UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 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 0-19116
DEAN WITTER DIVERSIFIED FUTURES FUND III L.P.
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(Exact name of registrant as specified in its Limited Partnership Agreement)
DELAWARE 13-3577501
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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)
(212) 392-5454
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Registrant's telephone number, including area code
Securities registered pursuant to Section 12(b) of the Act:
Name of each exchange
Title of each class on which registered
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None None
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: $60,421,065.94 at January 31,
1999.
DOCUMENTS INCORPORATED BY REFERENCE
(See Page 1)
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DEAN WITTER DIVERSIFIED FUTURES FUND III L.P.
INDEX TO ANNUAL REPORT ON FORM 10-K
DECEMBER 31, 1998
Page No.
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DOCUMENTS INCORPORATED BY REFERENCE. . . . . . . . . . . . . . . . . . . . 1
Part I.
Item 1. Business. . . . . . . . . . . . . . . . . . . . . . . . 2-4
Item 2. Properties. . . . . . . . . . . . . . . . . . . . . . . 4
Item 3. Legal Proceedings . . . . . . . . . . . . . . . . . . . 4-6
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 . . . . . . . . . . . . . . . . . . . . . . 18-31
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
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
June 30, 1992. I
Annual Report to Dean Witter
Diversified Futures Fund III L.P.
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 Diversified Futures
Fund III L.P. (the "Partnership") is a Delaware limited partnership organized to
engage in the speculative trading of commodity futures contracts and forward
contracts on foreign currencies (collectively, "futures interests"). The general
partner for the Partnership 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. The trading manager is Dean Witter Futures &
Currency Management Inc. ("DWFCM" or the "Trading Manager"). Demeter, DWR and
DWFCM are wholly-owned subsidiaries of Morgan Stanley Dean Witter & Co.
("MSDW").
The Partnership's Net Asset Value per Unit, as of December 31, 1998,
was $1,783.35, representing an increase of 5.39 percent from the Net Asset Value
per Unit of $1,692.08 at December 31, 1997. For a more detailed description of
the Partnership's business see subparagraph (c).
(b) Financial Information about Industry Segments. For financial
information reporting purposes, the Partnership is deemed to engage
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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 Manager. For a detailed description of the
different facets of the Partnership's business, see those portions of the
Partnership's prospectus, dated June 30, 1992, (the "Prospectus"), 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 1-8).
2. Commodity Markets 2. "The Commodities Markets"
(Pages 52-59).
3. Partnership's Trading 3. "Trading Policies" (Pages
Arrangements and 48-49). "The Trading
Policies Manager" (Pages 37-47).
4. Management of the Part- 4. "The Management Agreement"
nership (Pages 50-52). "The
General Partner" (Pages
33-35) and "The Commodity
Broker" (Pages 49-50).
"The Limited Partner-
ship Agreement" (Pages
61-65).
5. Taxation of the Partner- 5. "Federal Income Tax
ship's Limited Partners Aspects" and "State and
Local Income Tax Aspects"
(Pages 70-77).
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<PAGE>
(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.
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, 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
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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
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
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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 or the Partnership.
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 5,114. No distributions have been
made by the Partnership since it commenced trading operations on November 1,
1990. 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.
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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) 9,448,680 16,870,923 4,036,681 10,909,439 19,353,083
Net Income (Loss) 3,166,040 8,729,367 (5,408,768) (3,937,613) 5,193,417
Net Income (Loss)
Per Unit (Limited
& General Partners) 91.27 185.19 (74.86) (66.26) 91.72
Total Assets 65,687,386 73,774,146 81,320,352 102,412,462 120,022,299
Total Limited
Partners' Capital 64,144,919 70,564,013 78,452,540 98,628,520 115,956,558
Net Asset Value Per
Unit of Limited
Partnership Interest 1,783.35 1,692.08 1,506.89 1,581.75 1,648.01
</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 future 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.
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Such 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 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.
Results of Operations. As of December 31, 1998, the Partnership's total
capital was $64,888,738, a decrease of $7,370,890 from the Partnership's total
capital of $72,259,628 at December 31, 1997. For the year ended December 31,
1998, the partnership generated net income of $3,166,040, and total redemptions
aggregated $10,536,930.
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For the year ended December 31, 1998, the Partnership's total trading
revenues, including interest income, were $9,448,680. The Partnership's total
expenses for the year were $6,282,640, resulting in net income of $3,166,040.
The value of an individual unit in the Partnership increased from $1,692.08 at
December 31, 1997 to $1,783.35 at December 31, 1998.
As of December 31, 1997, the Partnership's total capital was
$72,259,628, a decrease of $7,702,955 from the Partnership's total capital of
$79,962,583 at December 31, 1996. For the year ended December 31, 1997, the
Partnership generated net income of $8,729,367 and total redemptions aggregated
$16,432,322.
For the year ended December 31, 1997, the Partnership's total trading
revenues including interest income were $16,870,923. The Partnership's total
expenses for the year were $8,141,556, resulting in net income of $8,729,367.
The value of an individual unit in the Partnership increased from $1,506.89 at
December 31, 1996 to $1,692.08 at December 31, 1997.
As of December 31, 1996, the Partnership's total capital was
$79,962,583, a decrease of $20,250,999 from the Partnership's total capital of
$100,213,582 at December 31, 1995. For the year ended
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December 31, 1996, the Partnership incurred a net loss of $5,408,768 and total
redemptions aggregated $14,842,231.
For the year ended December 31, 1996, the Partnership's total trading
revenues including interest income were $4,036,681. The Partnership's total
expenses for the year were $9,445,449, resulting in a net loss of $5,408,768.
The value of an individual unit in the Partnership decreased from $1,581.75 at
December 31, 1995 to $1,506.89 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
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in the event of non-performance by one of its members or 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-traded 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
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exchange, clearinghouse or other exchange member default on trades effected for
the broker's customers. Any such obligation on the part of the broker appears
even less clear where the default occurs in a non-US jurisdiction.
Demeter deals with the credit risks of all the 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 its 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
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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 a 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 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.
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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". 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
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material relationship - the futures exchanges and clearing organizations through
which it trades, Carr, or the Trading Manager - 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 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 Manager throughout 1999 in their Year 2000 compliance
and, where applicable, to test its external interface with Carr and the Trading
Manager.
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.
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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 Manager from trading in certain currencies and thereby
limits its ability to take advantage of potential market opportunities that
might otherwise have existed had separate currencies been available to trade.
This could adversely affect the performance results of 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
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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.
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.
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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 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 Manager 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
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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 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 Manager in its daily risk management activities.
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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 $65 million.
Primary Market December 31, 1998
Risk Category Value at Risk
------------- -------------
Interest Rate (.54)%
Currency (.95)
Equity (.22)
Commodity (1.04)
Aggregate Value at Risk (1.37)%
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.
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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 assets for
the four quarterly reporting periods from January 1, 1998 through December 31,
1998.
Primary Market Risk Category High Low Average
- ---------------------------- ---- --- -------
Interest Rate (1.76)% (.54)% (1.17)%
Currency (2.40) (.95) (1.75)
Equity (.57) (.22) (.36)
Commodity (1.07) (.64) (.88)
Aggregate Value at Risk (3.32)% (1.37)% (2.38)%
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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".
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
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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.
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 89%) of its available assets in
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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 Manager for managing
such exposures are subject to numerous uncertainties, contingencies and risks,
any one of which could cause the actual results of the Partnership's risk
controls to differ materially from the objectives of such strategies. Government
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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.
Currency. The primary exposure in the Partnership is in the currency
complex. The Partnership's currency exposure is to exchange rate fluctuations,
primarily fluctuations that disrupt the historical pricing relationships between
different currencies and currency pairs. Interest rate changes as well as
political and general economic conditions influence these fluctuations. 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/Swedish krone,
dollar/yen, and dollar/Swiss franc positions. Demeter does not
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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 Manager's
currency trading strategies. The currency trading Value at Risk figure includes
foreign margin amounts converted into U.S. dollars with an incremental
adjustment to reflect the exchange rate risk inherent to the dollar-based
Partnership in expressing Value at Risk in a functional currency other than
dollars.
Interest Rate. The second largest exposure is in the interest rate
sector. 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 on
its' futures is to interest rate fluctuations in the United States, Australia
and the other G-7 countries. Demeter anticipates that G-7 and Australian
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 and medium-term instruments.
Consequently, even a material change in short-term rates would have little
effect on the Partnership's futures positions were
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the medium to long term rates to remain steady.
Equity. The Partnership's equity exposure is limited to price risk in
the S&P 500 and the Nikkei (Japan). 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 only equity exposure was in the S&P 500.
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. 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. While the Partnership's primary metals market exposure was to
fluctuations in base metals, exposure in the precious metals impacted the
portfolio as well. The fund aims to equally weight market exposure in the metals
as much as possible, however base metals, during period of volatility, will
affect performance more dramatically than gold and silver markets. Demeter
anticipates that base metals will remain the primary metals market exposure of
the Partnership.
Energy. On December 31, 1998 the Partnership's energy exposure
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was shared by futures contracts in the oil and natural gas markets. Price
movements in these markets result from political developments in the Middle
East, weather patterns, and other economic fundamentals. While oil prices are
currently depressed and have shown little volatility as they have decreased
substantially in 1998, they can be volatile. Significant profits and losses have
been and are expected to continue to be experienced in this market. Natural gas,
also a primary energy market exposure, has exhibited more volatility than the
oil markets on an intra day and daily basis. It is expected to continue this
choppy pattern.
Soft Commodities. In 1998 the Partnership had a reasonable amount of
exposure in the markets that comprise these sectors. Within these complexes most
of the exposure was in the cocoa and cotton markets. Overall, however, the
Partnership's exposure in these complexes is generally less than the exposure in
the currency and interest rate sectors. Price movements in these markets are
affected by supply demand inequalities, severe weather disruptions, and market
expectations.
Qualitative Disclosures Regarding Non-Trading Risk Exposure
The following was the only non-trading risk exposure of the Partnership
as of December 31, 1998:
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Foreign Currency Balances. The Partnership's primary foreign currency
balances are in Japanese yen, British pounds, Deutsche marks and Australian
dollars. The Partnership controls the non-trading risk of these balances by
regularly converting these balances back into dollars upon liquidation of the
respective position.
Qualitative Disclosures Regarding Means of Managing Risk Exposure
The means by which the Partnership and the Trading Manager, 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 market sectors and trading approaches, and (ii), monitoring the
performance of the Trading Manager on a daily basis. In addition, the Trading
Manager establishes diversification guidelines, often set in terms of the
maximum margin to be committed to positions in any one market sector or market
sensitive instrument.
Demeter monitors and controls the risk of the Partnership's non-trading
instruments, cash, which is the only Partnership investment directed by Demeter,
rather than the Trading Manager.
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<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.
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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.
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<PAGE>
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 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
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<PAGE>
DWR's Managed Futures Department and is the Senior Administrative Officer of
DWFCM. Mr. Murray began his career at DWR in 1984 and is currently the
Director of the Managed Futures Department. In this capacity, Mr. Murray is
responsible for overseeing all aspects of the firm's Managed Futures
Department. Mr. Murray currently serves as a Director of the Managed Funds
Association, an industry association for investment professionals in futures,
hedge funds and other alternative investments. Mr. Murray graduated from
Geneseo State University in May 1983 with a B.A. degree in Finance.
Lewis A. Raibley, III, age 36, is Vice President, 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
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<PAGE>
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 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
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<PAGE>
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.
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.
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<PAGE>
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.
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 417.091 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
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<PAGE>
broker, DWR received commodity brokerage commissions (paid and accrued by the
Partnership) of $3,886,833 for the year ended December 31, 1998. In its capacity
as the Partnership's Trading Manager, DWFCM received management fees of
$2,006,537 for the year ended December 31, 1998.
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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 DIVERSIFIED FUTURES FUND III L.P.
(Registrant)
BY: Demeter Management Corporation,
General Partner
March 29, 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/ Mark J. Hawley March 29, 1999
-------------------------------------------
Mark J. Hawley, Director
and Chairman of the Board
/s/ Robert E. Murray March 29, 1999
-------------------------------------------
Robert E. Murray, Director and
President
/s/ Joseph G. Siniscalchi March 29, 1999
-------------------------------------------
Joseph G. Siniscalchi, Director
/s/ Edward C. Oelsner III March 29, 1999
-------------------------------------------
Edward C. Oelsner III, Director
/s/ Mitchell M. Merin March 29, 1999
-------------------------------------------
Mitchell M. Merin, Director
/s/ Richard A. Beech March 29, 1999
-------------------------------------------
Richard A. Beech, Director
/s/ Ray Harris March 29, 1999
-------------------------------------------
Ray Harris, Director
/s/ Lewis A. Raibley, III March 29, 1999
-------------------------------------------
Lewis A. Raibley, III, Director, Chief
Financial Officer and Principal
Accounting Officer
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<PAGE>
EXHIBIT INDEX
ITEM METHOD OF FILING
---- ----------------
-3.01 Limited Partnership Agreement of
the Partnership, dated as of
July 12, 1990. (1)
-3.01 Form of Amendment No. 1 to the
Limited Partnership Agreement
of the Partnership. (2)
- -10.01 Management Agreement among the
Partnership, Demeter Management
Corporation and Dean Witter Futures (3)
& Currency Management Inc. dated
as of July 12, 1990.
- -10.02 Form of Amendment No. 1 to the
Management Agreement. (4)
- -10.03 Amended and Restated Customer Agreement
dated as of December 1, 1997, between the
Partnership and Dean Witter Reynolds Inc. (5)
- -10.04 Customer Agreement, dated as of December 1,
1997, among the Partnership, Carr Futures,
Inc., and Dean Witter Reynolds Inc. (5)
- -10.05 International Foreign Exchange Master Agreement,
dated as of August 1, 1997, between the
Partnership and Carr Futures, Inc. (5)
- -13. Annual Report to Limited Partners for the year ended
December 31, 1998. (5)
(1) Incorporated by reference to Exhibit 3.01 and Exhibit 3.02 of the
Partnership's Registration Statement on Form S-1, File No. 33-34989,
filed on May 21, 1990.
(2) Incorporated by reference to Exhibit 3.01(a) of the Partnership's
Registration Statement on Form S-1, File No. 33-47797, filed on May
11, 1992.
(3) Incorporated by reference to Exhibit 10.02 of the Partnership's
Registration Statement on Form S-1, File No. 33-34989, filed on May
21, 1990.
(4) Incorporated by reference to Exhibit 10.02(a) of the Partnership's
Registration Statement on Form S-1, File No. 33-47797, filed on May
11, 1992.
(5) Filed herewith.
-E1-
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 DIVERSIFIED FUTURES FUND III L.P., a Delaware 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 Secretary of State of the
State of Delaware on May 14, 1990, and a Limited Partnership Agreement dated as
of May 14, 1990, and 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, spread or otherwise acquire, hold, or dispose of commodities (including,
but not limited, to foreign currencies, mortgage-backed securities, money market
instruments, financial instruments, and any other securities or items which are,
or may become, the subject of futures contract trading), domestic and foreign
commodity futures contracts, commodity forward contracts, foreign exchange
commitments, options on physical commodities and on futures contracts, spot
(cash) commodities and currencies, and any rights pertaining thereto
(hereinafter referred to collectively as "futures interests") and securities
(such as United States Treasury bills) approved by the Commodity Futures Trading
Commission (the "CFTC") for investment of customer funds, and to engage in all
activities incident thereto;
WHEREAS, the Customer (which is a commodity pool) and the
General Partner (which is a registered commodity pool operator) have entered
into a management agreement (the "Management Agreement") with a certain trading
advisor (the "Trading Advisor"), which provides that the Trading Advisor has
authority and responsibility, except in certain limited situations, to direct
the investment and reinvestment of the assets of the Customer in futures
interests under the terms set forth in the Management Agreement;
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 futures 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 futures 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 futures interests
transactions on behalf of the Customer in accordance with instructions provided
by the Trading Advisor, 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.
(a) Except as otherwise set forth herein, the
Customer, and not DWR, shall be responsible for all taxes, management and
incentive fees to the Trading Advisor, brokerage commissions to DWR, and all
extraordinary expenses incurred by it. In addition, the Customer, and not DWR,
shall pay the charges of CFI for executing and clearing the Customer's futures
interests trades (as described in paragraph 5(b) below).
(b) The Customer will pay its ordinary
administrative expenses, subject to a cap of 0.60% per year of the Customer's
average month-end Net Assets, including expenses for services provided by third
parties selected by the General Partner and reimbursement of all out-of-pocket
expenses incurred by such persons and by the General Partner and its affiliates
in providing services to the Customer. Such expenses shall include legal,
accounting and auditing expenses (including expenses incurred in preparing
reports and tax information to Limited Partners and regulatory authorities and
expenses for specialized administrative services), printing and duplication
expenses, mailing expenses, and filing fees. The General Partner or its
affiliates shall pay any ordinary administrative expenses which exceed the cap.
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 futures 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. Compensation of DWR. (a) 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 the Trading Advisor's allocated Net Assets
will be capped at 13/20 of 1% per month (in the event the Trading Advisor
employs 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 the Trading Advisor 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) Any brokerage commissions, and transaction
fees and costs in excess of such caps shall be borne or paid by DWR or an
affiliate and shall not be reimbursed by the Customer. The foregoing caps may
not be increased except as permitted in the Customer's Limited Partnership
Agreement, as amended from time to time.
6. Investment Discretion. The parties recognize that DWR shall
have no authority to direct the futures interests investments to be made for the
Customer's account. However, the parties agree that DWR, and not the Trading
Advisor, 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. 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 for the month
at a rate equal to the average yield on the 13-week U.S. Treasury Bills issued
during such month. All of such funds will be available for margin for the
Customer's trading. For the purpose of such interest payments, Net Assets will
not include monies due to the Customer on or with respect to forward contracts
and other futures interests but not actually received by it from banks, brokers,
dealers and other persons. 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 funds will either be invested along
with other customer segregated and secured funds of DWR or held in non-interest
bearing bank accounts. 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. Subject to Section 2
hereof, DWR and its affiliates (as defined below) shall not be liable to the
Customer, the General Partner or Limited Partners, or any of its or their
respective successors or assigns, for any act, omission, conduct, or activity
undertaken by or on behalf of the Customer pursuant to this Agreement which DWR
determines, in good faith, to be in the best interests of the Customer, unless
such act, omission, conduct, or activity by DWR or its affiliates constituted
misconduct or negligence.
The Customer shall indemnify, defend and hold harmless DWR and
its affiliates 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, conduct or activity 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 (i) DWR has determined, in good faith, that the act, omission,
conduct, or activity giving rise to the claim for indemnification was in the
best interests of the Customer, and (ii) the act, omission, conduct, or activity
that was the basis for such loss, liability, damage, cost, or expense was not
the result of misconduct or negligence. Notwithstanding anything to the contrary
contained in the foregoing, neither DWR nor any of its affiliates shall be
indemnified by the Customer for any losses, liabilities, or expenses arising
from or out of an alleged violation of federal or state securities laws unless
(a) there has been a successful adjudication on the merits of each count
involving alleged securities law violations as to the particular indemnitee, or
(b) such claims have been dismissed with prejudice on the merits by a court of
competent jurisdiction as to the particular indemnitee, or (c) a court of
competent jurisdiction approves a settlement of the claims against the
particular indemnitee and finds that indemnification of the settlement and
related costs should be made, provided, with regard to such court approval, the
indemnitee must apprise the court of the position of the SEC, and the positions
of the respective securities administrators of Massachusetts, Missouri,
Tennessee and/or those other states and jurisdictions in which the plaintiffs
claim they were offered or sold Units, with respect to indemnification for
securities laws violations before seeking court approval for indemnification.
Furthermore, in any action or proceeding brought by a Limited Partner in the
right of the Customer to which DWR or any affiliate thereof is a party
defendant, any such person shall be indemnified only to the extent and subject
to the conditions specified in the Delaware Revised Uniform Limited Partnership
Act, as amended, and this Section 8. The Customer shall make advances to DWR or
its affiliates hereunder only if: (i) the demand, claim, lawsuit, or legal
action relates to the performance of duties or services by such persons to the
Customer; (ii) such demand, claim, lawsuit, or legal action is not initiated by
a Limited Partner; and (iii) such advances are repaid, with interest at the
legal rate under Delaware law, if the person receiving such advance is
ultimately found not to be entitled to indemnification hereunder.
DWR shall indemnify, defend and hold harmless the Customer and
its successors or assigns from and against any losses, liabilities, damages,
costs, or expenses (including in connection with the defense or settlement of
claims; provided DWR has approved such settlement) incurred as a result of the
activities of DWR or its affiliates, provided, further, that the act, omission,
conduct, or activity giving rise to the claim for indemnification was the result
of bad faith, misconduct or negligence.
The indemnities provided in this Section 8 by the Customer to
DWR and its affiliates shall be inapplicable in the event of any losses,
liabilities, damages, costs, or expenses 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 breach. Likewise, the indemnities
provided in this Section 8 by DWR to the Customer and any of its successors and
assigns shall be inapplicable in the event of any losses, liabilities, damages,
costs, or expenses 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 breach.
As used in this Section 8, the term "affiliate" of DWR shall
mean: (i) any natural person, partnership, corporation, association, or other
legal entity directly or indirectly owning, controlling, or holding with power
to vote 10% or more of the outstanding voting securities of DWR; (ii) any
partnership, corporation, association, or other legal entity 10% or more of
whose outstanding voting securities are directly or indirectly owned,
controlled, or held with power to vote by DWR; (iii) any natural person,
partnership, corporation, association, or other legal entity directly or
indirectly controlling, controlled by, or under common control with, DWR; or
(iv) any officer or director of DWR. Notwithstanding the foregoing, "affiliates"
for purposes of this Section 8 shall include only those persons acting on behalf
of DWR within the scope of the authority of DWR, as set forth in this Agreement.
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 and provided such amendment is consistent with
the Limited Partnership Agreement.
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 DIVERSIFIED FUTURES FUND III L.P.
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.
<PAGE>
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 DIVERSIFIED FUTURES
FUND III L.P.
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 o Project A(TM) Customer
Futures and Options (in the form Information Statement
prescribed by CFTC
Regulation 1.55(c))
o LME Risk Warning Notice o Questions & Answers on Flexible
Options Trading at the CBOT
o Dean Witter Order Presumption for o CME Average Pricing System
After Hours Electronic Markets Disclosure Statement
o NYMEX ACCESS(SM) Risk Disclosure o Special Notice to Foreign
Statement Brokers and Foreign Traders
o Globex(R) Customer Information and
Risk Disclosure Statement
- --------------------------------------------------------------------------------
<PAGE>
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 DIVERSIFIED FUTURES FUND III L.P.
- --------------------------------------------------------------------------------
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)
CUSTOMER AGREEMENT
THIS CUSTOMER AGREEMENT (this "Agreement"), made as of the 1st
day of December, 1997, by and among DEAN WITTER DIVERSIFIED FUTURES FUND III
L.P., a Delaware 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 Secretary of State of the
State of Delaware on May 14, 1990, and a Limited Partnership Agreement dated as
of May 14, 1990, and 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, spread, or otherwise acquire, hold, or dispose of commodities (including,
but not limited to, foreign currencies, mortgage-backed securities, money market
instruments, financial instruments, and any other securities or items which are,
or may become, the subject of futures contract trading), commodity futures
contracts, commodity forward contracts, foreign exchange commitments, options on
physical commodities and on futures contracts, spot (cash) commodities and
currencies, and any rights pertaining thereto (hereinafter referred to
collectively as "futures interests"), and securities (such as United States
Treasury bills) approved by the Commodity Futures Trading Commission (the
"CFTC") for investment of customer funds, and to engage in all activities
incident thereto;
WHEREAS, the Customer (which is a commodity pool) and the
General Partner (which is a registered commodity pool operator) have entered
into a management agreement (the "Management Agreement") with a certain trading
advisor (the "Trading Advisor"), which provides that the Trading Advisor has
authority and responsibility, except in certain limited situations, to direct
the investment and reinvestment of the assets of the Customer in futures
interests under the terms set forth in the Management Agreement;
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 futures
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
futures interests execution and clearing services for the Customer;
NOW, THEREFORE, the parties hereto hereby agree as follows:
1. Duties of CFI. CFI agrees to execute and clear all futures
interests brokerage transactions on behalf of the Customer in accordance with
instructions provided by DWR, Demeter or the Trading Advisor, 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. 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 Advisor 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 Advisor 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 futures 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 Advisor.
CFI acknowledges that other partnerships of which the General
Partner is the general partner are not affiliates of the Customer.
2. 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.
3. 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 Advisor, the brokerage commissions
to DWR pursuant to the DWR Customer Agreement, and all extraordinary expenses
incurred by it.
4. 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 futures interests through CFI. The parties acknowledge that the
Customer may execute and clear trades for futures 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.
5. 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.
6. Investment Discretion. The parties recognize that CFI shall
have no authority to direct the futures 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 Advisor may direct from time to time.
However, the parties agree that CFI, and not the Trading Advisor, 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. 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.
8. 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.
9. 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.
10. Standard of Liability and Indemnity. Subject to Section 1
hereof, CFI and its affiliates (as defined below) shall not be liable to the
Customer, the General Partner or Limited Partners, or any of its or their
respective successors or assigns, for any act, omission, conduct, or activity
undertaken by or on behalf of the Customer pursuant to this Agreement which CFI
determines, in good faith, to be in the best interests of the Customer, unless
such act, omission, conduct, or activity by CFI or its affiliates constituted
misconduct or negligence.
The Customer shall indemnify, defend and hold harmless CFI and
its affiliates 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, conduct, or activity 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 (i) CFI has determined, in good faith, that the act, omission,
conduct, or activity giving rise to the claim for indemnification was in the
best interests of the Customer, and (ii) the act, omission, conduct, or activity
that was the basis for such loss, liability, damage, cost, or expense was not
the result of misconduct or negligence. Notwithstanding anything to the contrary
contained in the foregoing, neither CFI nor any of its affiliates shall be
indemnified by the Customer for any losses, liabilities, or expenses arising
from or out of an alleged violation of federal or state securities laws unless
(a) there has been a successful adjudication on the merits of each count
involving alleged securities law violations as to the particular indemnitee, or
(b) such claims have been dismissed with prejudice on the merits by a court of
competent jurisdiction as to the particular indemnitee, or (c) a court of
competent jurisdiction approves a settlement of the claims against the
particular indemnitee and finds that indemnification of the settlement and
related costs should be made, provided, with regard to such court approval, the
indemnitee must apprise the court of the position of the SEC, and the positions
of the respective securities administrators of Massachusetts, Missouri,
Tennessee and/or those other states and jurisdictions in which the plaintiffs
claim they were offered or sold Units, with respect to indemnification for
securities laws violations before seeking court approval for indemnification.
Furthermore, in any action or proceeding brought by a Limited Partner in the
right of the Customer to which CFI or any affiliate thereof is a party
defendant, any such person shall be indemnified only to the extent and subject
to the conditions specified in the Delaware Revised Uniform Limited Partnership
Act, as amended, and this Section 10. The Customer shall make advances to CFI or
its affiliates hereunder only if: (i) the demand, claim, lawsuit, or legal
action relates to the performance of duties or services by such persons to the
Customer; (ii) such demand, claim, lawsuit, or legal action is not initiated by
a Limited Partner; and (iii) such advances are repaid, with interest at the
legal rate under Delaware law, if the person receiving such advance is
ultimately found not to be entitled to indemnification hereunder.
CFI shall indemnify, defend and hold harmless the Customer and
its successors or assigns from and against any losses, liabilities, damages,
costs or expenses (including in connection with the defense or settlement of
claims; provided CFI has approved such settlement) incurred as a result of the
activities of CFI or its affiliates, provided, further, that the act, omission,
conduct, or activity giving rise to the claim for indemnification was the result
of bad faith, misconduct or negligence.
The indemnities provided in this Section 10 by the Customer to
CFI and its affiliates shall be inapplicable in the event of any losses,
liabilities, damages, costs, or expenses 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 breach. Likewise, the indemnities
provided in this Section 10 by CFI to the Customer and any of its successors and
assigns shall be inapplicable in the event of any losses, liabilities, damages,
costs, or expenses 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 breach.
As used in this Section 10, the term "affiliate" of CFI shall
mean: (i) any natural person, partnership, corporation, association, or other
legal entity directly or indirectly owning, controlling, or holding with power
to vote 10% or more of the outstanding voting securities of CFI; (ii) any
partnership, corporation, association, or other legal entity 10% or more of
whose outstanding voting securities are directly or indirectly owned,
controlled, or held with power to vote by CFI; (iii) any natural person,
partnership, corporation, association, or other legal entity directly or
indirectly controlling, controlled by, or under common control with, CFI; or
(iv) any officer or director of CFI. Notwithstanding the foregoing, "affiliates"
for purposes of this Section 10 shall include only those persons acting on
behalf of CFI within the scope of the authority of CFI, as set forth in this
Agreement.
11. Term. This Agreement shall continue in effect until
terminated by any party giving not less than 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.
12. 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.
13. Assignment. This Agreement may not be assigned by any
party without the express written consent of the other parties.
14. Amendment. This Agreement may not be amended except by the
written consent of the parties.
15. 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 DIVERSIFIED FUTURES FUND III L.P.
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
16. 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.
17. 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.
18. 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.
19. 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.
<PAGE>
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 DIVERSIFIED FUTURES
FUND III L.P.
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
<TABLE>
<CAPTION>
<S> <C>
ARBITRATION AGREEMENT
(Agreement Paragraph 24)
-------------------------------------------
(Date)
CONSENT TO TAKE THE OTHER SIDE OF
ORDERS (Agreement Paragraph 25) X /S/ MARK J. HAWLEY 12-01-97
-------------------------------------------
(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) (Required for accounts holding non-U.S. X /S/ MARK J. HAWLEY 12-01-97
currency -------------------------------------------
(Date)
</TABLE>
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(SM) Risk Disclosure Statement
o Globex(R)Customer Information and Risk Disclosure Statement
o Project A(TM)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 Diversified Futures Fund III L.P.
- --------------------------------------------------------------------------------
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: Bruce A. Beatus, General Counsel Title: Associate General Counse
--------------------------------- ------------------------------
Date: December 1, 1997 Date: December 1, 1997
---------------------------------- -------------------------------
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 DIVERSIFIED FUTURES
FUND III L.P.
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), (vii)
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 DIVERSIFIED FUTURES
FUND III L.P.
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 Diversified Futures Fund III L.P. ("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
<PAGE>
Part IV. Payment Instructions
--------------------
Name of Bank and Office, Account Number and Reference with
respect to relevant Currencies:
<TABLE>
<CAPTION>
Party A Party B
<S> <C>
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 Diversified FFC: Dean Witter Diversified
Futures Fund III L.P., Futures Fund III L.P.,
Account # (As Party B is notified Account # (As Party A is notified
from time to time) from time to time)
</TABLE>
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
Diversified Futures Fund III L.P. 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> 63,721,724
<SECURITIES> 0
<RECEIVABLES> 195,823<F1>
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 0
<PP&E> 0
<DEPRECIATION> 0
<TOTAL-ASSETS> 65,687,386<F2>
<CURRENT-LIABILITIES> 0
<BONDS> 0
0
0
<COMMON> 0
<OTHER-SE> 0
<TOTAL-LIABILITY-AND-EQUITY> 65,687,386<F3>
<SALES> 0
<TOTAL-REVENUES> 9,448,680<F4>
<CGS> 0
<TOTAL-COSTS> 0
<OTHER-EXPENSES> 6,282,640
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 0
<INCOME-PRETAX> 3,166,040
<INCOME-TAX> 0
<INCOME-CONTINUING> 3,166,040
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 3,166,040
<EPS-PRIMARY> 0
<EPS-DILUTED> 0
<FN>
<F1>Receivables include interest receivable of $195,823.
<F2>In addition to cash and receivables, total assets include net unrealized
gain on open contracts of $1,769,839.
<F3>Liabilities include redemptions payable of $536,350, accrued management fee
of $164,947 and accrued administrative expenses payable of $97,351.
<F4>Total revenues includes realized trading revenue of $16,344,815,
net change in unrealized of $(9,385,547) and interest income of $2,489,412.
</FN>
</TABLE>