and records of DWR. Any purported transfer of such
ownership shall not be effective or recognized until such transfer shall have
been recorded on the books and records of DWR.
8. Standard of Liability and Indemnity. DWR and its stockholder, directors,
officers, employees, and its or their respective successors or assigns shall not
be liable to the Customer, the General Partner or the Limited Partners, or any
of its or their respective successors or assigns, except by reason of acts, or
omissions due to, bad faith, misconduct, or negligence, or for not having acted
in good faith in the reasonable belief that such acts or omissions were in, or
not opposed to, the best interests of the Customer, or by reason of any material
breach of this Agreement.
The Customer shall indemnify and hold harmless DWR and its stockholder,
directors, officers, employees, and its or their respective successors or
assigns from and against any loss, liability, damage, cost or expense (including
attorneys' and accountants' fees and expenses incurred in the defense of any
demands, claims, or lawsuits) actually and reasonably incurred arising from any
act, omission or conduct undertaken by DWR on behalf of the Customer pursuant to
this Agreement, including, without limitation, any demands, claims or lawsuits
initiated by a Limited Partner (or assignee thereof), provided that a court of
competent jurisdiction upon entry of final judgment shall find (or, if no final
judgment is entered, an opinion is rendered to the Customer by independent
counsel who shall be other than counsel to the Customer, the General Partner or
DWR) to the effect that the conduct that was the basis for such liability was
not the result of bad faith, misconduct, or negligence, and was done in a good
faith belief that it was in, or not opposed to, the best interests of the
Customer. Furthermore, in any action or proceeding brought by a Limited Partner
in the right of the Customer to which DWR is a party defendant, DWR shall be
indemnified only to the extent and subject to the conditions specified in the
New York Uniform Limited Partnership Act, as amended and in effect on the date
of the formation of the Customer.
DWR shall indemnify and hold harmless the Customer, the General Partner and
the Limited Partners, and its or their respective successors or assigns from and
against any loss, liability, damage, cost or expense (including attorneys' and
accountants' fees and expenses incurred in the defense of any demands, claims,
or lawsuits) actually and reasonably incurred arising from any act, omission or
conduct undertaken by DWR on behalf of the Customer pursuant to this Agreement,
provided that a court of competent jurisdiction upon entry of final judgment
shall find (or, if no final judgment is entered, by an opinion rendered to the
Customer by independent counsel who shall be other than counsel to the Customer,
the General Partner or DWR) to the effect that the conduct that was the basis
for such liability was the result of bad faith, misconduct, or negligence, or
was not done in a good faith belief that it was in, or not opposed to, the best
interests of the Customer, or was by reason of any material breach of this
Agreement by DWR.
The indemnities provided in this Section 8 by the Customer to DWR and its
stockholder, directors, officers, employees, and its or their respective
successors and assigns shall be inapplicable in the event of any liability
arising out of, or based upon, any material breach of any warranty, covenant, or
agreement of DWR contained in this Agreement to the extent caused by such event.
Likewise, the indemnities provided in this Section 8 by DWR to the Customer, the
General Partner and the Limited Partners, and any of its or their respective
successors and assigns shall be inapplicable in the event of any liability
arising out of, or based upon, any material breach of any warranty, covenant, or
agreement of the Customer contained in this Agreement to the extent caused by
such event.
9. Term. This Agreement shall continue in effect until terminated by either
party giving not less than 60 days' prior written notice of termination to the
other party. Any such termination by either party shall be without penalty.
10. Complete Agreement. This Agreement constitutes the entire agreement
between the parties with respect to the matters referred to herein, and no other
agreement, verbal or otherwise, shall be binding as between the parties unless
in writing and signed by the party against whom enforcement is sought.
11. Assignment. This Agreement may not be assigned by either party without
the express written consent of the other party.
12. Amendment. This Agreement may not be amended except by the written
consent of the parties.
13. Notices. All notices required or desired to be delivered under this
Agreement shall be in writing and shall be effective when delivered personally
on the day delivered, or when given by registered or certified mail, postage
prepaid, return receipt requested, on the day of receipt, addressed as follows
(or to such other address as the party entitled to notice shall hereafter
designate in accordance with the terms hereof):
if to the Customer:
DEAN WITTER CORNERSTONE FUND III
c/o Demeter Management Corporation
Two World Trade Center, 62nd Floor
New York, New York 10048
Attn: Mark J. Hawley
President
if to DWR:
DEAN WITTER REYNOLDS INC.
Two World Trade Center, 62nd Floor
New York, New York 10048
Attn: Mark J. Hawley
Executive Vice President
14. Survival. The provisions of this Agreement shall survive the
termination of this Agreement with respect to any matter arising while this
Agreement was in effect.
15. Headings. Headings of Sections herein are for the convenience of the
parties only and are not intended to be a part of or to affect the meaning or
interpretation of this Agreement.
16. Incorporation by Reference. The Futures Customer Agreement annexed
hereto is hereby incorporated by reference herein and made a part hereof to the
same extent as if such document were set forth in full herein. If any provision
of this Agreement is or at any time becomes inconsistent with the annexed
document, the terms of this Agreement shall control.
IN WITNESS WHEREOF, this Agreement has been executed for and on behalf of
the undersigned as of the day and year first above written.
DEAN WITTER CORNERSTONE FUND III
By: Demeter Management Corporation,
General Partner
By: /s/ Mark J. Hawley
-------------------------------
Mark J. Hawley
President
DEAN WITTER REYNOLDS INC.
By: /s/ Mark J. Hawley
-------------------------------
Mark J. Hawley
Executive Vice President
<PAGE>
FUTURES CUSTOMER AGREEMENT
In consideration of the acceptance by Dean Witter Reynolds Inc. ("DWR") of one
or more accounts of the undersigned ("Customer") (if more than one account is
carried by DWR, all are covered by this Agreement and are referred to
collectively as the "Account") and DWR's agreement to act as Customer's broker
for the execution, clearance and/or carrying of transactions for the purchase
and sale of commodity interests, including commodities, commodity futures
contracts and commodity options, Customer agrees as follows:
1. APPLICABLE RULES AND REGULATIONS - The Account and each transaction therein
shall be subject to the terms of this Agreement and to (a) all applicable
laws and the regulations, rules and orders (collectively "regulations") of
all regulatory and self-regulatory organizations having jurisdiction and
(b) the constitution, by-laws, rules, regulations, orders, resolutions,
interpretations and customs and usages (collectively "rules") of the market
and any associated clearing organization (each an "exchange") on or subject
to the rules of which such transaction is executed and/or cleared. The
reference in the preceding sentence to exchange rules is solely for DWR's
protection and DWR's failure to comply therewith shall not constitute a
breach of this Agreement or relieve Customer of any obligation or
responsibility under this Agreement. DWR shall not be liable to Customer as
a result of any action by DWR, its officers, directors, employees or agents
to comply with any rule or regulation.
2. PAYMENTS TO DWR - Customer agrees to pay to DWR immediately on request
(a) commissions, fees and service charges as are in effect from time to
time together with all applicable regulatory and self-regulatory
organization and exchange fees, charges and taxes; (b) the amount of any
debit balance or any other liability that may result from transactions
executed for the account; and (c) interest on such debit balance or
liability at the prevailing rate charged by DWR at the time such debit
balance or liability arises and service charges on any such debit balance
or liability together with any reasonable costs and attorney's fees
incurred in collecting any such debit balance or liability. Customer
acknowledges that DWR may charge commissions at other rates to other
customers.
3. CUSTOMER'S DUTY TO MAINTAIN ADEQUATE MARGIN - Customer shall at all times
and without prior notice or demand from DWR maintain adequate margins in
the account so as continually to meet the original and maintenance margin
requirements established by DWR for Customer. DWR may change such
requirements from time to time at DWR's discretion. Such margin
requirements may exceed the margin requirements set by any exchange or
other regulatory authority and may vary from DWR's requirements for other
customers. Customer agrees, when so requested, immediately to wire transfer
margin funds and to furnish DWR with names of bank officers for immediate
verification of such transfers. Customer acknowledges and agrees that DWR
may receive and retain as its own any interest, increment, profit, gain or
benefit directly or indirectly, accruing from any of the funds DWR receives
from Customer.
4. DELIVERY; OPTION EXERCISE
(a) Customer acknowledges that the making or accepting of delivery
pursuant to a futures contract may involve a much higher degree of
risk than liquidating a position by offset. DWR has no control over
and makes no warranty with respect to grade, quality or tolerances of
any commodity delivered in fulfillment of a contract.
(b) Customer agrees to give DWR timely notice and immediately on request
to inform DWR if Customer intends to make or take delivery under a
futures contract or to exercise an option contract. If so requested,
Customer shall provide DWR with satisfactory assurances that Customer
can fulfill Customer's obligation to make or take delivery under any
contract. Customer shall furnish DWR with property deliverable by it
under any contract in accordance with DWR's instructions.
(c) DWR shall not have any obligation to exercise any long option contract
unless Customer has furnished DWR with timely exercise instructions
and sufficient initial margin with respect to each underlying futures
contract.
5. FOREIGN CURRENCY - If DWR enters into any transaction for Customer effected
in a currency other than U.S. dollars: (a) any profit or loss caused by
changes in the rate of exchange for such currency shall be for Customer's
account and risk and (b) unless another currency is designated in DWR's
confirmation of such transaction, all margin for such transaction and the
profit or loss on the liquidation of such transaction shall be in U.S.
dollars at a rate of exchange determined by DWR in its discretion on the
basis of then prevailing market rates of exchange for such foreign
currency.
6. DWR MAY LIMIT POSITIONS HELD - Customer agrees that DWR, at its discretion,
may limit the number of open positions (net or gross) which Customer may
execute, clear and/or carry with or acquire through it. Customer agrees
(a) not to make any trade which would have the effect of exceeding such
limits, (b) that DWR may require Customer to reduce open positions carried
with DWR and (c) that DWR may refuse to accept orders to establish new
positions. DWR may impose and enforce such limits, reduction or refusal
whether or not they are required by applicable law, regulations or rules.
Customer shall comply with all position limits established by any
regulatory or self-regulatory organization or any exchange. In addition,
Customer agrees to notify DWR promptly if customer is required to file
position reports with any regulatory or self-regulatory organization or
with any exchange.
7. NO WARRANTY AS TO INFORMATION OR RECOMMENDATION - Customer acknowledges
that:
(a) Any market recommendations and information DWR may communicate to
Customer, although based upon information obtained from sources
believed by DWR to be reliable, may be incomplete and not subject to
verification;
(b) DWR makes no representation, warranty or guarantee as to, and shall
not be responsible for, the accuracy or completeness of any
information or trading recommendation furnished to Customer;
(c) recommendations to Customer as to any particular transaction at any
given time may differ among DWR's personnel due to diversity in
analysis of fundamental and technical factors and may vary from any
standard recommendation made by DWR in its market letters or
otherwise; and
(d) DWR has no obligation or responsibility to update any market
recommendations or information it communicates to Customer.
Customer understands that DWR and its officers, directors, affiliates,
stockholders, representatives or associated persons may have positions in and
may intend to buy or sell commodity interests which are the subject of market
recommendations furnished to Customer, and that the market positions of DWR or
any such officer, director, affiliate, stockholder, representative or associated
person may or may not be consistent with the recommendations furnished to
Customer by DWR.
8. LIMITS ON DWR DUTIES; LIABILITY - Customer agrees:
(a) that DWR has no duty to apprise Customer of news or of the value of
any commodity interests or collateral pledged or in any way to advise
Customer with respect to the market;
(b) that the commissions which DWR receives are consideration solely for
the execution, reporting and carrying of Customer's trades;
(c) that if Customer has authorized any third party or parties to place
orders or effect transactions on behalf of Customer in any Account,
each such party has been selected by Customer based on its own
evaluation and assessment of such party and that such party is solely
the agent of Customer, and if any such party allocates commodity
interests among its customers, Customer has reviewed each such party's
commodity interest allocation system, has satisfied itself that such
allocation system is fair and will seek recovery solely from such
party to recover any damages sustained by Customer as the result of
any allocation made by such party; and
(d) to waive any and all claims, rights or causes of action which Customer
has or may have against DWR or its officers, employees and agents
(i) arising in whole or in part, directly or indirectly, out of any
act or omission of any person, whether or not legally deemed an agent
of DWR, who refers or introduces Customer to DWR or places orders for
Customer and (ii) for any punitive damages and to limit any claims
arising out of this Agreement or the Account to Customer's direct
out-of-pocket damages.
9. EXTRAORDINARY EVENTS - Customer shall have no claim against DWR for any
loss, damage, liability, cost, charge, expense, penalty, fine or tax caused
directly or indirectly by (a) governmental, court, exchange, regulatory or
self-regulatory organization restrictions, regulations, rules, decisions or
orders, (b) suspension or termination of trading, (c) war or civil or labor
disturbance, (d) delay or inaccuracy in the transmission or reporting of
orders due to a breakdown or failure of computer services, transmission or
communication facilities, (e) the failure or delay by any exchange to
enforce its rules or to pay to DWR any margin due in respect of Customer's
Account, (f) the failure or delay by any bank, trust company, clearing
organization or other person which, pursuant to applicable exchange rules,
is holding Customer funds, securities or other property to pay or deliver
the same to DWR or (g) any other cause or causes beyond DWR's control.
10. INDEMNIFICATION OF DWR - Customer agrees to indemnify, defend and hold
harmless DWR and its officers, employees and agents from and against any
loss, cost, claim, damage (including any consequential cost, loss or
damage), liability or expense (including reasonable attorneys' fees) and
any fine, sanction or penalty made or imposed by any regulatory or
self-regulatory authority or any exchange as the result, directly or
indirectly, of:
(a) Customer's failure or refusal to comply with any provision of this
Agreement or perform any obligation on its part to be performed
pursuant to this Agreement; and
(b) Customer's failure to timely deliver any security, commodity or other
property previously sold by DWR on Customer's behalf.
11 NOTICES; TRANSMITTALS - DWR shall transmit all communications to Customer
at Customer's address, telefax or telephone number set forth in the
accompanying Futures Account Application or to such other address as
Customer may hereafter direct in writing. Customer shall transmit all
communications to DWR (except routine inquiries concerning the Account) to
130 Liberty Street, New York, NY 10006, Attention: Futures Compliance
Officer. All payments and deliveries to DWR shall be made as instructed by
DWR from time to time and shall be deemed received only when actually
received by DWR.
12. CONFIRMATION CONCLUSIVE - Confirmation of trades and any other notices sent
to Customer shall be conclusive and binding on Customer unless Customer or
Customer's agent notifies DWR to the contrary (a) in the case of an oral
report, orally at the time received by Customer or its agent or (b) in the
case of a written report or notice, in writing prior to opening of trading
on the business day next following receipt of the report. In addition, if
Customer has not received a written confirmation that a commodity interest
transaction has been executed within three business days after Customer has
placed an order with DWR to effect such transaction, and has been informed
or believes that such order has been or should have been executed, then
Customer immediately shall notify DWR thereof. Absent such notice, Customer
conclusively shall be deemed estopped to object and to have waived any such
objection to the failure to execute or cause to be executed such
transaction. Anything in this Section 12 withstanding, neither Customer nor
DWR shall be bound by any transaction or price reported in error.
13. SECURITY INTEREST - All money and property ("collateral") now or at any
future time held in Customer's Account, or otherwise held by DWR for
Customer, is subject to a security interest in DWR's favor to secure any
indebtedness at any time owing to it by Customer. DWR, in its discretion,
may liquidate any collateral to satisfy any margin or Account deficiencies
or to transfer the collateral to the general ledger account of DWR.
14. TRANSFER OF FUNDS - At any time and from time to time and without prior
notice to Customer, DWR may transfer from one account to another account in
which Customer has any interest, such excess funds, equities, securities or
other property as in DWR's judgment may be required for margin, or to
reduce any debit balance or to reduce or satisfy any deficits in such other
accounts except that no such transfer may be made from a segregated account
subject to the Commodity Exchange Act to another account maintained by
Customer unless either Customer has authorized such transfer in writing or
DWR is effecting such transfer to enforce DWR's security interest pursuant
to Section 13. DWR promptly shall confirm all transfers of funds made
pursuant hereto to Customer in writing.
15. DWR'S RIGHT TO LIQUIDATE CUSTOMER POSITIONS - In addition to all other
rights of DWR set forth in this Agreement:
(a) when directed or required by a regulatory or self-regulatory
organization or exchange having jurisdiction over DWR or the Account;
(b) whenever, in its discretion, DWR considers it necessary for its
protection because of margin requirements or otherwise;
(c) if Customer or any affiliate of Customer repudiates, violates,
breaches or fails to perform on a timely basis any term, covenant or
condition on its part to be performed under this Agreement or another
agreement with DWR;
(d) if a case in bankruptcy is commenced or if a proceeding under any
insolvency or other law for the protection of creditors or for the
appointment of a receiver, liquidator, trustee, conservator, custodian
or similar officer is filed by or against Customer or any affiliate of
Customer, or if Customer or any affiliate of Customer makes or
proposes to make any arrangement or composition for the benefit of its
creditors, or if Customer (or any such affiliate) or any or all of its
property is subject to any agreement, order, judgment or decree
providing for Customer's dissolution, winding-up, liquidation, merger,
consolidation, reorganization or for the appointment of a receiver,
liquidator, trustee, conservator, custodian or similar officer of
Customer, such affiliate or such property;
(e) DWR is informed of Customer's death or mental incapacity; or
(f) if an attachment or similar order is levied against the Account or any
other account maintained by Customer or any affiliate of Customer with
DWR;
DWR shall have the right to (i) satisfy any obligations due DWR out of any
Customer's property in DWR's custody or control, (ii) liquidate any or all
of Customer's commodity interest positions, (iii) cancel any or all of
Customer's outstanding orders, (iv) treat any or all of Customer's
obligations due DWR as immediately due and payable, (v) sell any or all of
Customer's property in DWR's custody or control in such manner as DWR
determines to be commercially reasonable, and/or (vi) terminate any or all
of DWR's obligations for future performance to Customer, all without any
notice to or demand on Customer. Any sale hereunder may be made in any
commercially reasonable manner. Customer agrees that a prior demand, call
or notice shall not be considered a waiver of DWR's right to act without
demand or notice as herein provided, that Customer shall at all times be
liable for the payment of any debit balance owing in each account upon
demand whether occurring upon a liquidation as provided under this Section
15 or otherwise under this Agreement, and that in all cases Customer shall
be liable for any deficiency remaining in each Account in the event of
liquidation thereof in whole or in part together with interest thereon and
all costs relating to liquidation and collection (including reasonable
attorneys' fees).
16. CUSTOMER REPRESENTATIONS, WARRANTIES AND AGREEMENTS - Customer represents
and warrants to and agrees with DWR that:
(a) Customer has full power and authority to enter into this Agreement and
to engage in the transactions and perform its obligations hereunder
and contemplated hereby and (i) if a corporation or a limited
liability company, is duly organized under the laws of the
jurisdiction set forth in the accompanying Futures Account
Application, or (ii) if a partnership, is duly organized pursuant to a
written partnership agreement and the general partner executing this
Agreement is duly authorized to do so under the partnership agreement;
(b) Neither Customer nor any partner, director, officer, member, manager
or employee of Customer nor any affiliate of Customer is a partner,
director, officer, member, manager or employee of a futures commission
merchant introducing broker, exchange or self-regulatory organization
or an employee or commissioner of the Commodity Futures Trading
Commission (the "CFTC"), except as previously disclosed in writing to
DWR;
(c) The accompanying Futures Account Application and Personal Financial
Statements, if applicable, (including any financial statements
furnished in connection therewith) are true, correct and complete.
Except as disclosed on the accompanying Futures Account Application or
otherwise provided in writing, (i) Customer is not a commodity pool or
is exempt from registration under the rules of the Commission, and
(ii) Customer is acting solely as principal and no one other than
Customer has any interest in any Account of Customer. Customer hereby
authorizes DWR to contact such banks, financial institutions and
credit agencies as DWR shall deem appropriate for verification of the
information contained herein.
(d) Customer has determined that trading in commodity interests is
appropriate for Customer, is prudent in all respects and does not and
will not violate Customer's charter or by-laws (or other comparable
governing document) or any law, rule, regulation, judgment, decree,
order or agreement to which Customer or its property is subject or
bound;
(e) As required by CFTC regulations, Customer shall create, retain and
produce upon request of the applicable contract market, the CFTC or
the United States Department of Justice documents (such as contracts,
confirmations, telex printouts, invoices and documents of title) with
respect to cash transactions underlying exchanges of futures for cash
commodities or exchange of futures in connection with cash commodity
transactions;
(f) Customer consents to the electronic recording, at DWR's discretion, of
any or all telephone conversations with DWR (without automatic tone
warning device), the use of same as evidence by either party in any
action or proceeding arising out of the Agreement and in DWR's
erasure, at its discretion, of any recording as part of its regular
procedure for handling of recordings;
(g) Absent a separate written agreement between Customer and DWR with
respect to give-ups, DWR, in its discretion, may, but shall have no
obligation to, accept from other brokers commodity interest
transactions executed by such brokers on an exchange for Customer and
proposed to be "given-up" to DWR for clearance and/or carrying in the
Account;
(h) DWR, for and on behalf of Customer, is authorized and empowered to
place orders for commodity interest transactions through one or more
electronic or automated trading systems maintained or operated by or
under the auspices of an exchange, that DWR shall not be liable or
obligated to Customer for any loss, damage, liability, cost or expense
(including but not limited to loss of profits, loss of use, incidental
or consequential damages) incurred or sustained by Customer and
arising in whole or in part, directly or indirectly, from any fault,
delay, omission, inaccuracy or termination of a system or DWR's
inability to enter, cancel or modify an order on behalf of Customer on
or through a system. The provisions of this Section 16(h) shall apply
regardless of whether any customer claim arises in contract,
negligence, tort, strict liability, breach of fiduciary obligations or
otherwise; and
(i) If Customer is subject to the Financial Institution Reform, Recovery
and Enforcement Act of 1989, the certified resolutions set forth
following this Agreement have been caused to be reflected in the
minutes of Customer's Board of Directors (or other comparable
governing body) and this Agreement is and shall be, continuously from
the date hereof, an official record of Customer.
Customer agrees to promptly notify DWR in writing if any of the warranties
and representations contained in this Section 16 becomes inaccurate or in
any way ceases to be true, complete and correct.
17. SUCCESSORS AND ASSIGNS - This Agreement shall inure to the benefit of DWR,
its successors and assigns, and shall be binding upon Customer and
Customer's executors, trustees, administrators, successors and assigns,
provided, however, that this Agreement is not assignable by Customer
without the prior written consent of DWR.
18. MODIFICATION OF AGREEMENT BY DWR; NON-WAIVER PROVISION - This Agreement may
only be altered, modified or amended by mutual written consent of the
parties, except that if DWR notifies Customer of a change in this Agreement
and Customer thereafter effects a commodity interest transaction in an
account, Customer agrees that such action by Customer will constitute
consent by Customer to such change. No employee of DWR other than DWR's
General Counsel or his or her designee, has any authority to alter, modify,
amend or waive in any respect any of the terms of this Agreement. The
rights and remedies conferred upon DWR shall be cumulative, and its
forbearance to take any remedial action available to it under this
Agreement shall not waive its right at any time or from time to time
thereafter to take such action.
19. SEVERABILITY - If any term or provision hereof or the application thereof
to any persons or circumstances shall to any extent be contrary to any
exchange, government or self-regulatory regulation or contrary to any
federal, state or local law or otherwise be invalid or unenforceable, the
remainder of this Agreement or the application of such term or provision to
persons or circumstances other than those as to which it is contrary,
invalid or unenforceable, shall not be affected thereby.
20. CAPTIONS - All captions used herein are for convenience only, are not a
part of this Agreement, and are not to be used in construing or
interpreting any aspect of this Agreement.
21. TERMINATION - This Agreement shall continue in force until written notice
of termination is given by Customer or DWR. Termination shall not relieve
either party of any liability or obligation incurred prior to such notice.
Upon giving or receiving notice of termination, Customer will promptly take
all action necessary to transfer all open positions in each account to
another futures commission merchant.
22. ENTIRE AGREEMENT - This Agreement constitutes the entire agreement between
Customer and DWR with respect to the subject matter hereof and supersedes
any prior agreements between the parties with respect to such subject
matter.
23. GOVERNING LAW; CONSENT TO JURISDICTION -
(a) In case of a dispute between Customer and DWR arising out of or
relating to the making or performance of this Agreement or any
transaction pursuant to this Agreement (i) this Agreement and its
enforcement shall be governed by the laws of the State of New York
without regard to principles of conflicts of laws, and (ii) Customer
will bring any legal proceeding against DWR in, and Customer hereby
consents in any legal proceeding by DWR to the jurisdiction of, any
state or federal court located within the State and City of New York
in connection with all legal proceedings arising directly, indirectly
or otherwise in connection with, out of, related to or from Customer's
Account, transactions contemplated by this Agreement or the breach
thereof. Customer hereby waives all objections Customer, at any time,
may have as to the propriety of the court in which any such legal
proceedings may be commenced. Customer also agrees that any service of
process mailed to Customer at any address specified to DWR shall be
deemed a proper service of process on the undersigned.
(b) Notwithstanding the provisions of Section 23 (a)(ii), Customer may
elect at this time to have all disputes described in this Section
resolved by arbitration. To make such election, Customer must sign the
Arbitration Agreement set forth in Section 24. Notwithstanding such
election, any question relating to whether Customer or DWR has
commenced an arbitration proceeding in a timely manner, whether a
dispute is within the scope of the Arbitration Agreement or whether a
party (other than Customer or DWR) has consented to arbitration and
all proceedings to compel arbitration shall be determined by a court
as specified in Section 23 (a)(ii).
24. ARBITRATION AGREEMENT (OPTIONAL) - Every dispute between Customer and DWR
arising out of or relating to the making or performance of this Agreement
or any transaction pursuant to this Agreement, shall be settled by
arbitration in accordance with the rules, then in effect, of the National
Futures Association, the contract market upon which the transaction giving
rise to the claim was executed, or the National Association of Securities
Dealers as Customer may elect. If Customer does not make such election by
registered mail addressed to DWR at 130 Liberty Street, 29th Floor, New
York, NY 10006; Attention: Deputy General Counsel, within 45 days after
demand by DWR that the Customer make such election, then DWR may make such
election. DWR agrees to pay any incremental fees which may be assessed by a
qualified forum for making available a "mixed panel" of arbitrators, unless
the arbitrators determine that Customer has acted in bad faith in
initiating or conducting the proceedings. Judgment upon any award rendered
by the arbitrators may be entered in any court having jurisdiction thereof.
IN ADDITION TO FOREIGN FORUMS, THREE FORUMS EXIST FOR THE RESOLUTION OF
COMMODITY DISPUTES: CIVIL COURT LITIGATION, REPARATIONS AT THE COMMODITY
FUTURES TRADING COMMISSION ("CFTC") AND ARBITRATION CONDUCTED BY A
SELF-REGULATORY OR OTHER PRIVATE ORGANIZATION.
THE CFTC RECOGNIZES THAT THE OPPORTUNITY TO SETTLE DISPUTES BY ARBITRATION
MAY IN SOME CASES PROVIDE MANY BENEFITS TO CUSTOMERS, INCLUDING THE ABILITY
TO OBTAIN AN EXPEDITIOUS AND FINAL RESOLUTION OF DISPUTES WITHOUT INCURRING
SUBSTANTIAL COSTS. THE CFTC REQUIRES, HOWEVER, THAT EACH CUSTOMER
INDIVIDUALLY EXAMINE THE RELATIVE MERITS OF ARBITRATION AND THAT YOUR
CONSENT TO THIS ARBITRATION AGREEMENT BE VOLUNTARY.
BY SIGNING THIS AGREEMENT, YOU (1) MAY BE WAIVING YOUR RIGHT TO SUE IN A
COURT OF LAW AND (2) ARE AGREEING TO BE BOUND BY ARBITRATION OF ANY CLAIMS
OR COUNTERCLAIMS WHICH YOU OR DWR MAY SUBMIT TO ARBITRATION UNDER THIS
AGREEMENT. YOU ARE NOT, HOWEVER, WAIVING YOUR RIGHT TO ELECT INSTEAD TO
PETITION THE CFTC TO INSTITUTE REPARATIONS PROCEEDINGS UNDER SECTION 14 OF
THE COMMODITY EXCHANGE ACT WITH RESPECT TO ANY DISPUTE WHICH MAY BE
ARBITRATED PURSUANT TO THIS AGREEMENT. IN THE EVENT A DISPUTE ARISES, YOU
WILL BE NOTIFIED IF DWR INTENDS TO SUBMIT THE DISPUTE TO ARBITRATION. IF
YOU BELIEVE A VIOLATION OF THE COMMODITY EXCHANGE ACT IS INVOLVED AND IF
YOU PREFER TO REQUEST A SECTION 14 "REPARATIONS" PROCEEDINGS BEFORE THE
CFTC, YOU WILL HAVE 45 DAYS FROM THE DATE OF SUCH NOTICE IN WHICH TO MAKE
THAT ELECTION.
YOU NEED NOT AGREE TO THIS ARBITRATION AGREEMENT TO OPEN AN ACCOUNT WITH
DWR. See 17 CFR 180.1-180.5. ACCEPTANCE OF THIS ARBITRATION AGREEMENT
REQUIRES A SEPARATE SIGNATURE ON PAGE 8.
25. CONSENT TO TAKE THE OTHER SIDE OF ORDERS (OPTIONAL) - Without its prior
notice, Customer agrees that when DWR executes sell or buy orders on
Customer's behalf, DWR, its directors, officers, employees, agents,
affiliates, and any floor broker may take the other side of Customer's
transaction through any account of such person subject to its being
executed at prevailing prices in accordance with and subject to the
limitations and conditions, if any, contained in applicable rules and
regulations.
26. AUTHORIZATION TO TRANSFER FUNDS (OPTIONAL) - Without limiting other
provisions herein, DWR is authorized to transfer from any segregated
account subject to the Commodity Exchange Act carried by DWR for the
Customer to any other account carried by DWR for the Customer such amount
of excess funds as in DWR's judgment may be necessary at any time to avoid
a margin call or to reduce a debit balance in said account. It is
understood that DWR will confirm in writing each such transfer of funds
made pursuant to this authorization within a reasonable time after such
transfer.
27. SUBORDINATION AGREEMENT (Applies only to Accounts with funds held in
foreign countries) - Funds of customers trading on United States contract
markets may be held in accounts denominated in a foreign currency with
depositories located outside the United States or its territories if the
customer is domiciled in a foreign country or if the funds are held in
connection with contracts priced and settled in a foreign currency. Such
accounts are subject to the risk that events could occur which hinder or
prevent the availability of these funds for distribution to customers. Such
accounts also may be subject to foreign currency exchange rate risks.
If authorized below, Customer authorizes the deposit of funds into such
foreign depositories. For customers domiciled in the United States, this
authorization permits the holding of funds in regulated accounts offshore
only if such funds are used to margin, guarantee, or secure positions in
such contracts or accrue as a result of such positions. In order to avoid
the possible dilution of other customer funds, a customer who has funds
held outside the United States agrees by accepting this subordination
agreement that his claims based on such funds will be subordinated as
described below in the unlikely event both of the following conditions are
met: (1) DWR is placed in receivership or bankruptcy, and (2) there are
insufficient funds available for distribution denominated in the foreign
currency as to which the customer has a claim to satisfy all claims against
those funds.
By initialing the Subordination Agreement below, Customer agrees that if
both of the conditions listed above occur, its claim against DWR's assets
attributable to funds held overseas in a particular foreign currency may be
satisfied out of segregated customer funds held in accounts denominated in
dollars or other foreign currencies only after each customer whose funds
are held in dollars or in such other foreign currencies receives its
pro-rata portion of such funds. It is further agreed that in no event may a
customer whose funds are held overseas receive more than its pro-rata share
of the aggregate pool consisting of funds held in dollars, funds held in
the particular foreign currency, and non-segregated assets of DWR.
<PAGE>
OPTIONAL ELECTIONS
The following provisions, which are set forth in this agreement, need not be
entered into to open the Account. Customer agrees that its optional elections
are as follows:
Signature required for each election
ARBITRATION AGREEMENT:
(Agreement Paragraph 24) --------------------------------------
CONSENT TO TAKE THE OTHER SIDE OF ORDERS:
(Agreement Paragraph 25) X /s/ Mark J. Hawley
--------------------------------------
AUTHORIZATION TO TRANSFER FUNDS:
(Agreement Paragraph 26) --------------------------------------
ACKNOWLEDGEMENT TO SUBORDINATION AGREEMENT
(Agreement Paragraph 27) X /s/ Mark J. Hawley
--------------------------------------
(Required for accounts holding
non-U.S. currency)
- --------------------------------------------------------------------------------
HEDGE ELECTION
Customer confirms that all transactions in the Account will / /
represent bona fide hedging transactions, as defined by the
Commodity Futures Trading Commission, unless DWR is notified
otherwise not later than the time an order is placed for the
Account [check box if applicable]:
Pursuant to CFTC Regulation 190.06(d), Customer specifies and agrees, with
respect to hedging transactions in the Account, that in the unlikely event of
DWR's bankruptcy, it prefers that the bankruptcy trustee [check appropriate
box]:
A. Liquidate all open contracts without first seeking / /
instructions either from or on behalf of Customer.
B. Attempt to obtain instructions with respect to the / /
disposition of all open contracts. (If neither box is
checked, Customer shall be deemed to elect A)
- --------------------------------------------------------------------------------
ACKNOWLEDGEMENT OF RECEIPT OF RISK DISCLOSURE STATEMENTS
The undersigned each hereby acknowledges its separate receipt from DWR, and its
understanding of each of the following documents prior to the opening of the
account:
o Risk Disclosure Statement for Futures and Options (in the form prescribed
by CFTC Regulation 1.55(c))
o LME Risk Warning Notice
o Dean Witter Order Presumption for After Hours Electronic Markets
o NYMEX ACCESS(Service Mark) Risk Disclosure Statement
o Globex(Registered) Customer Information and Risk Disclosure Statement
o Project A(Trademark) Customer Information Statement
o Questions & Answers on Flexible Options Trading at the CBOT
o CME Average Pricing System Disclosure Statement
o Special Notice to Foreign Brokers and Foreign Traders
- --------------------------------------------------------------------------------
REQUIRED SIGNATURES
The undersigned has received, read, understands and agrees to all the provisions
of this Agreement and the separate risk disclosure statements enumerated above
and agrees to promptly notify DWR in writing if any of the warranties and
representations contained herein become inaccurate or in any way cease to be
true, complete and correct.
DEAN WITTER CORNERSTONE FUND III
- --------------------------------------------------------------------------------
CUSTOMER NAME(S)
By: DEMETER MANAGEMENT CORPORATION
By: /s/ Mark J. Hawley December 1, 1997
- ---------------------------------------------- -----------------------------
AUTHORIZED SIGNATURE(S) DATE
Mark J. Hawley, President
- --------------------------------------------------------------------------------
(If applicable, print name and title of signatory)
Exhibit 10.06
CUSTOMER AGREEMENT
THIS CUSTOMER AGREEMENT (this "Agreement"), made as of the 1st day of
December, 1997, by and among DEAN WITTER CORNERSTONE FUND III, a New York
limited partnership (the "Customer"), CARR FUTURES INC., a Delaware corporation
("CFI"), and DEAN WITTER REYNOLDS INC., a Delaware corporation ("DWR");
W I T N E S S E T H :
WHEREAS, the Customer was organized pursuant to a Certificate of Limited
Partnership filed in the office of the County Clerk of New York County, New York
on December 7, 1983, as amended, and a Limited Partnership Agreement dated as of
December 7, 1983, as amended, between Demeter Management Corporation, a Delaware
corporation ("Demeter"), acting as general partner (in such capacity, the
"General Partner"), and the limited partners of the Customer, to trade, buy,
sell, or otherwise acquire, hold, or dispose of commodities (including, but not
limited to, foreign currencies, mortgage-backed securities, money market
instruments, and any other securities or items which are, or may become, the
subject of futures contract trading), commodity futures contracts, commodity
forward contracts, commodity options, and any rights pertaining thereto
(hereinafter referred to collectively as "commodity interests");
WHEREAS, the Customer (which is a commodity pool) and the General Partner
(which is a registered commodity pool operator) have entered into management
agreements (the "Management Agreements") with certain trading managers (each, a
"Trading Manager" and collectively, the "Trading Managers"), which provide that
the Trading Managers have authority and responsibility, except in certain
limited situations, to direct the investment and reinvestment of the assets of
the Customer in commodity interests under the terms set forth in the Management
Agreements;
WHEREAS, the Customer and DWR have entered into that certain Amended and
Restated Customer Agreement, dated as of December 1, 1997 (the "DWR Customer
Agreement"), whereby DWR agreed to perform certain non-clearing commodity
interests brokerage and other services for the Customer; and
WHEREAS, the Customer, DWR and CFI wish to enter into this Agreement to set
forth the terms and conditions upon which CFI will perform commodity interests
execution and clearing services for the Customer;
NOW, THEREFORE, the parties hereto hereby agree as follows:
1. Definitions. All capitalized terms not defined herein shall have the
meaning given to them in the Customer's most recent prospectus as filed with the
Securities and Exchange Commission (the "Prospectus") relating to the offering
of units of limited partnership interest of the Customer (the "Units") and in
any amendment or supplement to the Prospectus.
2. Duties of CFI. CFI agrees to execute and clear all commodity interests
brokerage transactions on behalf of the Customer in accordance with instructions
provided by DWR, Demeter or the Trading Managers, and the Customer agrees to
retain CFI as its clearing broker for the term of this Agreement. CFI agrees to
maintain such number of subaccounts for the Customer as DWR reasonably shall
request. The execution and clearing services of CFI provided hereunder shall be
in accordance with applicable exchange rules.
CFI agrees to furnish to the Customer as soon as practicable all of the
information from time to time in its possession which Demeter, as the general
partner of the Customer, is required to furnish to the Limited Partners pursuant
to the Limited Partnership Agreement as from time to time in effect and as
required by applicable law, rules, or regulations and to perform such other
services for the Customer as are set forth herein and in the Prospectus. CFI
shall disclose such information (including, without limitation, financial
statements) regarding itself and its affiliates as may be required by the
Customer for SEC, CFTC and state blue sky disclosure purposes.
CFI agrees to notify the applicable Trading Manager and DWR immediately
upon discovery of any error committed by CFI or any of its agents with respect
to a trade executed or cleared by CFI on behalf of the Customer and to notify
DWR promptly of any order or trade for the Customer's account which CFI believes
was not executed or cleared in accordance with proper instructions given by DWR,
Demeter or any Trading Manager or other agent for the Customer's account.
Notwithstanding any provision of this Agreement to the contrary, CFI shall
assume financial responsibility for any errors committed or caused by it in
executing or clearing orders for the purchase or sale of commodity interests for
the Customer's account and shall credit the Customer's account with any profit
resulting from an error of CFI. Errors made by floor brokers appointed or
selected by CFI shall constitute errors made by CFI. However, CFI shall not be
responsible for errors committed by the Trading Managers.
CFI acknowledges that other partnerships of which the General Partner is
the general partner are not affiliates of the Customer.
3. Margins. The futures and futures option trades for the Customer's
account shall be margined at the applicable exchange or clearinghouse minimum
rates for speculative accounts; all subaccounts shall be combined for
determining such margin requirements. All margin calls for the Customer's
account shall be made to DWR by CFI, and each such call for margin shall be met
by Customer within three hours after DWR has received such call. CFI shall
accept as margin for the Customer's account any instrument deemed acceptable
under exchange or clearinghouse rules pertaining to such account. Upon oral or
written request by DWR, CFI shall, within three hours after receipt of any such
request, wire transfer (by federal bank wire system) to DWR for Customer's
account any funds in the Customer's account with CFI in excess of the margin
requirements for such account.
4. Obligations and Expenses. Except as otherwise set forth herein, the
Customer, and not CFI, shall be responsible for all taxes, management and
incentive fees to the Trading Managers, the brokerage fees to DWR pursuant to
the DWR Customer Agreement, and all extraordinary expenses incurred by it.
5. Agreement Nonexclusive. CFI shall be free to render services of the
nature to be rendered to the Customer hereunder to other persons or entities in
addition to the Customer, and the parties acknowledge that CFI may render such
services to additional entities similar in nature to the Customer, including
other partnerships organized with Demeter as their general partner. It is
expressly understood and agreed that this Agreement is nonexclusive and that the
Customer has no obligation to execute any or all of its trades for commodity
interests through CFI. The parties acknowledge that the Customer may execute and
clear trades for commodity interests through such other broker or brokers as
Demeter may direct from time to time. The Customer's utilization of an
additional commodity broker shall neither terminate this Agreement nor modify in
any regard the respective rights and obligations of the Customer and CFI
hereunder.
6. Compensation of CFI. In compensation of CFI's services pursuant to this
Agreement, the Customer shall pay CFI all NFA fees, clearinghouse fees, exchange
fees or other regulatory fees, taxes (other than income taxes), floor brokerage
fees, third-party clearing fees and give-up fees. DWR shall pay to CFI such
charges with respect to the execution and clearance of trades for the Customer
as DWR and CFI shall agree from time to time. Subject to the brokerage
commission and transaction fees and costs caps set forth in the DWR Customer
Agreement, DWR shall have no obligation to reimburse the Customer for any
payments made by the Customer to CFI. The Customer shall have no obligation to
reimburse DWR for any payments made by DWR to CFI.
7. Investment Discretion. The parties recognize that CFI shall have no
authority to direct the commodity interests investments to be made for the
Customer's account, but shall execute only such orders for the Customer's
account as DWR, Demeter or the Trading Managers may direct from time to time.
However, the parties agree that CFI, and not the Trading Managers, shall have
the authority and responsibility with regard to the investment, maintenance, and
management of the Customer's assets that are held in segregated or secured
accounts, as provided in Section 8 hereof.
8. Interest on Customer Funds. The Customer's assets deposited with CFI
will be segregated or secured in accordance with the Commodity Exchange Act and
CFTC regulations. All of such funds will be available for margin for the
Customer's trading. CFI shall pay to DWR such interest income on the Customer's
assets held by CFI as CFI and DWR shall agree from time to time. The Customer
understands that it will not receive any interest income on its assets held by
CFI other than that paid by DWR pursuant to the DWR Customer Agreement. The
Customer's assets held by CFI may be used solely as margin for the Customer's
trading.
9. Recording Conversations. CFI consents to the electronic recording, at
the discretion of the Customer, Customer's agents or DWR, of any or all
telephone conversations with CFI (without automatic tone warning device), the
use of same as evidence by either party in any action or proceeding arising out
of this Agreement, and in the Customer's, Customer's agents' or DWR's erasure,
at its discretion, of any recording as a part of its regular procedure for
handling of recordings.
10. Delivery; Option Exercise.
(a) The Customer acknowledges that the making or accepting of delivery
pursuant to a futures contract may involve a much higher degree of risk than
liquidating a position by offset. CFI has no control over and makes no warranty
with respect to grade, quality or tolerances of any commodity delivered in
fulfillment of a contract.
(b) The Customer agrees to give CFI timely notice and immediately on
request to inform CFI if the Customer intends to make or take delivery under a
futures contract or to exercise an option contract. If so requested, the
Customer shall provide CFI with satisfactory assurances that the Customer can
fulfill the Customer's obligation to make or take delivery under any contract.
The Customer shall furnish CFI with property deliverable by it under any
contract in accordance with CFI's instructions.
(c) CFI shall not have any obligation to exercise any long option contract
unless the Customer has furnished CFI with timely exercise instructions and
sufficient initial margin with respect to each underlying futures contract.
11. Standard of Liability and Indemnity. Subject to Section 2 hereof, CFI
and its stockholder, directors, officers, employees, and its or their respective
successors or assigns shall not be liable to the Customer, its partners, or any
of its or their respective successors or assigns, except by reason of acts, or
omissions due to, bad faith, misconduct, or negligence, or for not having acted
in good faith in the reasonable belief that such acts or omissions were in, or
not opposed to, the best interests of the Customer, or by reason of any material
breach of this Agreement by CFI.
The Customer shall indemnify and hold harmless CFI and its stockholder,
directors, officers, employees, and its or their respective successors or
assigns from and against any loss, liability, damage, cost or expense (including
attorneys' and accountants' fees and expenses incurred in the defense of any
demands, claims, or lawsuits) actually and reasonably incurred arising from any
act, omission or conduct undertaken by CFI on behalf of the Customer pursuant to
this Agreement, including, without limitation, any demands, claims or lawsuits
initiated by a Limited Partner (or assignee thereof), provided that a court of
competent jurisdiction upon entry of final judgment shall find (or, if no final
judgment is entered, an opinion is rendered to the Customer by independent
counsel who shall be other than counsel to the Customer or CFI) to the effect
that the conduct that was the basis for such liability was not the result of bad
faith, misconduct, or negligence, and was done in a good faith belief that it
was in, or not opposed to, the best interests of the Customer.
CFI shall indemnify and hold harmless the Customer, its partners, and its
or their respective successors or assigns from and against any loss, liability,
damage, cost or expense (including attorneys' and accountants' fees and expenses
incurred in the defense of any demands, claims, or lawsuits) actually and
reasonably incurred arising from any act, omission or conduct undertaken by CFI
on behalf of the Customer pursuant to this Agreement, provided that a court of
competent jurisdiction upon entry of final judgment shall find (or, if no final
judgment is entered, by an opinion rendered to the Customer by independent
counsel who shall be other than counsel to the Customer or CFI) to the effect
that the conduct that was the basis for such liability was the result of bad
faith, misconduct, or negligence, or was not done in a good faith belief that it
was in, or not opposed to, the best interests of the Customer, or was by reason
of any material breach of this Agreement by CFI.
The indemnities provided in this Section 11 by the Customer to CFI and its
stockholder, directors, officers, employees, and its or their respective
successors and assigns shall be inapplicable in the event of any liability
arising out of, or based upon, any material breach of any warranty, covenant, or
agreement of CFI contained in this Agreement to the extent caused by such event.
Likewise, the indemnities provided in this Section 11 by CFI to the Customer,
its partners, and any of its or their respective successors and assigns shall be
inapplicable in the event of any liability arising out of, or based upon, any
material breach of any warranty, covenant, or agreement of the Customer
contained in this Agreement to the extent caused by such event.
12. Term. This Agreement shall continue in effect until terminated by any
party giving not less than sixty (60) days' prior written notice of termination
to the other parties. The Customer shall have the right to terminate this
Agreement
(i) at any time, effective upon thirty (30) days' prior written notice
to CFI, in the event that:
(A) CFI announces plans to discontinue the provision of
execution and clearing services with respect to futures
contracts, options on futures contracts or acting as a
dealer counterparty for foreign exchange cash and forward
contracts; or
(B) CFI merges or consolidates with or into or acquires or is
acquired by, another entity or entities acting in concert
(excluding any intergroup reorganizations with any
affiliates of CFI or any capital contributions by, or sale
of CFI stock to any affiliates of CFI, provided that the
guarantee agreement between DWR and Credit Agricole Indosuez
S.A. dated as of July 31, 1997 remains in place or a
comparable guaranty is substituted by a bank with a net
worth and credit rating equal to Credit Agricole Indosuez
S.A.) in a transaction involving the purchase or sale of
stock or substantially all of the assets of the acquired
entity or which involves a capital contribution to or by
such entity or entities (in an amount representing fifty
percent (50%) or more of the book value of CFI's or such
entity's (or their respective affiliate's) net worth), or
the purchase or sale of stock representing fifty percent
(50%) or more of CFI's or such entity's (or their respective
affiliate's) outstanding equity securities; and
(ii) at any time effective immediately upon written notice to CFI in
the event:
(A) CFI ceases to be registered or conduct business as a futures
commission merchant or discontinues its membership or
clearing membership on any major futures interest exchange
in the United States (or any affiliated clearing
corporation) or in the NFA; or
(B) a receiver, liquidator or trustee of CFI is appointed by
court order and such order remains in effect for more than
thirty (30) days; or CFI is adjudicated bankrupt or
insolvent; or any of CFI's property is sequestered by court
order and such order remains in effect for more than thirty
(30) days; or a petition is filed against CFI under any
bankruptcy, reorganization, arrangement, insolvency,
readjustment or debt, dissolution or liquidation law of any
jurisdiction, whether now or hereafter in effect, and is not
dismissed within thirty (30) days after such filing; or CFI
files a petition in voluntary bankruptcy or seeking relief
under any provision of any bankruptcy, reorganization,
arrangement, insolvency, readjustment of debt, dissolution
or liquidation law of any jurisdiction, whether now or
hereafter in effect, or consents to the filing of any
petition against it under any such law; or
(C) CFI, DWR or the Customer is ordered or otherwise directed to
terminate this Agreement by any governmental, regulatory, or
self-regulatory authority.
Any such termination by any party shall be without penalty.
13. Complete Agreement. This Agreement constitutes the entire agreement
among the parties with respect to the matters referred to herein, and no other
agreement, verbal or otherwise, shall be binding as among the parties unless in
writing and signed by the party against whom enforcement is sought.
14. Assignment. This Agreement may not be assigned by any party without the
express written consent of the other parties.
15. Amendment. This Agreement may not be amended except by the written
consent of the parties.
16. Notices. All notices required or desired to be delivered under this
Agreement shall be in writing and shall be effective when delivered personally
on the day delivered, or when given by registered or certified mail, postage
prepaid, return receipt requested, on the day of receipt, addressed as follows
(or to such other address as the party entitled to notice shall hereafter
designate in accordance with the terms hereof):
if to the Customer:
DEAN WITTER CORNERSTONE FUND III
c/o Demeter Management Corporation
Two World Trade Center, 62nd Floor
New York, New York 10048
Attn: Mark J. Hawley
President
if to DWR:
DEAN WITTER REYNOLDS INC.
Two World Trade Center, 62nd Floor
New York, New York 10048
Attn: Mark J. Hawley
Executive Vice President
if to CFI:
CARR FUTURES INC
10 South Wacker Drive, Suite 1125
Chicago, Illinois 60606
Attn: Legal/Compliance Department
17. Survival. The provisions of this Agreement shall survive the
termination of this Agreement with respect to any matter arising while this
Agreement was in effect.
18. Headings. Headings of Sections herein are for the convenience of the
parties only and are not intended to be a part of or to affect the meaning or
interpretation of this Agreement.
19. Incorporation by Reference. The Futures Account Agreement annexed
hereto is hereby incorporated by reference herein and made a part hereof to the
same extent as if such document were set forth in full herein. If any provision
of this Agreement is or at any time becomes inconsistent with the annexed
document, the terms of this Agreement shall control.
20. Governing Law; Venue. This Agreement shall be governed by, and
construed in accordance with, the law of the State of New York (without regard
to its choice of law principles). If any action or proceeding shall be brought
by a party to this Agreement or to enforce any right or remedy under this
Agreement, each party hereto hereby consents and will submit to the jurisdiction
of the courts of the State of New York or any federal court sitting in the
County, City and State of New York. Any action or proceeding brought by any
party to this Agreement to enforce any right, assert any claim, or obtain any
relief whatsoever in connection with this Agreement shall be brought by such
party exclusively in the courts of the State of New York or any federal court
sitting in the County, City and State of New York.
IN WITNESS WHEREOF, this Agreement has been executed for and on behalf of
the undersigned as of the day and year first above written.
DEAN WITTER CORNERSTONE FUND III
By: Demeter Management Corporation,
General Partner
By: /s/ Mark J. Hawley
-------------------------------
Mark J. Hawley
President
DEAN WITTER REYNOLDS INC.
By: /s/ Mark J. Hawley
-------------------------------
Mark J. Hawley
Executive Vice President
CARR FUTURES INC.
By: /s/ Bruce A. Beatus
-------------------------------
Name: Bruce A. Beatus
----------------------------
Title: General Counsel
----------------------------
<PAGE>
CARR FUTURES INC.
FUTURES ACCOUNT AGREEMENT
In consideration of the acceptance by Carr Futures Inc. ("Carr") of one or more
accounts of the undersigned ("Customer") (if more than one account is at any
time opened or reopened with Carr, all are covered by this Agreement and are
referred to individually and collectively as the "Account"), and Carr's
agreement to act as broker, directly or indirectly, or as dealer, for the
execution, clearance and/or carrying of transactions for the purchase and sale
of commodity interests, including commodities, forward contracts, commodity
futures contracts, options on commodity futures contracts and transaction
involving the exchange of futures for cash commodities or the exchange of
futures in connection with cash commodity transactions, Customer agrees as
follows:
1. APPLICABLE RULES AND REGULATIONS
The Account and each transaction therein shall be subject to the terms of
this Agreement and to (a) all applicable laws and the regulations, rules
and orders (collectively "regulations") of all regulatory and
self-regulatory organizations having jurisdiction and (b) the constitution,
by-laws, rules, regulations, orders, resolutions, interpretations and
customs and usages (collectively "rules") of the market and any associated
clearing organization (each an "exchange") on or subject to the rules of
which such transaction is executed and/or cleared. The reference in the
preceding sentence to exchange rules is solely for Carr's protection and
Carr's failure to comply therewith shall not constitute a breach of this
Agreement or relieve Customer of any obligation or responsibility under
this Agreement. Carr shall not be liable to Customer as a result of any
action by Carr, its officers, directors, employees or agents to comply with
any rule or regulation.
2. PAYMENTS TO CARR
Customer agrees to pay to Carr immediately on request (a) commissions,
give-up charges, fees and service charges as are in effect from time to
time, together with all applicable regulatory and self-regulatory
organization and exchange fees, charges and taxes; (b) the amount of any
debit balance or any other liability that may result from transactions
executed for the Account; and (c) interest on such debit balance or
liability at the prevailing rate charged by Carr at the time such debit
balance or liability arises and service charges on any such debit balance
or liability together with any reasonable costs and attorneys' fees
incurred in collecting any such debit balance or liability. Customer
acknowledges that Carr may charge commissions at other rates to other
customers.
3. CUSTOMER'S DUTY TO MAINTAIN ADEQUATE MARGIN
Customer shall at all times, and without prior notice or demand from Carr,
maintain adequate margin (also known as "performance bond") in the Account
so as to continually to meet the original and maintenance margin
requirements established by Carr for Customer. Carr may change such
requirements from time to time at Carr's discretion. Such margin
requirements may exceed the margin requirements set by any exchange or
other regulatory authority and may vary from Carr's requirements for other
customers. Customer agrees, when so requested, orally or by written notice,
immediately (in no less than one hour) to wire transfer (by federal bank
wire system to the account of Carr) margin funds, and to furnish Carr with
names of bank officers for immediate verification of such transfers.
Customer acknowledges and agrees that Carr may receive and retain as its
own any interest, increment, profit, gain or benefit, directly or
indirectly, accruing from any of the funds Carr receives from Customer.
4. DELIVERY; OPTION EXERCISE
Liquidating instructions on open positions maturing in a current delivery
month must be given to Carr at least five business days prior to the first
notice day in the case of long positions, and at least five business days
prior to the last trading day in the case of short positions.
Alternatively, sufficient funds to take delivery or the necessary delivery
documents must be delivered to Carr within the same period described above.
If funds, documents or instructions are not received, Carr may, without
notice, either liquidate Customer's position or make or receive delivery on
behalf of Customer upon such terms and by such methods as Carr, in its sole
discretion, determines.
If, at any time, Customer fails to deliver to Carr any property previously
sold by Carr on Customer's behalf in compliance with commodity interest
contracts, or Carr shall deem it necessary (whether by reason of the
requirements of any exchange, clearing house or otherwise) to replace any
securities, commodity interest contracts, financial instruments, or other
property previously delivered by Carr for the Account of Customer with
other property of like or equivalent kind or amount, Customer hereby
authorizes Carr, in its sole judgment, to borrow or to buy any property
necessary to make delivery thereof, or to replace any such property
previously delivered, or to deliver the same to such other party or to whom
delivery is to be made. Carr may subsequently repay any borrowing or
purchase thereof with property purchased or otherwise acquired for the
amount of Customer. Customer shall pay Carr for any cost, loss and damages
from the foregoing, including, but not limited to, consequential damages,
penalties and fines which Carr may incur or which Carr may sustain from its
inability to borrow or buy any such property.
Customer understands that some exchanges and clearing houses have
established cut-off times for the tender of exercise instructions, and that
an option will become worthless if instructions are not delivered before
such expiration time. Customer also understands that certain exchanges and
clearing houses automatically will exercise some "in-the-money" options
unless instructed otherwise. Customer acknowledges full responsibility for
taking action either to exercise or to prevent the exercise of an option
contract, as the case may be, and Carr is not required to take any action
with respect to an option contract, including without limitations any
action to exercise an option prior to its expiration date, or to prevent
the automatic exercise of an option, except upon Customer's express
instructions. Customer further understands that Carr may establish exercise
cut-off times which may be different from the times established by
exchanges and clearing houses.
Customer understands that (a) all short option positions are subject to
assignment at any time, including positions established on the same day
that exercises are assigned, and (b) exercised assignment notices are
allocated randomly from among all Carr customer's short options positions
which are subject to exercise. A more detailed description of Carr's
allocation procedures is available upon request.
5. FOREIGN CURRENCY
If Carr enters into any transaction for Customer effected in a currency
other than U.S. dollars: (a) any profit or loss caused by changes in the
rate of exchange for such currency shall be for Customer's Account and risk
and (b) unless another currency is designated in Carr's confirmation of
such transaction, all margin for such transaction and the profit or loss on
the liquidation of such transaction shall be in U.S. dollars at a rate of
exchange determined by Carr in its discretion on the basis of then
prevailing market rates of exchange for such foreign currency.
6. CARR MAY LIMIT POSITIONS HELD
Customer agrees that Carr, at its discretion, may limit the number of open
positions (net or gross) which Customer may execute, clear and/or carry
with or acquire through it. Customer agrees (a) not to make any trade which
would have the effect or exceeding such limits, (b) that Carr may require
Customer to reduce open positions carried with Carr and (c) that Carr may
refuse to accept orders to establish new positions. Carr may impose and
enforce such limits, reduction or refusal whether or not they are required
by applicable law, regulations or rules. Customer shall comply with all
position limits established by any regulatory or self-regulatory
organization or any exchange. In addition, Customer agrees to notify Carr
promptly if Customer is required to file position reports with any
regulatory or self-regulatory organization or with any exchange.
7. NO WARRANTY AS TO INFORMATION OR RECOMMENDATION
Customer acknowledges that:
(a) Any market recommendations and information Carr may communicate to
Customer, although based upon information obtained from sources
believed by Carr to be reliable, may be incomplete and not subject to
verification;
(b) Carr makes no representation, warranty or guarantee as to, and shall
not be responsible for, the accuracy or completeness of any
information or trading recommendation furnished to Customer;
(c) Recommendations to Customer as to any particular transaction at any
given time may differ among Carr's personnel due to diversity in
analysis of fundamental and technical factors and may vary from any
standard recommendation made by Carr in its research reports or
otherwise; and
(d) Carr has no obligation or responsibility to update any market
recommendations, research or information it communicates to Customer.
Customer understands that Carr and its officers, directors, affiliates,
stockholders, representatives or associated persons may have positions in
and may intend to buy or sell commodity interests that are the subject of
market recommendations furnished to Customer, and that the market positions
of Carr or any such officer, director, affiliate, stockholder,
representative or associated person may or may not be consistent with the
recommendations furnished to Customer by Carr.
8. LIMITS ON CARR DUTIES; LIABILITY
Customer agrees:
(a) That Carr has no duty to apprise Customer of news or of the value of
any commodity interests or collateral pledged or in any way to advise
Customer with respect to the market;
(b) That the commissions which Carr receives are consideration solely for
the execution, reporting and carrying of Customer's trades;
(c) If there is an Account Manager, an Account Manager's Agreement for the
Account Manager will be provided to Carr. Customer represents it has
received: (1) a disclosure document concerning such Account Manager's
trading advice, including, in the event the Account Manager will trade
options, the options strategies to be utilized, or (2) a written
statement explaining why Account Manager is not required under
applicable law to provide such a disclosure document to Customer; and
(d) Customer acknowledges, understands and agrees that Carr is in no way
responsible for any loss to Customer occasioned by the actions of the
Account Manager and Carr does not by implication or otherwise endorse
the operating methods or trading strategies or programs of the Account
Manager.
9. EXTRAORDINARY EVENTS
Customer agrees that Carr shall have no liability for damages, claims,
losses or expenses caused by any errors, omissions or delays resulting from
an act, condition or cause beyond the reasonable control of Carr,
including, but not limited to: war; insurrection; riot; strike; act of God;
fire; flood; extraordinary weather conditions; accident; action of
government authority; action of exchange, clearinghouse or clearing
organization; communications or power failure; equipment or software
malfunction; error, omission or delay in the report of transactions;
prices, exchange rates or other market or transaction information; or the
insolvency, bankruptcy, receivership, liquidation or other financial
difficulty of any bank, clearing broker, exchange, market, clearinghouse or
clearing organization.
10. INDEMNIFICATION OF CARR, CONTRIBUTION AND REIMBURSEMENT
(a) To the extent permitted by law, Customer agrees to indemnify and hold
harmless Carr and its shareholders, directors, officers, employees,
agents, affiliates and controlling persons against any liability for
damages, claims, losses or expenses which they may incur as the result
of: (x) Customer's violation of federal or state laws or regulations,
or of rules of any exchange or self-regulatory organization; (y) any
other breach of this Agreement by Customer; or (z) any breach by Carr
of federal or state laws or regulations, or of the charter provisions,
by-laws, rules, margin or other requirements, of the exchanges or
self-regulatory organizations, provided that such violation was caused
by Carr's acting in good faith on Customer's behalf. Such damages,
claims, losses or expenses shall include legal fees and expenses,
costs of settling claims, interest, and fines or penalties imposed by
the exchanges, self-regulatory organization or governmental authority.
(b) Customer agrees that if the indemnification provided in paragraph (a)
above is held to be unavailable to Carr, the parties hereto shall
share in and contribute to such damages, claims, losses or expenses in
proportion to their relative benefits from the transactions involved
and their relative degree of fault in causing the liability.
(c) Customer agrees to reimburse Carr and its shareholders, directors,
officers, employees, agents, affiliates and controlling persons on
demand for any costs incurred in collecting any sums Customer owes
under this Agreement and any costs of successfully defending against
claims asserted against them by Customer.
11. NOTICES; TRANSMITTALS
Carr shall transmit all communications to Customer at Customer's address,
facsimile or telephone number set forth below or to such other address as
Customer may hereafter direct in writing. Customer shall transmit all
communications to Carr regarding this Agreement (except routine inquiries
concerning the Account) to 10 South Wacker Drive, Suite 1100, Chicago,
Illinois 60606; facsimile (312) 441-4201, Attention: Legal/Compliance
Department. All payments and deliveries to Carr shall be made as instructed
by Carr from time to time and shall be deemed received only when actually
received by Carr.
12. CONFIRMATION CONCLUSIVE
Confirmation of trades and any other notices sent to Customer shall be
conclusive and binding on Customer unless customer or Customer's agent
notifies Carr to the contrary (a) in the case of an oral report, orally at
the time received by Customer or its agent; or (b) in the case of a written
report or notice, in writing prior to opening of trading on the business
day next following receipt of the report. In addition, if Customer has not
received a written confirmation that a commodity interest transaction has
been executed within three business days after Customer has placed an order
with Carr to effect such transaction, and has been informed or believes
that such order has been or should have been executed, then Customer
immediately shall notify Carr thereof. Absent such notice, Customer
conclusively shall be deemed estopped to object and to have waived any such
objection to the failure to execute or cause to be executed such
transaction. Anything in this Section 12 notwithstanding, neither Customer
nor Carr shall be bound by any transaction or price reported in error.
13. SECURITY INTEREST
Customer hereby grants to Carr a first lien upon and a security interest in
any and all cash, securities, whether certificated or uncertificated,
security entitlements, investment property, financial assets, foreign
currencies, commodity interests and other property (including securities
and options) and the proceeds of all of the foregoing (together the
"Collateral") belonging to Customer or in which Customer may have an
interest, now or in the future, and held by Carr or in Carr's control or
carried in any of Customer's Accounts, or in Customer's accounts carried
under other agreements with Carr or its affiliates. Such security interest
is granted as security for the performance by Customer of its obligations
hereunder and for the payment of all loans and other liabilities which
Customer has or may in the future have to Carr, whether under this
Agreement or any other agreement between the parties hereto. Customer
agrees to execute such further instruments, documents, filings and
agreements as may be requested at any time by Carr in order to perfect and
maintain perfected the foregoing lien and security interest. Carr, in its
discretion, may liquidate any Collateral to satisfy any margin or Account
deficiencies or to transfer the Collateral to the general ledger account of
Carr.
In the event that the provisions of Section 13, which relate to Collateral
in any account carried by Carr for Customer other than an Account
instituted hereunder, conflict with the agreement under which such other
account was instituted, such other agreement between Carr and Customer
shall take precedence over the provisions of this Section 13.
14. TRANSFER OF FUNDS
At any time and from time to time and without prior notice to Customer,
Carr may transfer from one Account to another Account in which Customer has
any interest, such excess funds, equities, securities or other property as
in Carr's judgment may be required for margin, or to reduce any debit
balance or to reduce or satisfy any deficits in such other Accounts except
that no such transfer may be made from a segregated Account subject to the
Commodity Exchange Act to another Account maintained by Customer unless
either Customer has authorized such transfer in writing or Carr is
effecting such transfer to enforce Carr's security interest pursuant to
Section 13. Carr promptly shall confirm all transfers of funds made
pursuant hereto to Customer in writing.
15. CARR'S RIGHT TO LIQUIDATE CUSTOMER POSITIONS
In addition to all other rights of Carr set forth in this Agreement:
(a) When directed or required by a regulatory or self-regulatory
organization or exchange having jurisdiction over Carr or the Account;
(b) Whenever Carr reasonably considers it necessary for its protection
because of margin requirements or otherwise;
(c) If Customer or any affiliate of Customer repudiates, violates,
breaches or fails to perform on a timely basis any term, covenant or
condition on its part to be performed under this Agreement or another
agreement with Carr;
(d) If a case in bankruptcy is commenced or if a proceeding under any
insolvency or other law for the protection of creditors or for the
appointment of a receiver, liquidator, trustee, conservator, custodian
or similar officer is filed by or against Customer or any affiliate of
Customer, or if Customer or any affiliate of Customer makes or
proposes to make any arrangement or composition for the benefit of its
creditors, or if Customer (or any such affiliate) or any or all of its
property is subject to any agreement, order, judgment or decree
providing for Customer's dissolution, winding-up, liquidation, merger,
consolidation, reorganization or for the appointment of a receiver,
liquidator, trustee, conservator, custodian or similar officer of
Customer, such affiliate or such property;
(e) Carr is informed of Customer's death or mental incapacity; or
(f) If an attachment or similar order is levied against the Account or any
other account maintained by a Customer or any affiliate of Customer
with Carr;
Carr shall have the right to (i) satisfy any obligations due Carr out of
any Customer's property (also referred to as "Collateral") in Carr's
custody or control, (ii) liquidate any or all of Customer's commodity
interest positions, such liquidation shall include transactions involving
the exchange of futures for cash commodities or the exchange of futures in
connection with cash commodity transactions, (iii) cancel any or all of
Customer's outstanding orders, (iv) treat any or all of Customer's
obligations due Carr as immediately due and payable, (v) sell any or all of
Customer's property in Carr's custody or control in such manner as Carr
determines to be commercially reasonable, and/or (vi) terminate any or all
of Carr's obligations for future performance to Customer, all without any
notice to or demand on Customer if deemed necessary by Carr. Any sale
hereunder may be made in any commercially reasonable manner. Customer
agrees that a prior demand, call or notice shall not be considered a waiver
of Carr's right to act without demand or notice as herein provided, that
Customer shall at all times be liable for the payment of any debit balance
owing in each Account upon demand whether occurring upon a liquidation as
provided under this Section 15 or otherwise under this Agreement, and that
in all cases Customer shall be liable for any deficiency remaining in each
Account in the event of liquidation thereof in whole or in part together
with interest thereon and all costs relating to liquidation and collection
(including reasonable attorneys' fees). In the event that the provisions of
Section 15, which relate to Collateral in any account carried by Carr for
Customer other than an Account instituted hereunder, conflict with the
agreement under which such other account was instituted, such other
agreement between Carr and Customer shall take precedence over the
provisions of this Section 15.
16. CUSTOMER REPRESENTATIONS, WARRANTIES AND AGREEMENTS
Customer represents and warrants to and agrees with Carr that:
(a) Customer has full power and authority to enter into this Agreement and
to engage in the transactions and perform its obligations hereunder
and contemplated hereby, and:
(1) If Customer is a corporation or partnership, Customer represents
and warrants that (a) it is duly organized and in good standing
under the laws of the jurisdiction in which it is established and
in every state in which it does business; (b) is empowered to
enter into and perform this Agreement and to effectuate
transactions in commodity interests, financial instruments and
foreign currency as contemplated hereby; (c) that Customer has
determined that trading in commodity interests is appropriate for
Customer, is prudent in all respects and does not and will not
violate any statute, rule, regulation, judgment or decree to
which Customer is subject or bound; (d) that Customer has had at
least one year's prior experience in effectuating transactions in
commodity interests, financial instruments, and foreign currency
as contemplated hereby; and (e) no person or entity has any
interest in or control of the Account to which this Agreement
pertains except as disclosed by Customer to Carr in writing.
(2) If Customer is a trust, Customer represents and warrants that (a)
it is a duly formed and existing trust under the laws of the
state of its formation or such other laws as are applicable,
including ERISA or similar state law, and the party or parties
designated as trustee or trustees by Customer to Carr in writing
submitted herewith constitute the only or all of the proper
trustees thereof; (b) the trustee or trustees are empowered to
enter into and perform this Agreement and to effectuate
transactions in commodity interests, financial instruments, and
foreign currency as contemplated hereby; (c) the trustee or
trustees make the representations set forth in Section 1 hereof
as if the term trustee(s) were substituted for the term Customer
therein; and (d) no person or entity has any interest in or
control of the Account to which this Agreement pertains except as
disclosed by Customer to Carr in writing.
(b) Neither Customer nor any partner, director, officer, member, manager
or employee of Customer nor any affiliate of Customer is a partner,
director, officer, member, manager or employee of a futures commission
merchant, introducing broker, bank, broker-dealer, exchange or
self-regulatory organization or an employee or commissioner of the
Commodity Futures Trading Commission (the "CFTC"), except as
previously disclosed in writing to Carr;
(c) Any financial statements or other information furnished in connection
therewith are true, correct and complete. Except as disclosed in
writing, (i) Customer is not a commodity pool or is exempt from
registration under the rules of the CFTC, and (ii) Customer is acting
solely as principal and no one other than Customer has any interest in
any Account of Customer. Customer hereby authorizes Carr to contact
such banks, financial institutions and credit agencies as Carr shall
deem appropriate for verification of the information contained herein;
(d) Customer has determined that trading in commodity interests is
appropriate for Customer, is prudent in all respects and does not and
will not violate Customer's charter or by-laws (or other comparable
governing document) or any law, rule, regulation, judgment, decree,
order or agreement to which Customer or its property is subject or
bound;
(e) As required by CFTC regulations, Customer shall create, retain and
produce upon request of the applicable contract market, the CFTC or
other regulatory authority documents (such as contracts,
confirmations, telex printouts, invoices and documents of title) with
respect to cash transactions underlying exchanges of futures for cash
commodities or exchange of futures in connection with cash commodity
transactions;
(f) Customer consents to the electronic recording, at Carr's discretion,
of any or all telephone conversations with Carr (without automatic
tone warning device); the use of same as evidence by either party in
any action or proceeding arising out of the Agreement and in Carr's
erasure, at its discretion, of any recording as part of its regular
procedure for handling of recordings;
(g) Absent a separate written agreement between Customer and Carr with
respect to give-ups, Carr, in its discretion, may, but shall have no
obligation to, accept from other brokers commodity interest
transactions executed by such brokers on an exchange for Customer and
proposed to be "given-up" to Carr for clearance and/or carrying in the
Account;
(h) Carr, for and on behalf of Customer, is authorized and empowered to
place orders for commodity interest transactions through one or more
electronic or automated trading systems maintained or operated by or
under the auspices of an exchange, that Carr shall not be liable or
obligated to Customer for any loss, damage, liability, cost or expense
(including but not limited to loss of profits, loss of use, incidental
or consequential damages) incurred or sustained by Customer and
arising in whole or in part, directly or indirectly, from any fault,
delay, omission, inaccuracy or termination of a system or Carr's
inability to enter, cancel or modify an order on behalf of Customer on
or through a system. The provisions of this Section 16(h) shall apply
regardless of whether any customer claim arises in contract,
negligence, tort, strict liability, breach or fiduciary obligations or
otherwise; and
(i) If Customer is subject to the Financial Institution Reform, Recovery
and Enforcement Act of 1989, the certified resolutions set forth
following this Agreement have been caused to be reflected in the
minutes of Customer's Board of Directors (or other comparable
governing body) and this Agreement is and shall be, continuously from
the date hereof, an official record of Customer.
Customer agrees to promptly notify Carr in writing if any of the warranties
and representations contained in this Section 16 become inaccurate or in
any way cease to be true, complete and correct.
17. SUCCESSORS AND ASSIGNS
This Agreement shall inure to the benefit of the parties hereto, their
successors and assigns, and shall be binding upon the parties hereto, their
successors and assigns, provided, however, that this Agreement is not
assignable by any party without the prior written consent of the other
parties.
18. MODIFICATION OF AGREEMENT BY CARR; NON-WAIVER PROVISION
This Agreement may only be altered, modified or amended by mutual written
consent of the parties. The rights and remedies conferred upon Carr shall
be cumulative, and its forbearance to take any remedial action available to
it under this Agreement shall not waive its right at any time or from time
to time thereafter to take such action.
19. SEVERABILITY
If any term or provision hereof or the application thereof to any persons
or circumstances shall to any extent be contrary to any exchange,
government or self-regulatory regulation or contrary to any federal, state
or local law or otherwise be invalid or unenforceable, the remainder of
this Agreement or the application of such term or provision to persons or
circumstances other than those as to which it is contrary, invalid or
unenforceable, shall not be affected thereby.
20. CAPTIONS
All captions used herein are for convenience only, are not a part of this
Agreement, and are not to be used in construing or interpreting any aspect
of this Agreement.
21. TERMINATION
This Agreement shall continue in force until written notice of termination
is given by Customer or Carr. Termination shall not relieve either party of
any liability or obligation incurred prior to such notice. Upon giving or
receiving notice of termination, Customer will promptly take all action
necessary to transfer all open positions in each Account to another futures
commission merchant.
22. ENTIRE AGREEMENT
This Agreement (as amended by the attached Customer Agreement dated the
date hereof into which this Agreement is incorporated by reference)
constitutes the entire agreement between Customer and Carr with respect to
the subject matter hereof and supersedes any prior agreements between the
parties with respect to such subject matter.
23. GOVERNING LAW; CONSENT TO JURISDICTION
(a) In case of a dispute between Customer and Carr arising out of or
relating to the making or performance of this Agreement or any
transaction pursuant to this Agreement (i) this Agreement and its
enforcement shall be governed by the laws of the State of Illinois
without regard to principles of conflicts of laws, and (ii) Customer
will bring any legal proceeding against Carr in, and Customer hereby
consents in any legal proceeding by Carr to the jurisdiction of, any
state or federal court located within Chicago, Illinois, in connection
with all legal proceedings arising directly, indirectly or otherwise
in connection with, out of, related to or from Customer's Account,
transactions contemplated by this Agreement or the breach thereof.
Customer hereby waives all objections Customer, at any time, may have
as to the propriety of the court in which any such legal proceedings
may be commenced. Customer also agrees that any service of process
mailed to Customer at any address specified to Carr shall be deemed a
proper service of process on the undersigned. Customer agrees that
venue of all proceedings shall be in Chicago, Illinois.
(b) Notwithstanding the provisions of Section 23(a)(ii), Customer may
elect at this time to have all disputes described in this Section
resolved by arbitration. To make such election, Customer must sign the
Arbitration Agreement set forth in Section 24. Notwithstanding such
election, any question relating to whether Customer or Carr has
commenced an arbitration proceeding in a timely manner, whether a
dispute is within the scope of the Arbitration Agreement or whether a
party (other than Customer or Carr) has consented to arbitration and
all proceedings to compel arbitration shall be determined by a court
as specified in Section 23(a)(ii).
24. ARBITRATION AGREEMENT (OPTIONAL)
Every dispute between Customer and Carr arising out of or relating to the
making or performance of this Agreement or any transaction pursuant to this
Agreement, shall be settled by arbitration in accordance with the rules,
then in effect, of the National Futures Association, the contract market
upon which the transacting giving rise to the claim was executed, or the
National Association of Securities Dealers as Customer may elect. If
Customer does not make such election by registered mail addressed to Carr
at 10 South Wacker Drive, Suite 1100, Chicago, Illinois 60606, Attention:
Legal/Compliance Department, within 45 days after demand by Carr that the
Customer make such election, then Carr may make such election. Carr agrees
to pay any incremental fees which may be assessed by a qualified forum for
making available a "mixed panel" of arbitrators, unless the arbitrators
determine that Customer has acted in bad faith in initiating or conducting
the proceedings. Judgment upon any aware rendered by the arbitrators may be
entered in any court having jurisdiction thereof.
THREE FORUMS EXIST FOR THE RESOLUTION OF COMMODITY DISPUTES: CIVIL COURT
LITIGATION, REPARATIONS AT THE COMMODITY FUTURES TRADING COMMISSION
("CFTC") AND ARBITRATION CONDUCTED BY A SELF-REGULATORY OR OTHER PRIVATE
ORGANIZATION.
THE CFTC RECOGNIZES THAT THE OPPORTUNITY TO SETTLE DISPUTES BY ARBITRATION
MAY IN SOME CASES PROVIDE MANY BENEFITS TO CUSTOMERS, INCLUDING THE ABILITY
TO OBTAIN AN EXPEDITIOUS AND FINAL RESOLUTION OF DISPUTES WITHOUT INCURRING
SUBSTANTIAL COSTS. THE CFTC REQUIRES, HOWEVER, THAT EACH CUSTOMER
INDIVIDUALLY EXAMINE THE RELATIVE MERITS OF ARBITRATION AND THAT YOUR
CONSENT OF THIS ARBITRATION AGREEMENT BE VOLUNTARY.
BY SIGNING THIS AGREEMENT, YOU (1) MAY BE WAIVING YOUR RIGHT TO SUE IN A
COURT OF LAW AND (2) ARE AGREEING TO BE BOUND BY ARBITRATION OF ANY CLAIMS
OR COUNTERCLAIMS WHICH YOU OR CARR MAY SUBMIT TO ARBITRATION UNDER THIS
AGREEMENT. YOU ARE NOT HOWEVER, WAIVING YOUR RIGHT TO ELECT INSTEAD TO
PETITION THE CFTC TO INSTITUTE REPARATIONS PROCEEDINGS UNDER SECTION 14 OF
THE COMMODITY EXCHANGE ACT WITH RESPECT TO ANY DISPUTE WHICH MAY BE
ARBITRATED PURSUANT TO THIS AGREEMENT. IN THE EVENT A DISPUTE ARISES, YOU
WILL BE NOTIFIED IF CARR INTENDS TO SUBMIT THE DISPUTE TO ARBITRATION. IF
YOU BELIEVE A VIOLATION OF THE COMMODITY EXCHANGE ACT IS INVOLVED AND IF
YOU PREFER TO REQUEST A SECTION 14 "REPARATIONS" PROCEEDINGS BEFORE THE
CFTC, YOU WILL HAVE 45 DAYS FROM THE DATE OF SUCH NOTICE IN WHICH TO MAKE
THAT ELECTION.
YOU NEED NOT AGREE TO THIS ARBITRATION AGREEMENT TO OPEN AN ACCOUNT WITH
CARR.
See 17 CFR 1890.1-180.5.
Acceptance of this arbitration agreement requires a separate signature on
page 15.
25. CONSENT TO TAKE THE OTHER SIDE OF ORDERS (OPTIONAL)
Without its prior notice, Customer agrees that when Carr executes sell or
buy orders on Customer's behalf, Carr, its directors, officers, employees,
agents, affiliates, and any floor broker may take the other side of
customer's transaction through any Account of such person subject to its
being executed at prevailing prices in accordance with and subject to the
limitations and conditions, if any, contained in applicable rules and
regulations.
26. AUTHORIZATION TO TRANSFER FUNDS (OPTIONAL)
Without limiting other provisions herein, Carr is authorized to transfer
from any segregated Account subject to the Commodity Exchange Act carried
by Carr for the Customer to any other Account carried by Carr for the
Customer such amount of excess funds as in Carr's judgment may be necessary
at any time to avoid a margin call or to reduce a debit balance in said
Account. It is understood that Carr will confirm in writing each such
transfer of funds made pursuant to this authorization within a reasonable
time after such transfer.
27. ELECTRONIC TRANSMISSION OF STATEMENTS (OPTIONAL)
Customer elects and consents to receive transmission of statements of
transactions and statements of account solely by electronic means,
including without limitation, by electronic mail or facsimile. Customer
shall not incur any costs or fees in connection with the receipt of such
statements by electronic transmission. Customer shall receive such
statements by electronic transmission until such time as it revokes its
consent in writing to Carr.
28. SUBORDINATION AGREEMENT
(Applies only to Accounts with funds held in foreign currencies)
Funds of customers trading on United States contract markets may be held in
accounts denominated in a foreign currency with depositories located
outside or inside the United States or its territories if the customer is
domiciled in a foreign country or if the funds are held in connection with
contracts priced and settled in a foreign currency. Such accounts are
subject to the risk that events could occur which hinder or prevent the
availability of these funds for distribution to customers. Such accounts
also may be subject to foreign currency exchange rate risks.
If authorized below, Customer authorizes the deposit of funds into such
depositories. For customer domiciled in the United States, this
authorization permits the holding of funds in regulated accounts only if
such funds are used to margin, guarantee, or secure positions in such
contracts or accrue as a result of such positions. In order to avoid the
possible dilution of other customer funds, a customer agrees by accepting
this subordination agreement that his claims based on such funds will be
subordinated as described below in the unlikely event both of the following
conditions are met: (1) Carr is placed in receivership or bankruptcy, and
(2) there are insufficient funds available for distribution denominated in
the foreign currency as to which the customer has a claim to satisfy all
claims against those funds.
By initialing the Subordination Agreement below, Customer agrees that if
both of the conditions listed above occur, its claim against Carr's assets
attributable to funds held overseas in a particular foreign currency may be
satisfied out of segregated customer funds held in accounts denominated in
dollars or other foreign currencies only after each customer whose funds
are held in dollars or in such other foreign currencies receives its
pro-rata portion of such funds. It is further agreed that in no event may a
customer whose funds are so held receive more than its pro-rata share of
the aggregate pool consisting of funds held in dollars, funds held in the
particular foreign currency, and non-segregated assets of Carr.
<PAGE>
OPTIONAL ELECTIONS/ACKNOWLEDGMENT
The following provisions, which are set forth in this Agreement, need not be
entered into to open the Account. Customer agrees that its optional elections
are as follows:
Signature required for each election
ARBITRATION AGREEMENT ---------------------------------------
(Agreement Paragraph 24) (Date)
CONSENT TO TAKE THE OTHER SIDE OF
ORDERS (Agreement Paragraph 25) X /s/ Mark J. Hawley 12-1-97
---------------------------------------
(Date)
AUTHORIZATION TO TRANSFER
FUNDS (Agreement Paragraph 26) ---------------------------------------
(Date)
CONSENT TO RECEIVE STATEMENTS BY
ELECTRONIC TRANSMISSION ---------------------------------------
(Agreement Paragraph 27) (Date)
ACKNOWLEDGMENT OF SUBORDINATION
AGREEMENT (Agreement Paragraph 28) X /s/ Mark J. Hawley 12-1-97
(Required for accounts holding ---------------------------------------
non-U.S. currency) (Date)
HEDGE ELECTION
/ / Customer confirms that all transactions in the Account will represent bona
fide hedging transactions, as defined by the Commodity Futures Trading
Commission, unless Carr is notified otherwise not later than the time an
order is placed for the Account:
Pursuant to CFTC Regulation 190.06(d), Customer specifies and agrees, with
respect to hedging transactions in the Account, that in the unlikely event of
Carr's bankruptcy, it prefers that the bankruptcy trustee [check appropriate
box]:
A) / / Liquidate all open contracts without first seeking instructions either
from or on behalf of Customer.
B) / / Attempt to obtain instructions with respect to the disposition of all
open contracts.
(If neither box is checked, Customer shall be deemed to elect A).)
<PAGE>
ACKNOWLEDGMENT OF RECEIPT OF RISK DISCLOSURE STATEMENTS
The undersigned hereby acknowledges its separate receipt from Carr, and its
understanding of each of the following documents prior to opening of the
Account:
o Risk Disclosure Statement for Futures and Options
o LME Risk Warning Notice
o NYMEX ACCESS(Service Mark) Risk Disclosure Statement
o Globex(Registered) Customer Information and Risk Disclosure Statement
o Project A(Trademark) Customer Information Statement
o Questions & Answers on Flexible Options Trading at the CBOT
o CME Average Pricing System Disclosure Statement
o Special Notice to Foreign Brokers and Foreign Traders
REQUIRED SIGNATURES
CUSTOMER
The undersigned has received, read, understands and agrees to all the provisions
of this Agreement and the separate risk disclosure statements enumerated above
and agrees to promptly notify Carr in writing if any of the warranties and
representations contained herein become inaccurate or in any way cease to be
true, complete and correct.
DEAN WITTER CORNERSTONE FUND III
- --------------------------------
Customer name(s)
By: DEMETER MANAGEMENT CORPORATION
By: /s/ Mark J. Hawley December 1, 1997
---------------------------------------------------------------------------
Authorized signature(s) Date
Mark J. Hawley, President
- --------------------------------------------------------------------------------
[If applicable, print name and title of signatory]
CARR FUTURES INC.
Accepted and Agreed:
Carr Futures Inc.
By: /s/ Bruce A. Beatus By: /s/ Susan Schultz
----------------------------- -----------------------------
Title: General Counsel Title: Associate General Counsel
-------------------------- --------------------------
Date: December 1, 1997 Date: December 1, 1997
-------------------------- --------------------------
Exhibit 10.07
CARR FUTURES INC.
10 South Wacker Drive, Suite 1100
Chicago, IL 60606
Facsimile (312) 441-4201
INTERNATIONAL FOREIGN EXCHANGE MASTER AGREEMENT
MASTER AGREEMENT dated as of August 1, 1997, by and between CARR FUTURES
INC., a Delaware corporation and DEAN WITTER CORNERSTONE FUND III
SECTION 1. DEFINITIONS
Unless otherwise required by the context, the following terms shall
have the following meanings in the Agreement:
"Agreement" has the meaning given to it in Section 2.2.
"Base Currency", as to a Party, means the Currency agreed to as
such in relation to it in Part VII of the Schedule.
"Business Day" means for purposes of: (i) clauses (i), (viii) and
(xii) of the definition of Event of Default, a day which is a Local
Banking Day for the Non-Defaulting Party; (ii) solely in relation
to delivery of a Currency, a day which is a Local Banking Day in
relation to that Currency; and (iii) any other provision of the
Agreement, a day which is a Local Banking Day for the applicable
Designated Offices of both Parties; provided, however, that neither
Saturday nor Sunday shall be considered a Business Day for any
purpose.
"Close-Out Amount" has the meaning given to it in Section 5.1.
"Close-Out Date" means a day on which, pursuant to the provisions
of Section 5.1, the Non-Defaulting Party closes out Currency
Obligations or such a close-out occurs automatically.
"Closing Gain", as to the Non-Defaulting Party, means the
difference described as such in relation to a particular Value Date
under the provisions of Section 5.1.
"Closing Loss", as to the Non-Defaulting Party, means the
difference described as such in relation to a particular Value Date
under the provisions of Section 5.1.
"Confirmation" means a writing (including telex, facsimile, or
other electronic means from which it is possible to produce a hard
copy) evidencing an FX Transaction, and specifying:
(i) the Parties thereto and their Designated Offices through
which they are respectively acting,
(ii) the amounts of the Currencies being bought or sold and by
which Party,
(iii) the Value Date, and
(iv) any other term generally included in such a writing in
accordance with the practice of the relevant foreign
exchange market.
"Credit Support" has the meaning given to it in Section 5.2.
"Credit Support Document", as to a Party (the "first Party"), means
a guaranty, hypothecation agreement, margin or security agreement
or document, or any other document containing an obligation of a
third party ("Credit Support Provider") or of the first Party in
favor of the other Party supporting any obligations of the first
Party under the Agreement.
"Credit Support Provider" has the meaning given to it in the
definition of Credit Support Document.
"Currency" means money denominated in the lawful currency of any
country or the Ecu.
"Currency Obligation" means any obligation of a Party to deliver a
Currency pursuant to an FX Transaction or the application of
Section 3.3(a) or (b).
"Custodian" has the meaning given to it in the definition of
Insolvency Proceeding.
"Defaulting Party" has the meaning given to it in the definition of
Event of Default.
"Designated Office(s)", as to a Party, means the office or offices
specified in Part II of the Schedule.
"Effective Date" means the date of this Master Agreement.
"Event of Default" means the occurrence of any of the following
with respect to a Party (the "Defaulting Party", the other Party
being the "Non-Defaulting Party"):
(i) the Defaulting Party shall (A) default in any payment when
due under the Agreement to the Non-Defaulting Party with
respect to any Currency Obligation and such failure shall
continue for two (2) Business Days after the Non-Defaulting
Party has given the Defaulting Party written notice of
non-payment, or (B) fail to perform or comply with any other
obligation assumed by it under the Agreement and such
failure is continuing thirty (30) days after the
Non-Defaulting Party has given the Defaulting Party written
notice thereof;
(ii) the Defaulting Party shall commence a voluntary Insolvency
Proceeding or shall take any corporate action to authorize
any such Insolvency Proceeding;
(iii) a governmental authority or self-regulatory organization
having jurisdiction over either the Defaulting Party or its
assets in the country of its organization or principal
office (A) shall commence an Insolvency Proceeding with
respect to the Defaulting Party or its assets or (B) shall
take any action under any bankruptcy, insolvency or other
similar law or any banking, insurance or similar law or
regulation governing the operation of the Defaulting Party
which may prevent the Defaulting Party from performing its
obligations under the Agreement as and when due;
(iv) an involuntary Insolvency Proceeding shall be commenced with
respect to the Defaulting Party or its assets by a person
other than a governmental authority or self-regulatory
organization having jurisdiction over either the Defaulting
Party or its assets in the country of its organization or
principal office and such Insolvency Proceeding (A) results
in the appointment of a Custodian or a judgment of
insolvency or bankruptcy or the entry of an order for
winding-up, liquidation, reorganization or other similar
relief, or (B) is not dismissed within five (5) days of its
institution or presentation;
(v) the Defaulting Party is bankrupt or insolvent, as defined
under any bankruptcy or insolvency law applicable to it;
(vi) the Defaulting Party fails, or shall otherwise be unable, to
pay its debts as they become due;
(vii) the Defaulting Party or any Custodian acting on behalf of
the Defaulting Party shall disaffirm, disclaim or repudiate
any Currency Obligation;
(viii) any representation or warranty made or given or deemed made
or given by the Defaulting Party pursuant to the Agreement
or any Credit Support Document shall prove to have been
false or misleading in any material respect as at the time
it was made or given or deemed made or given and one (1)
Business Day has elapsed after the Non-Defaulting Party has
given the Defaulting Party written notice thereof;
(ix) the Defaulting Party consolidates or amalgamates with or
merges into or transfers all or substantially all its assets
to another entity and (A) the creditworthiness of the
resulting, surviving or transferee entity is materially
weaker than that of the Defaulting Party prior to such
action, or (B) at the time of such consolidation,
amalgamation, merger or transfer the resulting, surviving or
transferee entity fails to assume all the obligations of the
Defaulting Party under the Agreement by operation of law or
pursuant to an agreement satisfactory to the Non-Defaulting
Party;
(x) by reason of any default, or event of default or other
similar condition or event, any Specified Indebtedness
(being Specified Indebtedness of an amount which, when
expressed in the Currency of the Threshold Amount, is in
aggregate equal to or in excess of the Threshold Amount) of
the Defaulting Party or any Credit Support Provider in
relation to it: (A) is not paid on the due date therefor and
remains unpaid after any applicable grace period has
elapsed, or (B) becomes, or becomes capable at any time of
being declared, due and payable under agreements or
instruments evidencing such Specified Indebtedness before it
would otherwise have been due and payable;
(xi) the Defaulting Party is in breach of or default under any
Specified Transaction and any applicable grace period has
elapsed, and there occurs any liquidation or early
termination of, or acceleration of obligations under, that
Specified Transaction or the Defaulting Party (or any
Custodian on its behalf) disaffirms, disclaims or repudiates
the whole or any part of a Specified Transaction;
(xii) (A) any Credit Support Provider of the Defaulting Party or
the Defaulting Party itself fails to comply with or perform
any agreement or obligation to be complied with or performed
by it in accordance with the applicable Credit Support
Document and such failure is continuing after any applicable
grace period has elapsed; (B) any Credit Support Document
relating to the Defaulting Party expires or ceases to be in
full force and effect prior to the satisfaction of all
obligations of the Defaulting Party under the Agreement,
unless otherwise agreed in writing by the Non-Defaulting
Party; (C) the Defaulting Party or any Credit Support
Provider of the Defaulting Party (or, in either case, any
Custodian acting on its behalf) disaffirms, disclaims or
repudiates, in whole or in part, or challenges the validity
of, any Credit Support Document; (D) any representation or
warranty made or given or deemed made or given by any Credit
Support Provider of the Defaulting Party pursuant to any
Credit Support Document shall prove to have been false or
misleading in any material respect as at the time it was
made or given or deemed made or given and one (1) Business
Day has elapsed after the Non-Defaulting Party has given the
Defaulting Party written notice thereof; or (E) any event
set out in (ii) to (vii) or (ix) to (xi) above occurs in
respect of any Credit Support Provider of the Defaulting
Party; or
(xiii) any other condition or event specified in Part IX of the
Schedule or in Section 8.14 if made applicable to the
Agreement in Part XI of the Schedule.
"FX Transaction" means any transaction between the Parties for the
purchase by one Party of an agreed amount in one Currency against
the sale by it to the other of an agreed amount in another
Currency, both such amounts either being deliverable on the same
Value Date or, if the Parties have so agreed in Part VI of the
Schedule, being cash-settled in a single Currency, which is or
shall become subject to the Agreement and in respect of which
transaction the Parties have agreed (whether orally, electronically
or in writing): the Currencies involved, the amounts of such
Currencies to be purchased and sold, which Party will purchase
which Currency and the Value Date.
"Insolvency Proceeding" means a case or proceeding seeking a
judgment of or arrangement for insolvency, bankruptcy, composition,
rehabilitation, reorganization, administration, winding-up,
liquidation or other similar relief with respect to the Defaulting
Party or its debts or assets, or seeking the appointment of a
trustee, receiver, liquidator, conservator, administrator,
custodian or other similar official (each, a "Custodian") of the
Defaulting Party or any substantial part of its assets, under any
bankruptcy, insolvency or other similar law or any banking,
insurance or similar law governing the operation of the Defaulting
Party.
"LIBOR", with respect to any Currency and date, means the average
rate at which deposits in the Currency for the relevant amount and
time period are offered by major banks in the London interbank
market as of 11:00 a.m. (London time) on such date, or, if major
banks do not offer deposits in such Currency in the London
interbank market on such date, the average rate at which deposits
in the Currency for the relevant amount and time period are offered
by major banks in the relevant foreign exchange market at such time
on such date as may be determined by the Party making the
determination.
"Local Banking Day" means (i) for any Currency, a day on which
commercial banks effect deliveries of that Currency in accordance
with the market practice of the relevant foreign exchange market,
and (ii) for any Party, a day in the location of the applicable
Designated Office of such Party on which commercial banks in that
location are not authorized or required by law to close.
"Master Agreement" means the terms and conditions set forth in this
Master Agreement, including the Schedule.
"Matched Pair Novation Netting Office(s)", in respect of a Party,
means the Designated Office(s) specified in Part V of the Schedule.
"Non-Defaulting Party" has the meaning given to it in the
definition of Event of Default.
"Novation Netting Office(s)", in respect of a Party, means the
Designated Office(s) specified in Part V of the Schedule.
"Parties" means the parties to the Agreement, including their
successors and permitted assigns (but without prejudice to the
application of clause (ix) of the definition Event of Default); and
the term "Party" shall mean whichever of the Parties is appropriate
in the context in which such expression may be used.
"Proceedings" means any suit, action or other proceedings relating
to the Agreement or any FX Transaction.
"Schedule" means the Schedule attached to and part of this Master
Agreement, as it may be amended from time to time by agreement of
the Parties.
"Settlement Netting Office(s)", in respect of a Party, means the
Designated Office(s) specified in Part V of the Schedule.
"Specified Indebtedness" means any obligation (whether present or
future, contingent or otherwise, as principal or surety or
otherwise) in respect of borrowed money, other than in respect of
deposits received.
"Specified Transaction" means any transaction (including an
agreement with respect thereto) between one Party to the Agreement
(or any Credit Support Provider of such Party) and the other Party
to the Agreement (or any Credit Support Provider of such Party)
which is a rate swap transaction, basis swap, forward rate
transaction, commodity swap, commodity option, equity or equity
linked swap, equity or equity index option, bond option, interest
rate option, foreign exchange transaction, cap transaction, floor
transaction, collar transaction, currency swap transaction,
cross-currency rate swap transaction, currency option or any other
similar transaction (including any option with respect to any of
these transactions) or any combination of any of the foregoing
transactions.
"Spot Date" means the spot delivery day for the relevant pair of
Currencies as generally used by the relevant foreign exchange
market.
"Threshold Amount" means the amount specified as such for each
Party in Part VIII of the Schedule.
"Value Date" means, with respect to any FX Transaction, the
Business Day (or where market practice in the relevant foreign
exchange market in relation to the two Currencies involved provides
for delivery of one Currency on one date which is a Local Banking
Day in relation to that Currency but not to the other Currency and
for delivery of the other Currency on the next Local Banking Day in
relation to that other Currency ("Split Settlement") the two (2)
Local Banking Days in accordance with that market practice) agreed
by the Parties for delivery of the Currencies to be purchased and
sold pursuant to such FX Transaction, and, with respect to any
Currency Obligation, the Business Day (or, in the case of Split
Settlement, Local Banking Day) upon which the obligation to deliver
Currency pursuant to such Currency Obligation is to be performed.
SECTION 2. FX TRANSACTIONS
2.1 Scope of the Agreement. The Parties (through their respective
Designated Offices) may enter into FX Transactions, for such
quantities of such Currencies, as may be agreed subject to the
terms of the Agreement; provided that neither Party shall be
required to enter into any FX Transaction with the other Party.
Unless otherwise agreed in writing by the Parties, each FX
Transaction entered into between Designated Offices of the Parties
on or after the Effective Date shall be governed by the Agreement.
Each FX Transaction between any two Designated Offices of the
Parties outstanding on the Effective Date which is identified in
Part I of the Schedule shall also be governed by the Agreement.
2.2 Single Agreement. This Master Agreement, the terms agreed
between the Parties with respect to each FX Transaction (and, to
the extent recorded in a Confirmation, each such Confirmation), and
all amendments to any of such items shall together form the
agreement between the Parties (the "Agreement") and shall together
constitute a single agreement between the Parties. The Parties
acknowledge that all FX Transactions are entered into in reliance
upon such fact, it being understood that the Parties would not
otherwise enter into any FX Transaction.
2.3 Confirmations. FX Transactions shall be promptly confirmed by
the Parties by Confirmations exchanged by mail, telex, facsimile or
other electronic means from which it is possible to produce a hard
copy. The failure by a Party to issue a Confirmation shall not
prejudice or invalidate the terms of any FX Transaction.
2.4 Inconsistencies. In the event of any inconsistency between the
provisions of the Schedule and the other provisions of the
Agreement, the Schedule will prevail. In the event of any
inconsistency between the terms of a Confirmation and the other
provisions of the Agreement, the other provisions of the Agreement
shall prevail, and the Confirmation shall not modify the other
terms of the Agreement.
SECTION 3. SETTLEMENT AND NETTING
3.1 Settlement. Subject to Sections 3.2 and 3.3, each Party shall
deliver to the other Party the amount of the Currency to be
delivered by it under each Currency Obligation on the Value Date
for such Currency Obligation.
3.2 Settlement Netting. If, on any date, more than one delivery of
a particular Currency under Currency Obligations is to be made
between a pair of Settlement Netting Offices, then each Party shall
aggregate the amounts of such Currency deliverable by it and only
the difference between these aggregate amounts shall be delivered
by the Party owing the larger aggregate amount to the other Party,
and, if the aggregate amounts are equal, no delivery of the
Currency shall be made.
3.3 Novation Netting.
(a) By Currency. If the Parties enter into an FX Transaction
through a pair of Novation Netting Offices giving rise to a
Currency Obligation for the same Value Date and in the same
Currency as a then existing Currency Obligation between the
same pair of Novation Netting Offices, then immediately upon
entering into such FX Transaction, each such Currency
Obligation shall automatically and without further action be
individually canceled and simultaneously replaced by a new
Currency Obligation for such Value Date determined as follows:
the amounts of such Currency that would otherwise have been
deliverable by each Party on such Value Date shall be
aggregated and the Party with the larger aggregate amount
shall have a new Currency Obligation to deliver to the other
Party the amount of such Currency by which its aggregate
amount exceeds the other Party's aggregate amount, provided
that if the aggregate amounts are equal, no new Currency
Obligation shall arise. This Section 3.3 shall not affect any
other Currency Obligation of a Party to deliver any different
Currency on the same Value Date.
(b) By Matched Pair. If the Parties enter into an FX Transaction
between a pair of Matched Pair Novation Netting Offices then
the provisions of Section 3.3(a) shall apply only in respect
of Currency Obligations arising by virtue of FX Transactions
entered into between such pair of Matched Pair Novation
Netting Offices and involving the same pair of Currencies and
the same Value Date.
3.4 General.
(a) Inapplicability of Sections 3.2 and 3.3. The provisions of
Sections 3.2 and 3.3 shall not apply if a Close-Out Date has
occurred or a voluntary or involuntary Insolvency Proceeding
or action of the kind described in clause (ii), (iii) or (iv)
of the definition of Event of Default has occurred without
being dismissed in relation to either Party.
(b) Failure to Record. The provisions of Section 3.3 shall apply
notwithstanding that either Party may fail to record the new
Currency Obligations in its books.
(c) Cutoff Date and Time. The provisions of Section 3.3 are
subject to any cut-off date and cut-off time agreed between
the applicable Novation Netting Offices and Matched Pair
Novation Netting Offices of the Parties.
SECTION 4. REPRESENTATIONS, WARRANTIES AND COVENANTS
4.1 Representations and Warranties. Each Party represents and
warrants to the other Party as of the Effective Date and as of the
date of each FX Transaction that: (i) it has authority to enter
into the Agreement (including such FX Transaction); (ii) the
persons entering into the Agreement (including such FX Transaction)
on its behalf have been duly authorized to do so; (iii) the
Agreement (including such FX Transaction) is binding upon it and
enforceable against it in accordance with its terms (subject to
applicable bankruptcy, reorganization, insolvency, moratorium or
similar laws affecting creditors' rights generally and applicable
principles of equity) and does not and will not violate the terms
of any agreements to which such Party is bound; (iv) no Event of
Default, or event which, with notice or lapse of time or both,
would constitute and Event of Default, has occurred and is
continuing with respect to it; and (v) it acts as principal in
entering into each FX Transaction; and (vi) if the Parties have so
specified in Part XV of the Schedule, it makes the representations
and warranties set forth in such Part XV.
4.2 Covenants. Each Party covenants to the other Party that: (i) it
will at all times obtain and comply with the terms of and do all
that is necessary to maintain in full force and effect all
authorizations, approvals, licenses and consents required to enable
it lawfully to perform its obligations under the Agreement; (ii) it
will promptly notify the other Party of the occurrence of any Event
of Default with respect to itself or any Credit Support Provider in
relation to it; and (iii) if the Parties have set forth additional
covenants in Part XVI of the Schedule, it makes the covenants set
forth in such Part XVI.
SECTION 5. CLOSE-OUT AND LIQUIDATION
5.1 Manner of Close-Out and Liquidation. (a) Close-Out. If an Event
of Default has occurred and is continuing, then the Non-Defaulting
Party shall have the right to close-out all, but not less than all,
outstanding Currency Obligations (including any Currency Obligation
which has not been performed and in respect of which the Value Date
is on or precedes the Close-Out Date) except to the extent that in
the good faith opinion of the Non-Defaulting Party certain of such
Currency Obligations may not be closed-out under applicable law.
Such close-out shall be effective upon receipt by the Defaulting
Party of notice that the Non-Defaulting Party is terminating such
Currency Obligations. Notwithstanding the foregoing, unless
otherwise agreed by the Parties in Part X of the Schedule, in the
case of an Event of Default in clause (ii), (iii) or (iv) of the
definition thereof with respect to a Party and, if agreed by the
Parties in Part IX of the Schedule, in the case of any other Event
of Default specified and so agreed in Part IX with respect to a
Party, close-out shall be automatic as to all outstanding Currency
Obligations, as of the time immediately preceding the institution
of the relevant Insolvency Proceeding or action. The Non-Defaulting
Party shall have the right to liquidate such closed-out Currency
Obligations as provided below.
(b) Liquidation. Liquidation of Currency Obligations terminated by
close-out shall be effected as follows:
(i) Calculating Closing Gain or Loss. The Non-Defaulting
Party shall calculate in good faith, with respect to
each such terminated Currency Obligation, except to the
extent that in the good faith opinion of the
Non-Defaulting Party certain of such Currency
Obligations may not be liquidated as provided herein
under applicable law, as of the Close-Out Date or as
soon thereafter as reasonably practicable, the Closing
Gain, or, as appropriate, the Closing Loss, as follows:
(A) for each Currency Obligation calculate a
"Close-Out Amount" as follows:
(1) in the case of a Currency Obligation whose
Value Date is the same as or is later than
the Close-Out Date, the amount of such
Currency Obligation; or
(2) in the case of a Currency Obligation whose
Value Date precedes the Close-Out Date, the
amount of such Currency Obligation increased,
to the extent permitted by applicable law, by
adding interest thereto from and including
the Value Date to but excluding the Close-Out
Date at overnight LIBOR; and
(3) for each such amount in a Currency other than
the Non-Defaulting Party's Base Currency,
convert such amount into the Non-Defaulting
Party's Base Currency at the rate of exchange
at which, at the time of the calculation, the
Non-Defaulting Party can buy such Base
Currency with or against the Currency of the
relevant Currency Obligation for delivery (x)
if the Value Date of such Currency Obligation
is on or after the Spot Date as of such time
of calculation for the Base Currency, on the
Value Date of that Currency Obligation or (y)
if such Value Date precedes such Spot Date,
for delivery on such Spot Date (or, in either
case, if such rate of exchange is not
available, conversion shall be accomplished
by the Non-Defaulting Party using any
commercially reasonable method); and
(B) determine in relation to each Value Date: (1) the
sum of all Close-Out Amounts relating to Currency
Obligations under which the Non-Defaulting Party
would otherwise have been entitled to receive the
relevant amount on that Value Date; and (2) the
sum of all Close-Out Amounts relating to Currency
Obligations under which the Non-Defaulting Party
would otherwise have been obliged to deliver the
relevant amount to the Defaulting Party on that
Value Date; and
(C) if the sum determined under (B)(1) is greater than
the sum determined under (B)(2), the difference
shall be the Closing Gain for such Value Date; if
the sum determined under (B)(1) is less than the
sum determined under (B)(2), the difference shall
be the Closing Loss for such Value Date.
(ii) Determining Present Value. To the extent permitted by
applicable law, the Non-Defaulting Party shall adjust
the Closing Gain or Closing Loss for each Value Date
falling after the Close-Out Date to present value by
discounting the Closing Gain or Closing Loss from and
including the Value Date to but excluding the Close-Out
Date, at LIBOR with respect to the Non-Defaulting
Party's Base Currency as at the Close-Out Date or at
such other rate as may be prescribed by applicable law.
(iii) Netting. The Non-Defaulting Party shall aggregate the
following amounts so that all such amounts are netted
into a single liquidated amount payable to or by the
Non-Defaulting Party: (x) the sum of the Closing Gains
for all Value Dates (discounted to present value, where
appropriate, in accordance with the provisions of
Section 5.1(b)(ii)) (which for the purposes of this
aggregation shall be a positive figure); and (y) the
sum of the Closing Losses for all Value Dates
(discounted to present value, where appropriate, in
accordance with the provisions of Section 5.1(b)(ii))
(which for the purposes of the aggregation shall be a
negative figure).
(iv) Settlement Payment. If the resulting net amount is
positive, it shall be payable by the Defaulting Party
to the Non-Defaulting Party, and if it is negative,
then the absolute value of such amount shall be payable
by the Non-Defaulting Party to the Defaulting Party.
5.2 Set-Off Against Credit Support. Where close-out and liquidation
occurs in accordance with Section 5.1, the Non-Defaulting Party
shall also be entitled (i) to set off the net payment calculated in
accordance with Section 5.1(b)(iv) which the Non-Defaulting Party
owes to the Defaulting Party, if any, against any credit support or
other collateral ("Credit Support") held by the Defaulting Party
pursuant to a Credit Support Document or otherwise (including the
liquidated value of any non-cash Credit Support) in respect of the
Non-Defaulting Party's obligations under the Agreement or (ii) to
set off the net payment calculated in accordance with Section
5.1(b)(iv) which the Defaulting Party owes to the Non-Defaulting
Party, if any, against any Credit Support held by the
Non-Defaulting Party (including the liquidated value of any
non-cash Credit Support) in respect of the Defaulting Party's
obligations under the Agreement; provided that, for purposes of
either such set-off, any Credit Support denominated in a Currency
other than the Non-Defaulting Party's Base Currency shall be
converted into such Base Currency at the spot price determined by
the Non-Defaulting Party at which, at the time of calculation, the
Non-Defaulting Party could enter into a contract in the foreign
exchange market to buy the Non-Defaulting Party's Base Currency in
exchange for such Currency.
5.3 Other Foreign Exchange Transactions. Where close-out and
liquidation occurs in accordance with Section 5.1, the
Non-Defaulting Party shall also be entitled to close-out and
liquidate, to the extent permitted by applicable law, any other
foreign exchange transaction entered into between the Parties which
is then outstanding in accordance with provisions of Section 5.1,
with each obligation of a Party to deliver a Currency under such a
foreign exchange transaction being treated as if it were a Currency
Obligation under the Agreement.
5.4 Payment and Late Interest. The net amount payable by one Party
to the other Party pursuant to the provisions of Sections 5.1 and
5.3 above shall be paid by the close of business on the Business
Day following the receipt by the Defaulting Party of notice of the
Non-Defaulting Party's settlement calculation, with interest at
overnight LIBOR from and including the Close-Out Date to but
excluding such Business Day (and converted as required by
applicable law into any other Currency, any costs of conversion to
be borne by, and deducted from any payment to, the Defaulting
Party). To the extent permitted by applicable law, any amounts owed
but not paid when due under this Section 5 shall bear interest at
overnight LIBOR (or, if conversion is required by applicable law
into some other Currency, either overnight LIBOR with respect to
such other Currency or such other rate as may be prescribed by such
applicable law) for each day for which such amount remains unpaid.
Any addition of interest or discounting required under this Section
5 shall be calculated on the basis of a year of such number of days
as is customary for transactions involving the relevant Currency in
the relevant foreign exchange market.
5.5 Suspension of Obligations. Without prejudice to the foregoing,
so long as a Party shall be in default in payment or performance to
the other Party under the Agreement and the other Party has not
exercised its rights under this Section 5, or, if "Adequate
Assurances" is specified as applying to the Agreement in Part XI of
the Schedule, during the pendency of a reasonable request to a
Party for adequate assurances of its ability to perform its
obligations under the Agreement, the other Party may, at its
election and without penalty, suspend its obligation to perform
under the Agreement.
5.6 Expenses. The Defaulting Party shall reimburse the
Non-Defaulting Party in respect of all out-of-pocket expenses
incurred by the Non-Defaulting Party (including fees and
disbursements of counsel, including attorneys who may be employees
of the Non-Defaulting Party) in connection with any reasonable
collection or other enforcement proceedings related to the payments
required under the Agreement.
5.7 Reasonable Pre-Estimate. The Parties agree that the amounts
recoverable under this Section 5 are a reasonable pre-estimate of
loss and not a penalty. Such amounts are payable for the loss of
bargain and the loss of protection against future risks and, except
as otherwise provided in the Agreement, neither Party will be
entitled to recover any additional damages as a consequence of such
losses.
5.8 No Limitation of Other Rights; Set-Off. The Non-Defaulting
Party's rights under this Section 5 shall be in addition to, and
not in limitation or exclusion of, any other rights which the
Non-Defaulting Party may have (whether by agreement, operation of
law or otherwise), and, to the extent not prohibited by law, the
Non-Defaulting Party shall have a general right of set-off with
respect to all amounts owed by each Party to the other Party,
whether due and payable or not due and payable (provided that any
amount not due and payable at the time of such set-off shall, if
appropriate, be discounted to present value in a commercially
reasonable manner by the Non-Defaulting Party). The Non-Defaulting
Party's rights under this Section 5.8 are subject to Section 5.7.
SECTION 6. FORCE MAJEURE, ACT OF STATE, ILLEGALITY OR IMPOSSIBILITY
6.1 Force Majeure, Act of State, Illegality or Impossibility. If
either Party is prevented from or hindered or delayed by reason of
force majeure or act of state in the delivery or receipt of any
Currency in respect of a Currency Obligation or if it becomes or,
in the good faith judgment of one of the Parties, may become
unlawful or impossible for either Party to make or receive any
payment in respect of a Currency Obligation, then the Party for
whom such performance has been prevented, hindered or delayed or
has become illegal or impossible shall promptly give notice thereof
to the other Party and either Party may, by notice to the other
Party, require the close-out and liquidation of each affected
Currency Obligation in accordance with the provisions of Sections
5.1 and, for such purposes, the Party unaffected by such force
majeure, act of state, illegality or impossibility (or, if both
Parties are so affected, whichever Party gave the relevant notice)
shall perform the calculation required under Section 5.1 as if it
were the Non-Defaulting Party. Nothing in this Section 6.1 shall be
taken as indicating that the Party treated as the Defaulting Party
for the purpose of calculations required by Section 5.1 has
committed any breach or default.
6.2 Transfer to Avoid Force Majeure, Act of State, Illegality or
Impossibility. If Section 6.1 becomes applicable, unless prohibited
by law, the Party which has been prevented, hindered or delayed
from performing shall, as a condition to its right to designate a
close-out and liquidation of any affected Currency Obligation, use
all reasonable efforts (which will not require such Party to incur
a loss, excluding immaterial, incidental expenses) to transfer as
soon as practicable, and in any event before twenty (20) days after
it gives notice under Section 6.1, all its rights and obligations
under the Agreement in respect of the affected Currency Obligations
to another of its Designated Offices so that such force majeure,
act of state, illegality or impossibility ceases to exist. Any such
transfer will be subject to the prior written consent of the other
Party, which consent will not be withheld if such other Party's
policies in effect at such time would permit it to enter into
transactions with the transferee Designated Office on the terms
proposed, unless such transfer would cause the other Party to incur
a material tax or other cost.
SECTION 7. PARTIES TO RELY ON THEIR OWN EXPERTISE
Each Party will be deemed to represent to the other Party on the
date on which it enters into an FX Transaction that (absent a
written agreement between the Parties that expressly imposes
affirmative obligations to the contrary for that FX Transaction):
(i)(A) it is acting for its own account, and it has made its own
independent decisions to enter into that FX Transaction and as to
whether that FX Transaction is appropriate or proper for it based
upon its own judgment and upon advice from such advisors as it has
deemed necessary; (B) it is not relying on any communication
(written or oral) of the other Party as investment advice or as a
recommendation to enter into that FX Transaction, it being
understood that information and explanations related to the terms
and conditions of an FX Transaction shall not be considered
investment advice or a recommendation to enter into that FX
Transaction; and (C) it has not received from the other Party any
assurance or guarantee as to the expected results of that FX
Transaction; (ii) it is capable of evaluating and understanding (on
its own behalf or through independent professional advice), and
understands and accepts, the terms, conditions and risks of that FX
Transaction; and (iii) the other Party is not acting as a fiduciary
or an advisor for it in respect of that FX Transaction.
SECTION 8. MISCELLANEOUS
8.1 Currency Indemnity. The receipt or recovery by either Party
(the "first Party") of any amount in respect of an obligation of
the other Party (the "second Party") in a Currency other than that
in which such amount was due, whether pursuant to a judgment of any
court or pursuant to Section 5 or 6, shall discharge such
obligation only to the extent that, on the first day on which the
first Party is open for business immediately following such receipt
or recovery, the first Party shall be able, in accordance with
normal banking practice, to purchase the Currency in which such
amount was due with the Currency received or recovered. If the
amount so purchasable shall be less than the original amount of the
Currency in which such amount was due, the second Party shall, as a
separate obligation and notwithstanding any judgment of any court,
indemnify the first Party against any loss sustained by it. The
second Party shall in any event indemnify the first Party against
any costs incurred by it in making any such purchase of Currency.
8.2 Assignment. Neither Party may assign, transfer or charge or
purport to assign, transfer or charge its rights or its obligations
under the Agreement to a third party without the prior written
consent of the other Party and any purported assignment, transfer
or charge in violation of this Section 8.2 shall be void.
8.3 Telephonic Recording. The Parties agree that each Party and its
agents may electronically record all telephonic conversations
between them and that any such recordings may be submitted in
evidence to any court or in any Proceedings for the purpose of
establishing any matters pertinent to the Agreement.
8.4 Notices. Unless otherwise agreed, all notices, instructions and
other communications to be given to a Party under the Agreement
shall be given to the address, telex (if confirmed by the
appropriate answerback), facsimile (confirmed if requested) or
telephone number and to the individual or department specified by
such Party in Part III of the Schedule. Unless otherwise specified,
any notice, instruction or other communication given in accordance
with this Section 8.4 shall be effective upon receipt.
8.5 Termination. Each of the Parties may terminate the Agreement at
any time by seven (7) days' prior written notice to the other Party
delivered as prescribed in Section 8.4, and termination shall be
effective at the end of such seventh day; provided, however, that
any such termination shall not affect any outstanding Currency
Obligations, and the provisions of the Agreement shall continue to
apply until all the obligations of each Party to the other under
the Agreement have been fully performed.
8.6 Severability. In the event any one or more of the provisions
contained in the Agreement should be held invalid, illegal or
unenforceable in any respect under the law of any jurisdiction, the
validity, legality and enforceability of the remaining provisions
contained in the Agreement under the law of such jurisdiction, and
the validity, legality and enforceability of such and any other
provisions under the law of any other jurisdiction shall not in any
way be affected or impaired thereby. The Parties shall endeavor in
good faith negotiations to replace the invalid, illegal or
unenforceable provisions with valid provisions the economic effect
of which comes as close as possible to that of the invalid, illegal
or unenforceable provisions.
8.7 No Waiver. No indulgence or concession granted by a Party and
no omission or delay on the part of a Party in exercising any
right, power or privilege under the Agreement shall operate as a
waiver thereof, nor shall any single or partial exercise of any
such right, power or privilege preclude any other or further
exercise thereof or the exercise of any other right, power or
privilege.
8.8 Master Agreement. Where one of the Parties to the Agreement is
domiciled in the United States, the Parties intend that the
Agreement shall be a master agreement, as referred to in 11 U.S.C.
Section 101(53B)(C) and 12 U.S.C. Section 1821(e)(8)(D)(vii).
8.9 Time of Essence. Time shall be of the essence in the Agreement.
8.10 Headings. Headings in the Agreement are for ease of reference
only.
8.11 Payments Generally. All payments to be made under the
Agreement shall be made in same day (or immediately available) and
freely transferable funds and, unless otherwise specified, shall be
delivered to such office of such bank, and in favor of such account
as shall be specified by the Party entitled to receive such payment
in Part IV of the Schedule or in a notice given in accordance with
Section 8.4.
8.12 Amendments. No amendment, modification or waiver of the
Agreement will be effective unless in writing executed by each of
the Parties.
8.13 Credit Support. A Credit Support Document between the Parties
may apply to obligations governed by the Agreement. If the Parties
have executed a Credit Support Document, such Credit Support
Document shall be subject to the terms of the Agreement and is
hereby incorporated by reference in the Agreement. In the event of
any conflict between a Credit Support Document and the Agreement,
the Agreement shall prevail, except for any provision in such
Credit Support Document in respect of governing law.
8.14 Adequate Assurances. If the Parties have so agreed in Part XI
of the Schedule, the failure by a Party to give adequate assurances
of its ability to perform any of its obligations under the
Agreement within two (2) Business Days of a written request to do
so when the other Party has reasonable grounds for insecurity shall
be an Event of Default under the Agreement.
8.15 Correction of Confirmations. Unless either Party objects to
the terms contained in any Confirmation sent by the other Party or
sends a corrected Confirmation within three (3) Business Days of
receipt of such Confirmation, or such shorter time as may be
appropriate given the Value Date of the FX Transaction, the terms
of such Confirmation shall be deemed correct and accepted absent
manifest error. If the Party receiving a Confirmation sends a
corrected Confirmation within such three (3) Business Days, or
shorter period, as appropriate, then the Party receiving such
corrected Confirmation shall have three (3) Business Days, or
shorter period, as appropriate, after receipt thereof to object to
the terms contained in such corrected Confirmation.
SECTION 9. LAW AND JURISDICTION
9.1 Governing Law. The Agreement shall be governed by, and
construed in accordance with the laws of the jurisdiction set forth
in Part XII of the Schedule without giving effect to conflict of
laws principles.
9.2 Consent to Jurisdiction. (a) With respect to any Proceedings,
each Party irrevocably (i) submits to the non-exclusive
jurisdiction of the courts of the jurisdiction set forth in Part
XIII of the Schedule and (ii) waives any objection which it may
have at any time to the laying of venue of any Proceedings brought
in any such court, waives any claim that such Proceedings have been
brought in an inconvenient forum and further waives the right to
object, with respect to such Proceedings, that such court does not
have jurisdiction over such Party. Nothing in the Agreement
precludes either Party from bringing Proceedings in any other
jurisdiction nor will the bringing of Proceedings in any one or
more jurisdictions preclude the bringing of Proceedings in any
other jurisdiction.
(b) Each Party irrevocably appoints the agent for service of
process (if any) specified with respect to it in Part XIV of the
Schedule. If for any reason any Party's process agent is unable to
act as such, such Party will promptly notify the other Party and
within thirty (30) days will appoint a substitute process agent
acceptable to the other Party.
9.3 Waiver of Jury Trial. Each Party irrevocably waives any and all
right to trial by jury in any Proceedings.
9.4 Waiver of Immunities. Each Party irrevocably waives, to the
fullest extent permitted by applicable law, with respect to itself
and its revenues and assets (irrespective of their use or intended
use), all immunity on the grounds of sovereignty or other similar
grounds from (i) suit, (ii) jurisdiction of any courts, (iii)
relief by way of injunction, order for specific performance or for
recovery of property, (iv) attachment of its assets (whether before
or after judgment) and (v) execution or enforcement of any judgment
to which it or its revenues or assets might otherwise be entitled
in any Proceedings in the courts of any jurisdiction and
irrevocably agrees, to the extent permitted by applicable law, that
it will not claim any such immunity in any Proceedings.
IN WITNESS WHEREOF, the Parties have caused the Agreement to be duly
executed by their respective authorized officers as of the date first written
above.
CARR FUTURES INC.
By /s/ Lawrence P. Anderson
--------------------------------
Name: Lawrence P. Anderson
Title: Executive Vice President
DEAN WITTER CORNERSTONE FUND III
By Demeter Management Corporation
General Partner
By /s/ Mark Hawley
--------------------------------
Name: Mark Hawley
Title: President
<PAGE>
SCHEDULE
Schedule to the International Foreign Exchange Master Agreement
dated as of August 1, 1997
between Dean Witter Cornerstone Fund III ("Party A")
and Carr Futures Inc. ("Party B").
Part I. Scope of Agreement
The Agreement shall apply to all foreign exchange transactions
outstanding between any two Designated Offices of the Parties on the
Effective Date.
It shall be understood that Party A shall typically be conducting
its foreign exchange transactions under the Agreement through its
Trading Advisors who shall be disclosed by Party A to Party B from
time to time by notice. The Trading Advisors will act as Party A's
agents for all purposes hereunder until further notice.
Part II. Designated Offices
Each of the following shall be a Designated Office:
Party A:
c/o Demeter Management
Corporation
Two World Trade Center
62nd Floor
New York, NY 10048
Attn: Robert E. Murray
Telephone No.: (212) 392-7404
Facsimile No.: (212) 392-2804
Party B:
Carr Futures Inc.
One World Trade Center
92nd Floor
New York, NY 10048
Attn: David Mangold
Telephone No.: (212) 453-6365
Facsimile No.: (212) 453-6361
Part III. Notices:
If sent to Party A:
Address: c/o Demeter Management Corporation
Two World Trade Center, 62nd Floor
New York, New York 10048
Telephone Number: (212) 392-7404
Facsimile Number: (212) 392-2804
Name of Individual or Department to whom Notices are to be sent:
Robert E. Murray
With copies to Party A's designated Trading Advisors.
If sent to Party B:
Address: Carr Futures Inc.
One World Trade Center
New York, New York 10048
Telephone Number: (212) 453-6365
Facsimile Number: (212) 453-6361
Name of Individual or Department to whom Notices are to be sent:
David Mangold
Part IV. Payment Instructions
Name of Bank and Office, Account Number and Reference with respect
to relevant Currencies:
Party A Party B
Citibank, N.A. Harris Trust & Savings Bank, Chicago
ABA: 021-000089 ABA: 071.000.288
Account Name: Dean Witter For the Account of Carr Futures Inc.,
Reynolds, Inc. Chicago Customer Segregated
Account No. 40611164 Account No. 203-908-9
FFC: Dean Witter FFC: Dean Witter
Cornerstone Fund III, Cornerstone Fund III,
Account # (As Party B is Account # (As Party A is
notified from notified from
time to time) time to time)
Part V. Netting
A. Settlement Netting Offices
Each of the following shall be a Settlement Netting Office:
Party A: Same as in Part II.
Party B: Same as in Part II.
B. Novation Netting Offices
Each of the following shall be a Novation Netting Office:
Party A: Same as in Part V-A.
Party B: Same as in Part V-A.
C. Matched Pair Novation Netting Offices
Each of the following shall be a Matched Pair Novation Netting
Office:
Party A: Not Applicable.
Party B: Not Applicable.
Part VI. Cash Settlement of FX Transactions
The following provision shall apply:
The definition of FX Transaction in Section 1 shall include foreign
exchange transactions for the purchase and sale of one Currency
against another but which shall be settled by the delivery of only
one Currency based on the difference between exchange rates as
agreed by the Parties as evidenced in a Confirmation. Section 3.1 is
modified so that only one Currency shall be delivered for any such
FX Transaction in accordance with the formula agreed by the Parties.
Section 5.1(b)(i)(A) is modified so that the Close-Out Amount for
any such FX Transaction for which the cash settlement amount has
been fixed on or before the Close-Out Date pursuant to the terms of
such FX Transaction shall be equal to the Currency Obligation
arising therefrom (increased by adding interest in the manner
provided in clause (A)(2) if the Value Date precedes the Close-Out
Date) and for any such FX Transaction for which the cash settlement
amount has not yet been fixed on the Close-Out Date pursuant to the
terms of such FX Transaction, the Close-Out Amount shall be as
determined by the Non-Defaulting Party in good faith and in a
commercially reasonable manner.
Part VII. Base Currency
Party A's Base Currency is the United States dollar.
Party B's Base Currency is the United States dollar.
Part VIII. Threshold Amount
For purposes of clause (x) of the definition of Event of Default:
Party A's Threshold Amount is 3% of Party A's equity capital as
evidenced by Party A's latest financial statements.
Party B's Threshold Amount is 3% of Party B's equity capital as
evidenced by Party B's latest financial statements.
Part IX. Additional Events of Default
The following provisions which are checked shall constitute Events
of Default:
None.
[ ] (a) occurrence of garnishment or provisional garnishment
against a claim against the Defaulting Party acquired by
the Non-Defaulting Party. The automatic termination
provisions of Section 5.1 [shall] [shall not] apply to
either Party that is a Defaulting Party in respect of this
Event of Default.
[ ] (b) suspension of payment by the Defaulting Party or any
Credit Support provider in accordance with the Bankruptcy
Law or the Corporate Reorganization Law in Japan. The
automatic termination provision of Section 5.1 [shall]
[shall not] apply to either Party that is a Defaulting
Party in respect of this Event of Default.
[ ] (c) disqualification of the Defaulting Party or any Credit
Support Provider by any relevant bill clearing house
located in Japan. The automatic termination provision of
Section 5.2 [shall][shall not] apply to either Party that
is a Defaulting Party in respect of this Event of Default.
Part X. Automatic Termination
The automatic termination provision of Section 5.1 shall not apply
to Party A as Defaulting Party in respect of clause (ii), (iii) or
(iv) of the definition of Event of Default.
The automatic termination provision of Section 5.1 shall not apply
to Party B as Defaulting Party in respect of clause (ii), (iii) or
(iv) of the definition of Event of Default.
Part XI. Adequate Assurances
Adequate Assurances under Section 8.14 shall apply to the Agreement.
Part XII. Governing Law
In accordance with Section 9.1 of the Agreement, the Agreement shall
be governed by the laws of the State of New York.
Part XIII. Consent to Jurisdiction
In accordance with Section 9.2 of the Agreement, each Party
irrevocably submits to the non-exclusive jurisdiction of the courts
of the State of New York and the United States District Court
located in the Borough of Manhattan in New York City.
Part XIV. Agent for Service of Process
Not applicable.
Part XV. Certain Regulatory Representations
A. The following FDICIA representation shall not apply:
1. Party A represents and warrants that it qualifies as a
"financial institution" within the meaning of the Federal
Deposit Insurance Corporation Improvement Act of 1991
("FDICIA") by virtue of being a:
[ ] broker or dealer within the meaning of FDICIA;
[ ] depository institution within the meaning of FDICIA;
[ ] futures commission merchant within the meaning of
FDICIA;
[ ] "financial institution" within the meaning of
Regulation EE (see below).
2. Party B hereby represents and warrants that it qualifies
as a "financial institution" by virtue of being a:
[ ] broker or dealer within the meaning of FDICIA;
[ ] depository institution within the meaning of FDICIA;
[ ] futures commission merchant within the meaning of
FDICIA;
[ ] "financial institution" within the meaning of
Regulation EE (see below).
3. A Party representing that it is a "financial institution"
as that term is defined in 12 C.F.R. Section 231.3 of
Regulation EE issued by the Board of Governors of the
Federal Reserve System ("Regulation EE") represents that:
(a) it is willing to enter into financial contracts" as a
counterparty "on both sides of one or more financial
markets" as those terms are used in Section 231.3 of
Regulation EE; and
(b) during the 15-month period immediately preceding the
date it makes or is deemed to make this
representation, it has had on at least one (1) day
during such period, with counterparties that are not
its affiliates (as defined in Section 231.2(b) of
Regulation EE) either:
(i) one or more financial contracts of a total gross
notional principal amount of $1 billion
outstanding; or
(ii) total gross mark-to-market positions (aggregated
across counterparties) of $100 million; and
(c) agrees that it will notify the other Party if it no
longer meets the requirements for status as a
financial institution under Regulation EE.
4. If both Parties are financial institutions in accordance
with the above, the Parties agree that the Agreement shall
be a netting contract, as defined in 12 U.S.C. Section
4402(14), and each receipt or payment or delivery
obligation under the Agreement shall be a covered
contractual payment entitlement or covered contractual
payment obligation, respectively, as defined in FDICIA.
B. The following ERISA representation shall apply:
Each Party represents and warrants that it is neither (i) an
"employee benefit plan" as defined in Section 3(3) of the Employee
Retirement Income Security Act of 1974 which is subject to Part 4 of
Subtitle B of Title I of such Act; (ii) a "plan" as defined in
Section 4975(e)(1) of the Internal Revenue Code of 1986; nor (iii)
an entity the assets of which are deemed to be assets of any such
"employee benefit plan" or "plan" by reason of the U.S. Department
of Labor's plan asset regulation, 29 C.F.R. Section 2510.3-101.
C. The following CFTC eligible swap participant representation shall
apply:
Each Party represents and warrants that it is an "eligible swap
participant" under, and as defined in, 17 C.F.R. Section 35.1.
Part XVI. Additional Covenants
The following covenant[s] shall apply to the Agreement:
A. Party B covenants and agrees that when Party A or an agent for Party
A requests Party B to an FX Transaction, Party B will do a
back-to-back principal trade and the price of the FX Transaction to
Party A will be the same price at which Party B effects its
back-to-back trade with its counterparty, and Party B will not
profit from any mark-up or spread on the FX Transaction.
B. With respect to each FX Transaction, Party A shall pay to Party B a
round-turn fee as follows. For FX Transactions not having a Party
B-imposed forward date, the fee shall be $4.30 per round-turn ($2.15
per side) for each $85,000 equivalent of the Currency in the FX
Transaction. For FX Transactions with a Party B-imposed forward date
restriction, the fee shall be $5.00 per round-turn ($2.50 per side)
for each $135,000 equivalent of the Currency in the FX Transaction.
C. Party A shall post margin with Party B with respect to all FX
Transactions in an amount equal to 3.0% of the value of such FX
Transactions on major currencies and 5.0% of the value of such FX
Transactions on minor currencies. All calls for margin shall be made
by Party B orally or by written notice to Dean Witter Reynolds, and
each such call for margin shall be met by Party A within three hours
after Dean Witter Reynolds has received such call by wire transfer
(by federal bank wire system) to the account of Party B. Party B
shall accept as margin any instrument deemed acceptable as margin
under the rules of the Chicago Mercantile Exchange. Upon oral or
written request by Dean Witter Reynolds, Party B shall, within three
hours after receipt of any such request, wire transfer (by federal
bank wire system) to Dean Witter Reynolds for Party A's account any
margin funds held by Party B in excess of the margin requirements
specified hereby. Notwithstanding Part VI above, all payments,
unless otherwise agreed to, shall be paid in U.S. dollars.
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
The schedule contains summary financial information extracted from Dean
Witter Cornerstone Fund III and is qualified in its entirety by reference
to such financial statements.
</LEGEND>
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> DEC-31-1998
<PERIOD-END> DEC-31-1998
<CASH> 38,504,975
<SECURITIES> 0
<RECEIVABLES> 202,112<F1>
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 0
<PP&E> 0
<DEPRECIATION> 0
<TOTAL-ASSETS> 40,759,850<F2>
<CURRENT-LIABILITIES> 0
<BONDS> 0
0
0
<COMMON> 0
<OTHER-SE> 0
<TOTAL-LIABILITY-AND-EQUITY> 40,759,850<F3>
<SALES> 0
<TOTAL-REVENUES> 7,717,783<F4>
<CGS> 0
<TOTAL-COSTS> 0
<OTHER-EXPENSES> 4,060,177
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 0
<INCOME-PRETAX> 3,657,606
<INCOME-TAX> 0
<INCOME-CONTINUING> 3,657,606
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 3,657,606
<EPS-PRIMARY> 0
<EPS-DILUTED> 0
<FN>
<F1>Receivables include interest receivable of $120,465 and due
from DWR of $81,647.
<F2>In addition to cash and receivables, total assets include net
unrealized gain on open contracts of $2,102,810 and net option
premiums of $(50,047).
<F3>Liabilities include redemptions payable of $220,184, accrued
management fees of $135,067, accrued administrative expenses payable of
$104,780.
<F4>Total revenue includes realized trading revenue of $5,912,923, net
change in unrealized of $164,515 and interest income of $1,640,345.
</FN>
</TABLE>
